Jamalco suffers another power disruption costing billions

Century Aluminum Company, the owners of Jamalco, disclosed on Wednesday that during summer, the power generation unit at the Clarendon-based refinery malfunctioned, costing the company about US$22 million.

The loss translates to $3.4 billion in local currency. The company expects to recoup almost two-thirds of the total from insurance.

“In September, Jamalco suffered a power disruption, resulting in an equipment failure,” said President & CEO of Century Aluminum Jesse Gary in an earnings call following the release of the company’s financial results.

“This caused the refinery to operate at partial production levels for a portion of September and all of October. We believe the refinery has now returned to full and stable operations,” he said.

Gary added that disruptions to the generation unit began in June, leading Century to fly in engineers from the manufacturer to address the problem and devise a long-term solution.

Insurance will mostly cover the damage. Insurance also covered the large fire that damaged Jamalco’s powerhouse in August 2021 and led to the plant’s shutdown for nearly a year.

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.

“The impact of the Jamalco equipment failure in the third quarter was approximately US$16.9 million. We estimate an additional impact to our financial results in the fourth quarter of approximately US$5 million,” Century stated. “We expect that all losses arising from the power equipment failure will be covered under our insurance policies, less US$8 million in deductibles.”

Without the disruptions, Jamalco would have operated at break-even in the third quarter, despite a fall in spot alumina prices towards two-and-a-half-year lows, Gary said. Sales from Jamaica totalled US$63.4 million in the quarter and US$107.1 million over nine months, indicating that the majority of activity occurred in the most recent quarter.

“Given the magnitude of these disruptions, we have to make claims to our insurers, and expect to recover those losses under insurance policies,” said Gary.

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.

The Jamaican plant at Halse Hall in Clarendon produces 1.2 million tonnes of alumina a year, with plans to ramp that up to full capacity of 1.4 million tonnes next year. To meet that tonnage, the plant needs to generate loads of steam which powers its turbines to transform bauxite into alumina.

The company wants to focus on cost-saving projects to offset the low metal prices. It views the upgrade of equipment such as boilers as key to raising the plant’s capacity from 80 per cent to 100 per cent. These projects should begin lowering Jamalco’s cost of production in the first quarter of 2024.

“In Jamaica, our first major project under the ‘Project Restore’ capex programme is nearing completion. With the recommissioning of one of the plant’s high-efficiency boilers it should be completed by the fourth quarter,” said Gary.

The boiler will increase the efficiency of the refinery steam generation systems and improve the stability of the powerhouse. A second boiler is set for commissioning in late March.

The company previously indicated that the short-term investment plan for Jamalco would range between US$10 million and US$20 million. Gary on Wednesday said the projects would likely come in at the “low end of capex spending for 2023”, which equates to roughly US$10 million.

Century’s third-quarter financials show US$161 million as a “bargain purchase gain” related to its acquisition of Jamalco, which translates to $25 billion in Jamaican currency.

Jerry Bialek, Century Aluminum’s executive vice-president and chief financial officer, said the figure was preliminary and that Century continues to work through the purchase accounting for the Jamalco plant.

General accounting rules give management 12 months to finalise the fair value estimate at the acquisition date, said Bialek. Century already knows that it acquired Jamalco at a bargain –it paid US$1 for the asset amid Jamalco’s indebtedness – but disruptions and other occurrences might uncover costs that existed upon acquisition.

“Based on our preliminary fair value estimates, we have recorded a deferred gain as a current liability on the balance sheet,” said Bialek.

Eight years ago, Noble acquired its stake in Jamalco from Alcoa World Alumina and Chemicals for US$140 million, but suffered losses and incurred debt after taking management control of the operation. It made the decision to sell after the 2021 fire damaged the powerhouse and digesters. Noble filed a claim and received over US$86 million from its insurers before offloading Jamalco in a deal with Century.

Century fronted the cost of repairing one of the plant’s digesters in exchange for the option of acquiring Noble’s 55 per cent stake for US$1 price.

steven.jackson@gleanerjm.com