Century books $16b gain on Jamalco deal
Century Aluminum, the new owner of Jamalco, has booked a US$103.3-million gain on its acquisition of the Clarendon-based alumina refinery, which translates to $16 billion in Jamaican currency.
Century described the deal struck in May as a “bargain purchase gain”, having paid US$1 for the lossmaking asset.
“Jamalco has derisked our supply chain for our most critical raw material,” said Century Aluminum President and CEO Jesse Gary on an investor call on Wednesday following the release of the American metals manufacturer’s earnings report.
Jamalco converts mined bauxite into alumina, an intermediate product for the manufacture of aluminium, which Century produces at its smelters in the United States and Iceland.
“We made good progress over the second quarter towards integrating our new Jamalco operations into the broader Century team,” said Gary in a statement accompanying the results.
The local plant operating at 80 per cent capacity exported US$43 million worth of material in the second quarter.
Century acquired 55 per cent of Jamalco in May, replacing Noble Group of Hong Kong as joint-venture partner with the Government of Jamaica, which holds the remaining 45 per cent through holding company Clarendon Alumina Partners. Eight years ago, Noble acquired its stake in Jamalco from Alcoa World Alumina and Chemicals for US$140 million, but has suffered losses and incurred debt since taking management control of the operation. It made the decision to sell after a fire that led to a lockdown of the plant for a period.
Jamalco’s net assets are now estimated at US$144.4 million, and Jamaica’s stake amounts to US$32.8 million, Century indicated in its financial results.
The purchase gain of US$103.3 million is the net effect of Jamaica’s stake, plus the US$8.3 million injected in the company as restricted cash by Century upon purchase.
The estimates regarding the gains are preliminary but Century has up to a year, dating from the acquisition, to concretise them, said Executive Vice-President and Chief Financial Officer Gerald Bialek.
The largest asset on Jamalco’s books relate to tax credits of US$108.1 million, followed by fixed assets at US$102.1 million, and inventory of US$93.4 million. The largest liabilities relate to asset retirement obligations estimated at US$101.4 million, and amounts owed to suppliers totalling US$92.9 million.
“The acquisition is expected to result in a bargain purchase gain, in part due to the seller experiencing financial distress following the curtailment of Jamalco’s operations in the second half of 2021 due to a facility fire, with operations restarting in the second half of 2022,” Century said.
The plant currently produces 1.2 million tonnes of alumina a year, with plans to ramp that up to its full capacity of 1.4 million tonnes next year.
Century previously announced plans to spend US$10 million to US$20 million on ‘Project Restore’ to bring Jamalco back to full capacity.
As for the group’s overall performance in the June quarter, Century Aluminum reported group profit of US$7.5 million on sales of US$575.5 million. Earnings from operations before interest charges, depreciation and amortisation totalled US$29.5 million in the June quarter, with expectations that it will dip to about US$10 million to US$20 million in the September quarter.
The expected dip is based on falling metals prices on the London Metal Exchange, but could be partially offset by improved volume and lower raw material prices and operating costs, the company said.
Jamalco is one of a handful of companies in the local bauxite-alumina sector, which also includes Windalco, which is owned by Russian company UC Rusal; Alpart, which is owned by Chinese company JISCO; and Discovery Bauxite, which is owned by New Day Aluminum Holdings of the United States. The Alpart refinery, which JISCO bought in 2019, halted operations to undergo modernisation but remains closed.
With Jamalco back in operation, the Jamaican government expects the overall earnings from the bauxite and alumina sector to double this year to US$677 million, which would become the highest flows since the onset of the pandemic.