Monday, May 12, 2014

More facts and less emotions are needed in the aragonite debate in The Bahamas

The Aragonite Hysteria


By CANDIA DAMES
Managing Editor
candia@nasguard.com
Nassau, The Bahamas


President of Sandy Cay Development Co. Limited Tony Myers told National Review that claims the company is making substantial sums of money from its aragonite operation at Ocean Cay are not true.

The Bahamas National Citizens Coalition, National Congress of Trade Unions of The Bahamas President John Pinder and others have claimed that aragonite is selling for $900 per metric ton on the open market, but the government is only getting $2 per metric ton.

After he was contacted by National Review, Myers, a Bahamian businessman, said the unprocessed aragonite being shipped from Ocean Cay is being sold on average for $12 to $20 per metric ton.

We requested that he show us invoices to prove his statement.

Myers was off island when we made the invoice request this weekend. He electronically provided one invoice that shows a recent sale for $12.50 per metric ton and committed to providing us with additional invoices to show the company’s prices.

He also told us the company has only had 16 export shipments since it started aragonite harvesting in 2010. He also provided National Review with documentation on those 16 shipments.

According to the documents provided to us, Sandy Cay has shipped 106,855.69 metric tons of aragonite since 2010 to various companies.

The government of The Bahamas has received $213,000 in royalties.

We admit our surprise that the shipment amount seemed so low.

Myers estimated that the resale cost of aragonite — after his company sells to U.S. companies and they complete the refining process — increases to around $75 per metric ton for the glass market and up to $400 per metric ton for the plastics market.

But he explained, “It takes a huge amount of labor, specialty equipment and electricity cost to take this mineral down to a size of three microns — a very, very small particle size, basically the size of smoke.

“It is combined or coated with a chemical called stearic acid, and then it’s moved into a compounding facility where it’s combined with plastic resin, so there’s a lot of costs that are added to it.

“So when you say oh, you’re selling it for $900 a ton, or even if you were to realistically say you’re selling it for $400 a ton, well, there’s a tremendous amount of cost or value added that has been built into the material cost from when it’s left the ocean at Ocean Cay to the time it actually meets that market.”

The aragonite does not attract the estimated $400 per metric ton sale price at Ocean Cay because it is not refined there, he said.

We were also stunned to hear Myers say the company has not yet made a profit from the operation and pressed him repeatedly on why it has stayed in business.

Myers said Sandy Cay is now poised to make money from the operation, although competition for calcium carbonate is great.

We start with those statements in the context of all that is being said nationally now about aragonite and what we as Bahamians could earn from it.

Debate

Across The Bahamas, there is growing hysteria over aragonite, a naturally occurring unique carbonate mineral found in abundance in our ocean.

Commonly, it is known as sand and has widespread uses in various industries, including aggregate, agriculture, glass, power plant desulfurization, plastics, food, pharmaceuticals and cosmetics.

We are told by a citizens coalition of union leaders, pastors and civic activists that Bahamians are being raped by developers mining our precious natural resources — and that successive governments have signed sweetheart deals with investors ruthlessly scarring our environment to our detriment.

Those driving the discussion — the Bahamas National Citizens Coalition and John Pinder — tell us that, “From 1964 this outrageous exploitation of our resources has continually taken place with minimal benefits to The Bahamian people and exorbitant benefits to private citizens.”

We are also told that if the government of The Bahamas negotiated the royalties we deserve, the government could pocket as much as $300 million per month. This renegotiation could wipe out our national debt, make us all prosperous and drive down our social woes, they tell us.

We have also heard that in 18 months, every Bahamian could have at least $50,000 in their bank accounts, if only the government would act in the interest of its citizens and do the right thing.

The voices of the union leaders and the other activists have been getting louder, as have the voices of many people calling into local talk shows and demanding the government take action to stop this “criminal act” against its people.

In all of this, we have barely heard the voices of our leaders in government and we have not heard the voices of those harvesting aragonite.

The debate has largely been driven by emotions.

So we set about getting the facts. In so doing, we approached the matter without any prejudice.

What struck us in our initial probe is that the Bahamas National Citizens Coalition, John Pinder, and others driving the hysteria are largely misinformed.

Admittedly, this is a complex matter and we ourselves still have a great deal of research to do. But from our initial digging, we have started to sort through the confusion and seek to provide a more reasoned, fact-based approach to the aragonite discussion.

The first thing we did was contact Sandy Cay Development Company Ltd., the company producing aragonite sand in the crystalline form “oolitic aragonite” at Ocean Cay, south of Bimini.

Our phone call was answered and Sandy Cay President Tony Myers agreed to a meeting with National Review to share with us what is taking place at Ocean Cay and provide us access to important figures on pricing and production.

We also read Sandy Cay’s lease with the government of The Bahamas and discovered that some of the claims being made by the coalition are not true.

Despite the coalition’s statement of “fact” that the royalties negotiated by the government is renewable every two years, we have seen nothing in the 25-year lease to suggest this.

So, despite all that we have been hearing, there is nothing coming up for renewal in June, or anytime soon.

Coalition Chairman Rev. Andrew Stewart admitted to National Review when we contacted him on Friday that the coalition has not seen the lease, has not contacted the investor, and based that statement of “fact” on what he called “an assumption”.

This stunning admission casts doubt on everything we have heard so far from the coalition driving this debate.

This is not to say that the government should not step into this debate, provide clarification and lay out the facts for Bahamians dispassionately.

History

Ocean Cay, the 95-acre site of the country’s only aragonite operation, is located nine miles south of Cat Cay, 27 miles south of Bimini and 65 miles east of Miami.

The cay was originally around 30 acres and built in the 1970s.

A popular Sports Illustrated article from 1970 that is currently making the rounds on social media said the Dillingham Corporation had “exclusive rights in four Bahamian areas totaling 8,235 square miles”.

“In these areas there are about four billion cubic yards — roughly 7.5 billion long tons — of aragonite.

“At rock-bottom price the whole deposit is worth more than $15 billion. An experienced dredging company like Dillingham should be able to suck up 10 million tons a year, which will net the Bahamian government an annual royalty of about $600,000.”

It said, “On the basis of such big, round figures, the mining of aragonite seems to be a bonanza operation. In reality, it is still a doubtful venture for both Dillingham and The Bahamas.”

In 1984, Marcona Ocean Industries bought the operation and held it until 2000.

On March 27, 1992, then Minister of Works and Lands Philip Bethel signed a 21-year lease with Marcona. The royalty was between 14 cents and 30 cents per metric ton.

Marcona sold to three markets: glass, agriculture and power.

In 2000, the AES Corporation bought the lease, hoping to convince The Bahamas government to agree to the establishment of a liquefied natural gas facility there. Amid a great deal of controversy over LNG in The Bahamas, no approvals were granted and the company eventually packed up and left.

It sold to the current owner, Sandy Cay Development Co. Limited in 2009. According to Myers, it is 100 percent Bahamian owned. The previous companies were all foreign owned.

A letter dated June 3, 2010 written by Permanent Secretary in the Office of the Prime Minister David Davis to Sandy Cay’s lawyer, H. Campbell Cleare III advised that approval was granted for the company “to recommence its mining operations at Ocean Cay and to export aragonite from The Bahamas”.

Davis advised, “For a period of two years commencing from the date of this letter the royalty payable to the government shall be $2 per metric ton, payable at the time of export from The Bahamas.”

He also wrote that the island lease payment was $7,500 per annum.

Additionally, the letter advised that the company would be afforded duty exemption on the import of equipment required for its start-up operations as per the current lease. “However, this exemption will not be extended to consumables...”

The letter also mandated that the company provide the government with quarterly statements as to the amount of aragonite mined and exported and the destination of such exports.

Davis wrote, “This office stands ready to commence negotiations for the new lease, and in this regard, you are invited to prepare a first draft”.

It seems the June 3, 2010 letter from Davis — in the absence of a public release of the lease eventually negotiated — has fueled this misinformation of a two-year renewal.

The government signed a lease with Sandy Cay on April 20, 2012. It provides for “an initial term of 25 years”. It provides for “the right of renewal hereinafter”.

The lease was backdated to June 3, 2010, the date when negotiations started for the new lease.

Myers explained to National Review that after he purchased the former lease from AES in 2009, the Ingraham administration had concerns about the purchase by a Bahamian company from a foreign firm.

He said the operation was placed on hold. It resumed the following year after Davis issued the letter advising Sandy Cay that it may recommence operations while the lease negotiations take place.

Royalty

The new lease signed with Sandy Cay provides for “a royalty computed as B$2 per ton for demised mineral exported from The Bahamas encompassing the first five years of the lease, after which the royalty shall be computed as 10 percent of the sales price, with a minimum fee of B$2 per ton up to a maximum fee of B$12 per ton for demised mineral exported from The Bahamas”.

It also states that the rent for the lease is $7,500 per annum commencing June 3, 2010.

For years three to seven the lease payment is fixed at $8,250. It continues to rise up to years 23-25 where it is set at $11,250.

The lease provides for the government to have full access to Sandy Cay’s books.

Understandably, the royalty issue has taken precedent in the raging aragonite debate.

In a document it prepared for the Ingraham government titled “Oolitic Aragonite Royalty Fee Analysis”, Sandy Cay says, “The royalty fee rate should be less than the proposed B$2 per ton or for that matter far less than the new reference to in the media”.

Further to this, Myers said, “There is no way that a rate of B$350 per ton or any other rate referred to in the media can be supported in the feasibility of this operation now or ever in the future.”

The report states: “In fact, the proposed royalty rate of $2 already makes Ocean Cay uncompetitive with both U.S. manufacturers of sand and Freeport manufacturers of sand.

“Florida Sand Manufacturers: The royalty rate in Florida, where our main competitors operate from, is called a “tax on severance” as defined in the 2011 Florida Statutes under Section 211.31 and is currently eight percent of the sales value or about U.S.$ 0.72 per ton.

“Freeport Sand Manufacturers: The other main competitor for Ocean Cay is Martin Marietta in Freeport, Grand Bahama, who enjoys a full tax free and royalty free business environment under the Hawksbill Creek Agreement. “This combined with the fact that Martin Marietta is one of the strongest aggregate producers in the U.S. makes Ocean Cay’s position even more disadvantageous.”

In that document to the former administration obtained by National Review, Sandy Cay proposed a royalty fee rate either in line with the original lease or no more than eight percent of the sales price (typical sales price is between $8 to $30 per ton; so, a royalty fee of between $0.64 and $2.40 per ton).

The report said, “The harvesting of aragonite through mining, followed by manufacturing, classifying, shipping and distribution, is a costly process which requires significant capital investment and a strong sales and marketing costs.

“Unlike any other mined mineral, aragonite is organic and classified by the USDA as a renewable resource, meaning that Ocean Cay is not depleting a natural resource of The Bahamas.

“According to scientific data combined with carbon analysis it is proven that aragonite is forming on a daily basis on the banks of The Bahamas. Ocean Cay is merely practicing underwater agriculture by harvesting the aragonite which is growing daily.

“We hope that you sincerely appreciate the costly investment we have made in this facility to produce one of the only green renewable minerals in the world. We sincerely need your support in making this project a success, consequently your understanding of our commitment and the costs associated with this is critical in making this a success for both Ocean Cay and The Bahamas.”

Profit

Again, Myers said Sandy Cay has not and is not now making a profit.

So how has it been able to stay in business and why is it still in business?

Myers told us, “Through years of scientific and market research funded by us and the acceptance of independent public institutional research, we have now finally obtained global recognition and acceptance of ooilitic aragonite as a sustainable mineral.

“Major global companies like Procter and Gamble, McDonald’s and Walmart are concerned over the environmental impact of the packaging of their products.

“The ecological concern has been a catalyst for their interest in oolitic aragonite.

“And all of these companies really recognize sustainability and the need for protecting our environment.

“The also recognize the fact that this mineral is unique in the fact that it is a major contributor to carbon sequestration from our environment.

“They love how the product fits into their global concerns, but it must be fairly priced and competitive within their respective markets.”

Myers added, “They think oolitic aragonite is a great replacement to normal calcium carbonate because normal calcium carbonate also uses this market, but this is much better.

“It’s not damaging the environment. It’s being regenerated every year and they have to show to their consumers...that they’re interested in cleaning up the environment. They’re interested in using ecologically sound materials.”

Myers believes Sandy Cay in the future will turn a profit.

“We hope that this will generate into a business whereby we’re able to sell more into the plastics market and we are slowly making some very good inroads,” he told National Review.

“We’ve made some small steps toward a successful business, and The Bahamas will be recognized for this contribution in a fair and equitable market driven manner.

”The Bahamian people and our company shall in due course reap the rewards of the hard efforts of our governments in developing this resource.”

May 12, 2014

thenassauguardian