The Government of Jamaica has requested an expedited hearing of its claims and objections against Noranda Aluminium Inc, which is this month trying to sell its remaining assets under bankruptcy proceedings in the United States.

In the main, the Government is insisting that the mining lease which Noranda hopes to offer buyers in the sale of its upstream business is not transferrable without consent. It is also claiming compensation for contract breaches in the amount of US$16.14 million (J$2.06 billion).

Court documents show that a hearing on the Government’s motions will be held before Judge Barry Schermer in the United States Bankruptcy Court in St Louis, Missouri on September 30, falling behind the scheduled September 22 deadline for auction of the indebted company’s remaining assets.

Noranda’s upstream or primary aluminum business, which has been placed on the market for auction, consists of a bauxite mine in St Ann, Jamaica, an alumina refinery in Gramercy, Louisiana, and a 263,000-tonne-per-year aluminum smelter in New Madrid, Missouri.

The dispute with the Jamaican Government surrounds the mining lease granted to Noranda Jamaica Bauxite Partners, a subsidiary of Noranda Aluminum Inc, that owns 49 per cent, and Jamaica Bauxite Mining Limited (JBM) which owns the remainder, on behalf of the Government of Jamaica.

Noranda has advised the court that the mining lease is the foundation of its upstream business which it is trying to sell in order to resolve debt claims.

The company, which filed for bankruptcy in February, has already sold its downstream business comprising foil-making operations. It received court approval for sale of its upstream business midyear. Total debt claimed by its collective creditors is put at around US$10 billion.’

Under bidding procedures which were court-approved in July, the deadline to submit qualified bids was September 15, with an auction set for yesterday, if multiple bids were submitted. A tentative court date to approve a sale was set for September 27.

Noranda is requesting that the court make an order, under section 365(a) of chapter 11 of title 11 of the United States Code (the ‘Bankruptcy Code’) and rule 6006 of the Federal Rules of Bankruptcy Procedure, “approving and authorising the assumption of that certain special mining lease granted to Noranda Bauxite Ltd, dated as of September 30, 2004”.

The special mining lease granted to Noranda applies to exploring for ore “in, under, or upon approximately 177.33 square kilometres (17,733 hectares) of land in the parish of St Ann… for a term of 26 years commencing on the first day of October, 2004”, as outlined in court documents.

It should expire in October 2030, leaving another 14 years for the lessees’ operations..

Coy Roache, managing director of JBM, commented that inadequate cure amounts declared by Noranda in current bankruptcy proceedings is the basis of the Government’s objection to the assumption and transfer of the mining lease.

The Government’s objections filed with the US Bankruptcy Court stated: “Under Jamaican law, no transfer [of the subject mining lease] is effective unless such application is granted, regardless of whether the contract is assumed or assigned. Paragraph 2.5 of the Form APA similarly provides that, even if assignment is allowed under sections 363 or 365, the debtors make no attempt to transfer a contract if doing so without consent would constitute a violation of a legal requirement or a breach of contract.”

The Government said Noranda Bauxite Limited has defaulted under at least three of the St Ann contracts (the Establishment Agreement, the Amendment to Establishment Agreement, and the Deed of Partnership), but has incorrectly listed the cure amounts under those agreements as $0.00.

The deed of partnership is the contract between Noranda Bauxite Ltd and Jamaica Bauxite Mining Ltd, and the Establishment Agreement is the contract with the Jamaican Government.

“The correct cure amount for all three is no less than US$16,148,546.90… Moreover, it is doubtful whether the debtors or the eventual assignee of the St Ann contracts can provide the GOJ with adequate assurance of future performance as is required for assumption after default under section 365(b)(1)(C) of the Bankruptcy Code and as a condition of assignment, with or without default, under section 365(f)(2)(B),” it was stated.

According to Roache, “Noranda had to declare to the US bankruptcy court whether all the contracts, licences etc held by them are free and clear from debts and obligations. They had to declare if there are debts, how much money it will need to clear these debts and if there are obligations, what it will take to meet these obligations. For example, they have a mining lease to mine bauxite but it cannot, under Jamaican law, be transferred to another company without the consent of the minister.”

Roache said that “Noranda has put zero cure amount for everything on things being sold for St Ann operations, which means that if the Government does not protest, the court assumes that we agree to the transfer of the mining lease, etc”. The $16 million is money owed to GOJ, including JBM.

“Noranda has zero owed in its declaration to the court. Again, if the GOJ does not protest, it means the company buying would believe that it will not have to assume these obligations,” he said.

Roache also noted that Noranda will have to pay redundancy to past employees as well as meet its obligation to restore mined-out lands and to complete resettlement obligations.

Noranda, in its own filings, is requesting that the court make an order for its assumption of the mining lease.

It said in court documents that “the Special Mining Lease is the source of the debtors’ rights to mine bauxite, which forms the foundation of the debtors’ upstream business.”