China lusts after Jamaica’s bauxite, alumina

Chinese companies have been on a tear for years now buying up mineral assets or joint-venturing with resource companies wherever they can find them. The financial crisis accelerated the trend as distressed companies looked for cash.

After snapping up mineral assets across Africa and South America, the Chinese have turned their sites on the Caribbean and, exercising the same strategy as they have in sub-Saharan Africa, are building relationships with the government through feel-good infrastructure projects.

In early February, Jamaican Prime minister Bruce Golding led a delegation to China in search of capital and met with senior officials including Chinese President Hu Jintao and Premier Wen Jiabao. The delegation signed agreements during the five-day trip valued at more than US$500 million for affordable housing, road works, and other projects.

News that Chinese firm Zhuhai Hongfan is negotiating to acquire the Jamaican government’s stake in a troubled bauxite mine should come as no surprise then. Zhuhai Hongfan hope to buy the government’s 45% stake in bauxite and alumina refiner Clarendon Alumina Production (CAP), Reuters reported today.

The deal is subject to the wishes of the government’s joint-venture partner, Alcoa Inc. (AA-N), which has a 90-day right of first refusal.

Like many of Jamaica’s bauxite and alumina exporters, CAP, also known as Jamalco, had been losing money. The industry was particularly hard hit by the global recession, which decimated international demand.

Quoting comments from Jamaica’s prime minister, Reuters reported that the plant was losing money on every tonne of alumina it produced and the government’s involvement in the joint-venture “had become a heavy burden on taxpayers.”

Jamaica’s prime minister blamed the losses partly on fixed-price forward sale contracts signed between 2002 and 2005. Rising production costs and falling aluminum prices then squeezed the company’s balance sheet. The government has had to bail out the company to the tune of about US$176 million, in addition to US$369 million in debt commitments.

Lower export revenues from bauxite and alumina drove Jamaica to borrow US$1.27 billion in a loan agreement with the International Monetary Fund in February.

Zhuhai Hongfan says it will boost the capacity of the Clarendon plant to 2.7 million tonnes from 1.2 million tonnes.

The bauxite and alumina industry has been a key pillar of Jamaica’s economy — making up about half of the island nation’s annual export earnings over the last three decades. The industry is the third-largest foreign exchange earner in the country, after remittances and tourism.