The new majority owner of the Jamalco alumina refinery intends to pump up to US$20 million of capital into the operation, which it expects to return to profit by September.
“With respect to Jamalco, we expect to break even, or better, for adjusted EBITDA in the second quarter,” said Jerry Bialek, executive vice-president and chief financial officer for Century Aluminum Company during an investor call on Monday.
“We are excited about the benefits related to future volume and cost efficiencies. We expect Jamalco to be accretive to our financial results at current spot prices beginning in the third quarter,” he said.
The company acquired interest in loss-making Jamalco on May 2.
On Monday, Century advised its shareholders and analysts on the investor call that Jamalco integrates well into its upstream aluminium smelter operations.
The Clarendon, Jamaica-based refinery’s productivity stands at 1.2 million tonnes of alumina, with a capacity for 1.4 million tonnes.
Century Aluminium CEO Jessy Gary said his company plans to spend US$10 million to US$20 million in capex into ‘Project Restore’ over the balance of the year. The American company expects to “drive cost saving and production increases” at Jamalco by the fourth quarter of this year, Gary said.
“All Project Restore spending will have a double-digit, unleveraged internal rate of return that meets Century’s investment requirements,” he said on the call.
In other words, the company expects to make a gain of at least 10 cents, but likely more, on every dollar invested.
To return the asset to its full potential, Century identified several operational improvement and investment opportunities; for instance, it wants to lower Jamalco’s production costs to “its historic location in the second quartile of the global cost curve”. Alumina producers are ranked across the globe from high cost of production to low cost.
“There will be a number of capex projects remaining for the 2024 to 2026 timeframe, and we will give additional guidance when we come back later in the year,” Gary said, regarding future capital expenditures for Jamalco.
Century acquired the 55 per cent majority stake from Noble Group Holding Limited for US$1. The deal was announced in April and closed on May 2.
The Jamaican Government holds the remaining 45 per cent of the refinery via Clarendon Alumina Partners Limited. But its plans to privatise its stake in Jamalco and list it on the Jamaica Stock Exchange remain unclear in the wake of the sale to Century.
Calls to Minister of Finance Nigel Clarke seeking an update on the issue have gone unanswered since the deal was announced, and the Government has made no official comment on the sale and its expected impact.
Similar efforts at comment from the Jamaica Bauxite Institute and Minister of Mining Audley Shaw also proved futile.
Century, in its filings, is projecting US$25 million to US$30 million in EBITDA for the group, partly aided by improved performance by Jamalco.
Over the years, Century has been one of the largest customers of Jamalco. It wanted an alumina operation to plug into its three smelters in the United States and one in Iceland.
Ownership of the Jamaican asset will give it access to quality alumina and three decades of reserves. It gains a local operation close to its US smelter base, and a skilled workforce.
“Plus, it would derisk Century from another exogenous risk of higher alumina prices over the long term,” added Gary.
The Jamalco refinery was hobbled by a fire in August 2021 that gutted its powerhouse and digesters. It remained in lockdown for the better part of a year afterwards, but when it restarted, the plant operated with just one of its two digesters. Two digesters are key to increasing volume while reducing costs, but cash-strapped Noble did not spend the funds.
Gary added that Century acquired the company after putting up interim funding to assist in getting the second digester up and running. As part of that process, Century and its partners conducted a series of due diligence tests onsite at Jamalco from early February, Gary said.
“Due to a unique acquisition structure,” he said, “we provided interim funding to allow for the restart of the second digester, in exchange for an option to purchase a 55 per cent ownership interest for US$1,” the Century CEO said.
The interim funding related to an alumina prepayment, he said.
Noble has indicated in its own market filings that Century’s largest shareholder, Glencore, offered a prepayment for alumina goods valued at US$10 million.
At the time, Hong Kong-based Noble was limited by its worsening finances. Over nine months to September 2022, Noble reported net losses of US$97 million. Its net debt stood at US$495 million, which meant the company could not pay off its liabilities using investments and cash on its books.
“They found themselves in a situation where they couldn’t fund the additional monies needed to restart the second digester. And so we worked out a situation where we were able to provide some interim funding,” said Gary.
“But as you can imagine, before we agreed to put down the funding we wanted to ensure there was a return there for ourselves. So we were able to negotiate this option structure. This gave us a few months to watch the second digester come up, and to make sure we were comfortable on the rest of the due diligence surrounding the asset,” he added.
“And we had the right to exercise that option for US$1,” Gary said.
Some of the interim funding will go towards the Project Restore capex.
Still, Gary noted that the Jamalco acquisition came with no requirement or obligation for capital investment. He also said no debt was assumed with the asset.
“It is what it looks like, and we are really excited about the asset,” he said.