INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 1 of 18

Integrated Aluminum Industry - Suriname

Errol N Jaeger
Marc C H Waaldijk
Irene Tholen
Tom Ketele
INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 2 of 18

Table of Contents
Executive Summary ...........................................................................................................3

Integrated Aluminum Industry - Suriname ....................................................................4

Introduction ..................................................................................................................... 4

The global Aluminum Industry ....................................................................................... 5

Historical Background .................................................................................................... 7

Bauxite deposits in Suriname – Geological context and resource development ............ 8

West Suriname Resources ............................................................................................... 9

Proposed High Level Scope of an Aluminum Industry for Suriname ............................ 9

Aluminum Smelter Energy Requirement ...................................................................... 10

SGA Refinery Energy Requirement.............................................................................. 10

Estimated Cash Cost SGA .............................................................................................11

Estimated Cash Cost Aluminum Metal ......................................................................... 13

Final Remarks ............................................................................................................... 14

Introduction ............................................................................................................... 14

History and future of Bakhuis deposits – onshore development study case ............. 14

Proposed approach .................................................................................................... 15

Preliminary Scope of a Concept Study ......................................................................... 16

Conclusions ................................................................................................................... 16

Appendix: Cost Engineering – AACE Class 4 capital estimates .................................. 18

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 3 of 18

Executive Summary

The purpose of this paper is to draft a possible but realistic strategy for reviving
Suriname’s aluminum industry, based on the 325+ million metric tonnes of bauxite resource in
West Suriname and the availability of a low-cost power source, based on natural gas. The first
phase of this strategy is to start with an aluminum smelter operation, including a power
generation facility, a cast house and alumina unloading and storage facility. The second phase is
the development of a smelter grade alumina (SGA) refinery, including an adjacent bauxite
mining operation and gas-fired steam boiler house. The third phase of this massive project is to
double the capacity of all facilities to maximal 570,000 tpa aluminum metal, 1,100,000 tpa SGA
and 3,100,000 tpa bauxite. The Bakhuis bauxite resource will be enough to sustain such an
operation for at least 100 years.

Consideration should be given to build the smelter in Nickerie and the refinery in Apoera,
including an extension of the Bakhuis to Apoera railroad infrastructure from Apoera to (New)
Nickerie. The obvious benefits are proximity to the bauxite and energy resources for the alumina
refinery and aluminum smelter. In addition, it makes sense to consider the decentralization of
Suriname’s industrial activities, away from Paramaribo.

It is recommended to initiate this project by executing a pre-feasibility (concept) study

that includes, but is not limited to the following preliminary scope:

1. Determine availability and quality of Natural Gas Resource (NGR);

2. CAPEX and OPEX of a 500 psig NG pipeline with a capacity of at least 200
billion SCF p.a.;
3. CAPEX and OPEX of a Port facility to handle bulk material and general cargo;
4. CAPEX and OPEX of a 1,200 MW power plant, built in two or three phases;
5. CAPEX and OPEX of a 500,000 tpa aluminum smelter, built in two phases;
6. CAPEX and OPEX of a 1,100,000 tpa alumina refinery and 3,100,000 tpa bauxite
mine;
7. CAPEX and OPEX of a railroad extension from the Bakhuis bauxite mine to
(New) Nickerie, through Apoera; and
8. CAPEX and OPEX to build all the necessary infrastructure, i.e. roads, power grid,
housing and all other utilities.

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 4 of 18

Integrated Aluminum Industry - Suriname

Introduction

In November 2015 the Suralco alumina refinery was shut down permanently after
operating since 19651, thus after 50 years of operation. During the past 50 years Suralco’s
activities significantly contributed to the development of Suriname in more than one aspect.
Without Suralco’s input it is difficult to imagine how the oil and gold industry could have been
developed and sustained in Suriname without the investments that Suralco has put into the
development of local resources2.

The main reasons why the Suralco operations at Paranam could not be sustained can be
summarized as follows:

1. Shortage of local bauxite reserves suitable for the Paranam refinery;

2. High cost of thermal energy due to dependence on HFO for steam and power
generation;
3. Insufficient draft of the Suriname river to allow Panamax ore bulk carriers to
carry alumina to where the demand is for Smelter Grade alumina; and
4. The high capital cost required for upgrading the refinery to move from a 4th to a
2nd quartile producer on the cost curve. It is difficult to project another 25 years
life from an already 50-year operating facility to justify the capital expenditure.

Starting with bauxite, while Australia increased its share of global output of bauxite from
20% to 32% over the last 40 years since 1970s, Jamaica, Suriname, and Russia are no longer on
the list of the major producers. They are replaced by Brazil, China and Guinea with a combined
share of approximately 40%.

A complete relocation of producing centers has also occurred in the global alumina
industry. The production shares of Japan, Russia, Jamaica and Suriname have drastically shrunk
since the 1970s. Today the following four centers, namely China, Australia, Brazil, and India
have a combined share of 73% of global alumina output. Note that while the BRICS countries
now account for almost 40% of global bauxite output, this share jumps to 53% for alumina. In
addition to being the most important cost element, the bauxite cost is the most important source
of variation of alumina production cost.

1
https://newsinteractive.post-gazette.com/suriname/overview/
2
https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/atoms/files/myb3-2016-ns.pdf

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 5 of 18

While bauxite cost remains the most significant driver that determines the location of
alumina production, shifts in the geographic location of aluminum production is also determined
to a large extent by variations in energy prices. Unsurprisingly, US share of global primary
aluminum metal output has moved down from 32% in the 1970s to only 4% 40 years later. The
same applies to Japan, its share dropping from 9% to nil during the same period. Apart from
Iceland and Norway, most European countries have small or no aluminum metal production
capacity in operation.

Finally, a very high-level review of capital cost for aluminum smelters, SGA refineries
and bauxite mines resulted in the following indicative dollar numbers per annual tonne:

1. Bauxite mine $100/annual t bauxite

2. SGA refinery $1,800/annual t SGA
3. Aluminum smelter $5,500/annual t Al

The global Aluminum Industry

The aluminum market in the Atlantic region has gone through a dramatic change over the
last 40 years3. The current state of the aluminum industry is best described by senior CRU Group
North America consultant G Wittbecker4, including the recent CRU weekly Bauxite and Alumina
update by A Everis5.

The global aluminum industry today looks very different from what it was in the early
1970s. The most important structural changes are:

• The geographical relocation of bauxite, alumina and aluminum production

centers;
• Shifts in the degree of concentration and integration;
• The emergence of new consuming regions;
• The development of new end-use markets;
• The threat of substitutes, including recycled metal;
• The historical decline in real prices of the metal;
• The recent upward shift in the industry (real) cost curve;

3
http://www.world-
aluminium.org/media/filer_public/2013/02/25/an_outlook_of_the_global_aluminium_industry_1972_-
_present_day.pdf
4

https://cdn.ymaws.com/www.aec.org/resource/resmgr/Annual_Meeting/Materials/3_FRI_Wittbecker_180
316_AEC_.pdf
5
A Everis, “Bauxite and Alumina Weekly”, CRU publication (5 December 2019)

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 6 of 18

• The market adjustment mechanisms; and

• The rising popularity of commodities as an asset class.

In the early 1970s bauxite production was dominated by four countries: Australia,
Jamaica, Suriname and USSR, which together held a 60% global market share of smelter grade
bauxite, or 42٠106 tpa. In the same period, the same countries plus the USA accounted for 65%
of the global alumina market, or 15٠106 tpa smelter grade alumina. Aluminum smelter capacity,
in those years, was concentrated in the following six countries: USA, USSR, Canada, Germany,
Norway and Japan, with a combined production of 8.7٠106 tpa, or 75%.

When we look at the “six Majors”, Alcoa, Alcan, Reynolds, Kaiser, Pechiney and
Alusuisse, with a combined market share in the 1970s of 64% for bauxite, 79% for alumina and
around 73% for primary aluminum, these market shares dwindled to respectively 54% for
bauxite, 74% for alumina and 62% at the end of the 1970s.

The consumption of aluminum in the 1970s, by region, was then USA 36%, W Europe
16%, USSR 12%, Japan 10%, China 3% and other regions 23%. The total consumption then was
almost 12٠106 tpa.

No matter which measure is used, the emergence of the developing economies in general
and of BRICS (Brazil, Russia, India, China and South Africa) countries in particular represents
one of the most significant structural changes of the last 50 years (for details see Dr C Nappi’s
paper, ref. 3). Just as a comparison, the share of primary aluminum production increased in the
BRICS countries from 32% (8٠106 tpa) in 2000 to 57% (23٠106 tpa) in 2010, with China being
by far the largest producer. In the same period, the aluminum production in the Western World
(Japan, Western Europe and North America) decreased from 40% (10٠106 tpa) to 20% (slightly
above 8.5٠106 tpa).

Likewise, the share of primary aluminum consumption increased in the BRICS countries
from 21% to 48%, while the aluminum consumption in the Western World (Japan, Western
Europe and North America) decreased from 60% to 32%.

In summary, the global primary aluminum industry has been profoundly modified by
drivers such as the rise in energy prices, the arrival of numerous new players, the US dollar
depreciation over the last decade, the shifting trend in aluminum cost curves and the emergence
of the BRICS economies.

The impacts of these drivers on the main characteristics of the current global primary
aluminum industry can best be reviewed in greater detail in the “World Aluminum report”, The
Global Aluminum Industry 40 years from 1972, by Dr Carmine Nappi (2013) and “CRU report”,
Aluminum Market Outlook… trade rises to top of the agenda, by Greg Wittbecker (2018).

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 7 of 18

Historical Background6

Suriname's bauxite deposits have been among the world's richest. Active in Suriname
since 1916, SURALCO, a subsidiary of the Aluminum Company of America (ALCOA), has
had a long-standing working relationship with the Dutch-owned Billiton International Metals,
later BHPBilliton. The year 2008 was a turning point in the future of bauxite in Suriname.
Talks between the government and BHPBilliton on the joint development of the Bakhuis
Reserves in west Suriname broke down in October 2008. Soon afterwards BHPBilliton, citing
a drop in the world demand for aluminum, severe losses by its parent company caused by the
world economic downturn, and the uncertainty of future endeavors in Suriname, announced it
would cease operations in Suriname.

Soon after the decline of the gold industry a new mineral began to play a leading role
in the Suriname economy. At the end of 1916 representatives from Alcoa established the
Surinaamsche Bauxiet Maatschappij (SBM - Suriname Bauxite Company) in Suriname.
During the years that followed they bought up many of the known bauxite deposits and in
1925 the SBM started constructing a mine in Moengo, an abandoned Ndyuka Maroon village,
about 100 kilometers east of Paramaribo, along the Cottica River.

A few years later, in 1926, the SBM bought the Rorac mine along the Suriname River
some 30 kilometers south of Paramaribo. Several other mines would be developed in this area
in the years to come. In 1938 a Dutch bauxite company (N.V. Billiton Maatschappij) was
established in Suriname. The high demand for aluminum during World War II saw production
peak in 1943 at 1,660,000 tons. Production dropped immediately after the war, only to increase
again to over three million tons by 1953. In 1964 the production of bauxite topped four million
tons, two years later it was five million. Peak production was achieved in 1973, when
Suriname produced almost seven million tons.

In the 1960s ALCOA built a 1600 square kilometer lake (US $ 150 million) to produce
hydroelectric energy at Afobaka, some 100 kilometers south of Paramaribo. Some 6,000
Saramaka Maroons were forced to relocate to existing villages above the lake or to newly
created transmigration villages below the lake. An alumina refinery and an aluminum smelter
were built at Paranam, 25 kilometer south of the capital city. The installed capacity of the
aluminum smelter was 60.000 tons, but water levels in the lake did not match expectations,
forcing Suralco to shut down half of the unit in 19877.

6
https://www.globalsecurity.org/military/world/caribbean/sr-economy-bauxite.htm
7
James F. King, The Aluminium Industry, Woodhead Publishing Ltd, Cambridge-UK (2001), Chapter
8/Page 9

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 8 of 18

In 1999 the aluminum smelter was shut down altogether, but the production of alumina
remained high at about 5,000 tons per day. At that time the economy of Suriname was still
dominated by the bauxite industry, accounting for more than 15% of GDP and 70% of export
earnings. Nearly 300 million US Dollars of alumina was exported annually.

BHPBilliton announced it would end its 70-year presence in Suriname in 2010,

departing after the conclusion of its joint venture agreement with SURALCO, which includes
mining Kaaimangrasie and Klaverblad mines until depletion, predicted for 2010. BHPBilliton
also announced it would turn over to SURALCO its 45% stake in the refinery. The government
set up its own mining company, ALUMSUR, and on April 22, 2009 signed a memorandum of
understanding (MOU) with the Swiss Glencore International AG which would finance the
development of ALUMSUR to take over the BHPBilliton operations after 2010.

Delays in the process of issuing new mining concessions led to a gap in refining
operations in 2010; SURALCO announced a reduction in the refinery’s capacity in order to
retain enough bauxite to keep the refinery operational after 2010. Other proven reserves,
enough to last until 2045, exist in the east, west, and north of the country. However, distance
and topography make their immediate development costly and therefore not feasible.

Bauxite deposits in Suriname – Geological context and resource development 8

Bauxite, the raw material of aluminum, has been one of the economically vital natural
resources for Suriname. Mining operations started about a century ago, and subsequent
development of a refinery industry and hydro-electric power made Suriname one of the foremost
bauxite and alumina producers worldwide for a long period of time.

The lateritic bauxite deposits in Suriname are spread across the northern part of the
country and developed on various parent rocks during Late Cretaceous – Early Tertiary times.
Bauxites in the coastal lowlands formed on Cenozoic sedimentary deposits, whereas plateau
bauxites originated on various crystalline rocks in inland regions of the Precambrian Guiana
Shield. The composition of parent rocks and timing of “bauxitization” point to a genetic
correspondence with West African bauxites and a strong control of paleoclimatic conditions on
the distribution and properties of bauxite in both regions.

The more accessible bauxite deposits in the coastal lowlands are almost mined out,
whereas the plateau bauxites have been extensively explored but have not been brought into
production to date. For economic and environmental reasons, as evaluated by Alcoa, the future of

8
https://www.cambridge.org/core/services/aop-cambridge-
core/content/view/CF28E3F7ECAA5BA0EBCC34334CDEF257/S0016774615000281a.pdf/bauxite_dep
osits_in_suriname_geological_context_and_resource_development.pdf

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 9 of 18

the bauxite industry in Suriname is currently uncertain. It was mainly due to the absence of a
suitable low-cost energy source that the alumina industry in Suriname has been deemed
unfeasible. This may have changed due to the possible presence of a significant natural gas field
offshore the coast of Suriname.

West Suriname Resources9

Suriname still has a well-defined bauxite resource of 325 million tonne with an average
grade of 38% Available Al2O3 and 2% Reactive SiO2. The JORC Code mineral resource
statement, at 30% cut-off Available Al2O3 is summarized in the table below.

Category Ore OB SiO2 Fe2O3 Al2O3 TiO2 LOI AA143 RSiO2 TOC
Resources Mt m (m) (%) (%) (%) (%) (%) (%) (%) (%)
Measured 79.8 4.3 1.0 3.5 23.6 44 1.6 26.1 39.5 1.8 0.5
Indicated 147 3.8 0.8 5.0 22.8 44.1 1.5 25.5 39.2 2.2 0.6
Inferred 98.0 3.2 1.1 3.3 27.0 41.1 1.8 25.5 36.4 1.5 0.6
Reportable 325 3.7 1.0 4.1 24.3 43.2 1.6 25.7 38.5 1.9 0.6

Bone dry metric tonnes x 106; Block size 50 x 50 m; Average density 1.77 t/m3.

For Suriname as a bauxite producing country, the potential bauxite value could contribute
to 10% or more to the country’s gross domestic product10. At a similar production rate of 3.0
Mtpa of Smelter Grade Alumina (SGA) the bauxite reserves in West Suriname would last
approximately 40 years, while only adding limiting value to the resource.

Proposed High Level Scope of an Aluminum Industry for Suriname

In order to maximize the benefits for Suriname of a renewed aluminum industry it is

essential that a reliable source of energy, in the form of natural gas, is available. These sources
may become available in the next 5 years from Suriname and/or Suriname’s neighbor, Guyana.

A plan will be presented in the following sections of this report to establish an aluminum
smelter of 200,000 metric tonnes per year of metal and a power generating facility that produces
the necessary electrical power for the smelter and associated facilities. Initially the SGA to feed
the smelter will be imported for at least the first three years of operation.

9
http://kennisbanksu.com/wp-content/uploads/2017/06/Suriname-Bauxite-Industry-Prospects-fo-Grow-
2009-Bauxie-institute-Suriname.pdf
10
F M Meyer, “Availability of Bauxite Reserves”, Natural Resources Research, Vol. 13, No. 3, September
2004 (2004) pp. 161-172.

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 10 of 18

During the first three years of operation of the smelter a bauxite mine and alumina
refinery will be developed to exclusively feed the smelter with SGA from the refinery.

The refinery will have a capacity of 386,000 metric tonnes per year of SGA and the
bauxite mine is expected to mine 1,070,000 metric tonnes per year of bauxite. The long-term
project will include doubling of the smelter capacity plus 25%, for a smelter capacity of 500,000
tonne Al per year. Thus, the maximum bauxite mining rate will be 2,675,000 metric tonnes per
year, giving a mine live of ±120 years. At 500,000 tpa metal production and $1,600/t Al (0.72/lb
Al), revenue from metal sales is $800,000,000 per year.

Consideration should be given to build the smelter in Nickerie and the refinery in Apoera,
including an extension of the Bakhuis to Apoera railroad infrastructure from Apoera to New
Nickerie. The obvious benefits are proximity to the bauxite and energy resources. In addition, it
makes sense to consider decentralization of Suriname’s industrial activities.

Aluminum Smelter Energy Requirement

According to W T Choate and J A S Green11, the “onsite” energy demand of a typical

modern pre-baked Hall-Héroult smelter is about 18.8 kWh/kg Al (67.68 MJ/kg Al), total
electrical energy demand.
Thus a 200,000 tpa smelter requires a 450 MW (includes ≈5% margin) power station. The
heat rate of a natural gas combined cycle power generating station is assumed to be in the order
of 7,800 BTU/kWh12. Hence, the amount of natural gas required is 84,240 MMBTU/day. The
HHV for natural gas is approximately 1,000 BTU/SCF, the gas consumption will then be in the
order of 84.24 MMSCF/day.
The power cost component of Al metal production is in the order of 25%, thus at a target
cash cost of $1,200/t Al the break-even power cost shall be in the order of $0.250/kg Al, or less
than $0.0160/kWh. In other words, at 7,800 BTU/kWh the gas should be priced at maximum
$2.05/MMBTU.
For the full scope of the project the smelter will produce 500,000 tpa Al-metal, consume
965,000 tpa SGA and 9,400 GWh/yr. electrical energy (160.5 MMSCF/day) are required.
SGA Refinery Energy Requirement

The Average available alumina from the West Suriname deposit contain 38% avail. Al2O3
and 2% react. SiO2. The estimated bauxite consumption at 95% recovery of available alumina is

11
https://aceee.org/files/proceedings/2003/data/papers/SS03_Panel1_Paper02.pdf
12
https://www.eia.gov/tools/faqs/faq.php?id=667&t=8

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 11 of 18

2.77 t Bx/t SGA. The estimated chemical soda loss is ≈50 kg NaOH/t SGA, or $25/t SGA at
$500/t NaOH, which is very favorable as compared to the benchmark.

The thermal energy of an alumina refinery is 5 GJ/t SGA for steam generation and 3 GJ/t
SGA for calcination. The total electrical energy for the mine and refinery is estimated at 400
kWh/t SGA.

Total estimated electrical energy generation capacity required is 55 MW for the refinery
and mining operations, including a small community of 500 families. This power demand can
best be supplied by the smelter power plant.

The refinery thermal energy demand is estimated at 5 GJ/t SGA for steam generation, or
315 GJ/hr for the first phase of the project, at 63 t SGA/hr.

Gas HHV is 0.001055 GJ/SCF (1,000 BTU/SCF) and the gas requirement for steam
generation is 4,740 SCF/t SGA, or 4.74 MMBTU/t SGA. At $2/MMBTU, the cost of steam is
$9.48/t SGA.

The thermal energy demand for calcination is estimated at 3 GJ/t SGA, or 189 GJ/hr for
the first phase of the project, at 63 t SGA/hr. Gas HHV is 0.001055 GJ/SCF (1,000 BTU/SCF)
and the gas requirement for calcination is 2,844 SCF/t SGA, or 2.84 MMBTU/t SGA. At
$2/MMBTU, the cost of gas for calcination is $5.68/t SGA.

Estimated Cash Cost SGA

The approximate cash cost ($/t SGA) of the refinery, including the cost of bauxite mining
is summarized below:

Bauxite used: 2.77 t Bx/t SGA @ $22.49/t Bx $ 62.30

Steam used: 5 GJ/t SGA @ $1.90/GJ $ 9.50
Nat. Gas used: 3 GJ/t SGA @ $1.90/GJ $ 5.70
Soda Loss: 60 kg NaOH/t SGA @ $0.50/kg SGA $ 30.00
Power used: 400 kWh/t SGA @ $0.020/kWh $ 8.00
Other Variable costs: $ 14.50
Sub-Total $130.00

Payroll (O & M): $5,790,000 p.a. (at 386,000 tpa SGA) $ 15.00
Contract labor: $1,447,500 p.a. (at 386,000 tpa SGA) $ 3.75
Other fixed costs: $2,895,000 p.a. (at 386,000 tpa SGA) $ 1.25
Sub-Total $ 20.00

Overheads: $19,300,000 (at 386,000 tpa SGA) $ 5.00

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 12 of 18

Total $155.00

Transfer price to the aluminum smelter is $255.00/t SGA. Hence the gross margin could
be in the order of $38,600,000 p.a. at a production rate of 386,000 tpa SGA, based on the
assumptions made.

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 13 of 18

Estimated Cash Cost Aluminum Metal

The cost to produce aluminum metal is described in a publication in “Aluminum Insider”,

by G Djukanovic13. Other information is taken from Alcoa’s 3rd Quarter 2019 Earnings report14.
Here we will focus on a target cash cost of ⅔ times the LME price of $1,800/t Al, or $1,200/t Al.

SGA used: 1.93 t SGA/t Al @ $255/t SGA $ 492.15

Power consumption: 18.8 MWh/t Al @ $19.50/MWh $ 366.60
Carbon (anodes) $ 225.00
Chemicals $ 150.00
Gas to Cast House $ 30.00
Other variable costs $ 5.25
Sub-Total $1,269.00

Payroll (O & M): $20,000,000 (at 200,000 tpa Al) $ 100.00

Contract labor: $4,000,000 (at 200,000 tpa Al) $ 20.00
Spares: $13,200,000 (at 200,000 tpa Al) $ 66.00
Sub-Total $ 186.00

Overheads: $9,000,000 (at 200,000 tpa Al) $ 45.00

Total $1,500.00

LME price is $1,850.00/t Al. Hence the gross margin could be in the order of
$70,000,000 p.a. at a production rate of 200,000 tpa Al, based on the assumptions made.

13
https://aluminiuminsider.com/explaining-global-aluminium-flows-and-smelter-costs/
14
https://investors.alcoa.com/~/media/Files/A/Alcoa-IR/documents/events-and-
presentations/presentations/q3-2019-presentation.pdf

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 14 of 18

Final Remarks

Introduction

The start-up of the offshore LIZA1 Crude production operations in Guyana in December
2019, shortly followed by the announcement of the discovery of the MAKA oil accumulation in
Suriname few weeks later have soared expectations and revived old development dreams such as
creation of an integrated Bauxite, Alumina and Aluminum industry in or close to the Bakhuis
bauxite deposits.

More specific, the confirmed presence of associated gas in the Guyana-Suriname Basin
have surged the hopes for abundantly available and low cost landed gas and it’s assumed
economy boosting potential has already reached mythical proportions. Also, in Guyana the
discussion on (missed) opportunities of using associated gas has flared up.

In all previous feasibility studies and execution attempts carried out over the last decades,
low cost energy has always been the make or break factor to justify e.g. an integrated Bauxite
mining, Refining and Smelting Industry. Almost instantaneously after the MAKA find, the
dreams for an Integrated Bauxite Industry and fueled by Offshore gas have resurfaced and have
already been shared with the population as future fact.

Suriname and Guyana should join efforts to map out onshore development plans for
offshore gas. Landing gas on shore from offshore production facilities will be a high cost
investment which can best benefit from combining supply and demand at both outer ends of the
pipeline. It would be e.g. beneficial to think of one transport pipeline originating from and
collecting gas from several Guyanese and Surinamese production fields. Similarly, on shore, one
receiving facility could be the distribution point for users in Guyana and Suriname as well.

History and future of Bakhuis deposits – onshore development study case

In the ’70 the (in)famous ore railroad was constructed from the loading point in the heart
of the deposits of the Bakhuis mountains to the newly constructed seaport at Apoera where the
Bauxite and Smelter Grade Alumina (SGA) would be loaded for export to smelters abroad. The
construction of the Kabalebo hydroelectricity dam for the supply of low-cost power that would
enable Alumina refining and cost-effective smelting never materialized and has, at cost of
increasingly scarce rain forest, also become increasingly controversial.

Also, the second attempt few years ago by BHP Billiton to exploit the Bakhuis deposits
was terminated after commencement of execution. Absent availability of low-cost energy, the
plans were modified to mine Bakhuis bauxite as feedstock for the Paranam Refinery and other
Refineries in the region. Today that justification is no longer there as following BHP Billiton also
Alcoa left Suriname and the Paranam Refinery is being demolished. Local Bauxite and Refining

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 15 of 18

expertise are either fading in early retirements or has found new careers in other industry
branches.

Also, internationally the Bauxite, Alumina and Aluminum landscape has changed. Many
of the Alumina smelters within economic reach of Refined Alumina are outdated and turning
inefficient. There is an abundance of low-cost Smelter Grade Alumina (SGA) and shortage of
low-cost smelting capacity. Current ideas for Suriname are to consider a phased approach,
starting off with smelting first. Using an assumed low cost and abundantly available gas supply, a
smelter would be justified in the vicinity of the gas landing point and Bakhuis deposits. In a later
phase this gas could be used to justify a low cost SGA refinery and Bauxite mining operation.

Proposed approach

It is proposed that Suriname and Guyana collaborate on the justification of landed gas,
before contacting any IOC with such ideas. The risk is that IOC’s may become concerned of such
intent and before its feasibility is proven. Such integration will significantly impact their business
case and development plans.

The justification of landed gas should be addressed in feasibility studies of the various
onshore development plans. As mentioned above, the onshore development feasibility studies
should also include the investment and operational costs of subsea pipelines network and related
subsea and onshore landing facilities. The investment of a gas pipeline should be included in the
economics of the development it is intended for. The ‘tie in’ or ‘battery limit’ of the Offshore and
Onshore development plans is therefore 150 km offshore, and not on land.

A holistic approach for all onshore developments is proposed. Instead of considering

individual gas pipelines for each onshore development idea it would be best to shed a collective
view on all onshore developments that could potentially benefit from landed gas. Mapping out
all potential onshore gas users’ opportunities and subsequently addressing the supply system
requirements into one or more subsea pipelines and gas processing and distribution facilities is
the recommended approach.

This holistic and cross bordering approach requires collaboration between Guyana and
Suriname as well as integrated expertise in onshore and offshore developments. It is advised to
hire a reputable engineering consultant to perform such complex and cross bordering feasibility
study. A consultant who has the expertise and experience of developing large scale mining,
refining smelting, power generation and subsea gas supply systems.

The consultant should best work in an integrated team with Guyanese and Surinamese
stakeholders’ representatives. This effort should yield economic thresholds for gas intake at the
supply points of the offshore facilities. The study should provide what the acceptable gas

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 16 of 18

purchasing price should be at the tie in(s) with the IOC’s offshore production facilities. This
could form the basis for discussions with the IOC’s.

Preliminary Scope of a Concept Study

The proposed scope for a pre-feasibility (concept) study is to identify and qualify all
project elements of a vertical integrated aluminum project that is based on the availability of
enough energy (offshore) and bauxite (onshore) resources in Suriname to sustain economic
activities for 50+ years. The aim is to plan for the following project scope:

1. Aluminum Smelter 500,000 tpa

2. Alumina Refinery 1,000,000 tpa
3. Bauxite Mine 3,000,000 tpa
4. Power Plant 1,000 MW
5. Port Complex 500,000 tpa
6. NG Pipeline 300 MMBTU/day
7. Power Transmission Line 300 KVA
8. Railroad ±150 km

Execution in 4 phases

1. Port + NG Pipeline + Power Plant + 250,000 tpa Smelter

2. Railroad + 500,000 tpa Refinery + 1,500,000 tpa Bauxite Mine
3. Expansion to double capacity
4. Creep Production Increase: ~3% p.a. for 6 years to a maximum of 600,000 tpa
smelter capacity.

The deliverables of the concept study are:

1. Project description, including proposed phasing;

2. Class 4 Capital Cost Operating Cost Estimate (see Appendix);
3. Preliminary Environmental & Social Impact Assessment;
4. Basic Cash Flow Analysis, including sensitivities;
5. General Market Study (e.g. CRU); and
6. High Level Execution Plan.

Conclusions

1. Building and operating a greenfield smelter grade alumina refinery in the Atlantic
region will struggle to market the alumina in the region due to market balance.
2. Transportation distances to future SGA markets (China and India) are very high
and therefore SGA produced in the Atlantic region cannot be priced competitively.

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 17 of 18

3. The aluminum market in the Atlantic region still grows, albeit at a modest 2% p.a.
and therefore there will still be a demand for new aluminum capacity in this
region.
4. Recent development of possible availability of low-cost energy, in the form of
natural gas, in the region may justify the development of a new aluminum smelter
on the North coast of South America and vertically integrated bauxite mine and
alumina refinery.
5. There are enough bauxite reserves available in Suriname to sustain a vertical
integrated aluminum industry in Suriname for at least 100 years.

18 February 2020 ENJ/MCHW/TK

INTEGRATED ALUMINIUM STRATEGY - SURINAME Page 18 of 18

Appendix: Cost Engineering – AACE Class 4 capital estimates15

Engineering firms employ several methods and tools to efficiently develop cost estimates
with available data and project information. Technical knowledge and a history of delivering
studies of similar complex projects combined with a broad process industry experience is
essential.

Class 4 capital cost estimate typically uses factored models for the Pre-Feasibility Study
phase as the primary cost estimating methodology. The factored models may be equipment based
or P&ID material based where the cost of instrumentation is leveraged along with equipment in
the cost estimate.

The emphasis in this type of study is the scope definition, which also include an ESIA
Scoping Report (and TOR) and a Commodity Market Analysis.

15
http://www.uniteltech.com/feasibility-study/cost-engineering-aace-class-4-capital-estimates

18 February 2020 ENJ/MCHW/TK