Conciliation talks are set to begin nearly two weeks after UC Rusal partly suspended operations at its bauxite mining site in Guyana. Russia’s largest aluminium producer had halted mining on February 15th amid a pay dispute with some of its 540 employees in the South American country, moving its equipment to a guarded warehouse. The current labor conflict started with a spontaneous strike prompted by the dismissal of 61 workers at the Bauxite Company of Guyana (BCGI) who did not show up for work.
The BCGI was established in 2005 and is owned 90% by UC Rusal and 10% by the Government of Guyana. The company exploits fields at Aroaima, Ituni and Kurubuka-22, with proven bauxite reserves estimated at 50 million tonnes. BCGI produces up to 1,5 million tonnes per year, which is then exported to Rusal’s alumina plants in Ireland (Aughinish) and Ukraine (Nikolaev).
The government has pushed for the fired workers, who according to Rusal violated their labor contract when they walked off the job, to be reinstated. Natural Resources Minister Raphael Trotman has warned that Georgetown is looking into taking action against the Russian firm, including by shutting down its operations in the country.
Despite claims to the contrary, however, market watchers expect the standoff to be resolved favorably for the Russian company due to the economics of global bauxite flows. Geography, infrastructure limitations and Guyana’s shoddy investment climate all play crucial roles that would make the prospect of finding another investor quite unlikely.
As one official involved in the privatization of Guyana’s bauxite industry said, there are only so many global players in the aluminium industry: “you can put them on a show of one hand”. China, the world’s biggest consumer of bauxite has warped in recent years commodity flows, inadvertently locking Guyana within Rusal’s supply chain. Indeed, Beijing is unlikely to look to Guyana to source the ore, as it has been ramping up investment in the bauxite sector in Africa—particularly Guinea and to a lesser extent Ghana—in recent years. Guinea’s bauxite is also of higher-quality than Guyana’s, and cheaper to produce.
Next, port and river restrictions in Guyana mean that the ore cannot be shipped in boats larger than Ultramax size (with a deadweight up to 40,000). This increases shipping costs and puts Guyanese bauxite at a cost disadvantage compared to other exporters such as Guinea. Indeed, China is able to use ultra-large Capesize ships (capacity over 150,000 dwt, sometimes as high as 400,000 dwt) to move bauxite out of the Boké fields.
In addition to the conditions specific to the bauxite industry which are playing against Guyana’s gambit, the country’s overall investment climate remains poor, despite the government’s efforts to attract foreign investment. The U.S. State Department has emphasized that corruption and inadequate infrastructure constitute significant barriers to foreign investment in Guyana, while in the World Bank’s 2019 Doing Business ranking, Guyana was ranked 134th out of 190 countries evaluated. Guyana ranked particularly low in categories relevant to the bauxite industry, such as the ease of trading across borders. The country has also been in a constitutional crisis since its coalition government lost a no-confidence vote in December 2018. It’s unclear when elections will take place.