Noranda gets go-ahead for ending its bauxite supply contract with Sherwin Alumina

An American bankruptcy court judge has given the go-ahead for Noranda Bauxite Limited (NBL) to pull out of its lossmaking, long-term contract to supply Jamaican-mined ore to Sherwin Alumina Company for its refinery at Gramercy on the US Gulf Coast, saying that maintaining the deal would make it difficult for Noranda to reorganise its business and emerge from bankruptcy.

"NBL has met its burden of proving that the rejection of the Sherwin contract is an exercise of sound business judgement, showing that it is in the best interest of the estate," Judge Barry S. Shermer of the US Bankruptcy Court of the Eastern Distinct of Missouri, said in his ruling issued a week ago.

"Overall, the evidence shows that rejection of the Sherwin agreement is necessary if NBL is to effectuate a restructuring. There is no bad faith or abuse of business discretion," the judge concluded.

Yesterday, the head of the Noranda's operations in Jamaica, Antoine Liddell, welcomed the ruling, saying it was important to the company's restructuring and return to viability.

"To be economically viable, Noranda Bauxite must realise higher prices on third-party bauxite sales, reduce its cost and improve productivity," said Liddell in a press briefing through a spokesman. "The court's approval of our request to reject the Sherwin contract is a significant step in that comprehensive bauxite plan."

Noranda Bauxite is a subsidiary of Noranda Aluminium Holdings, which, late last year, filed for Chapter 11 bankruptcy protection, which, ironically, is the same position that Sherwin, substantially-owned by commodities group Glencore, is in. The bankruptcy status of the two companies formed a critical part of the deliberations in the case, which Sherwin argued on a balance of equities rather than a business judgement.

Noranda mines around five million tonnes of Jamaican bauxite a year, which supplies its parent company's alumina refinery at Gramercy, Louisiana, in the United States.