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NZ Aluminium Smelters restarts mothballed potline, signals 32 new jobs

Tuesday 1st May 2018

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New Zealand Aluminium Smelters will start its fourth potline, increasing production at the Tiwai Point smelter by about 9.2 percent, and creating up to 32 jobs in Southland. 


The company, which is controlled by mining giant Rio Tinto, has secured a power contract for 50 megawatts per hour until December 2022 allowing the potline to restart since it was mothballed six years ago, NZAS said in a statement. The aluminium smelter, which uses about an eighth of the country's electricity, expects to boost aluminium production by 85 tonnes a day, which amounts to 31,000 tonnes annually. That would lift the smelter's existing production of 337,000 tonnes by 9.2 percent. The line will take up to six months to be fully operational. 


"It is never good to have a cold potline at a smelter as it represents a capital investment that isn't contributing to our economy and our community," NZAS chief executive Gretta Stephens said. "NZAS is well-placed to offer metal that is increasingly sought after in a low carbon global economy." 


The smelter mothballed the potline in April 2012 when global aluminium prices were in a trough, and at a time when Rio Tinto was considering selling its Pacific Aluminium portfolio, which Tiwai falls under. In late 2012 it halted planned capital spending, downsized its workforce, then played hardball renegotiating contracts with Meridian Energy in the lead-up to the partial privatisation and float of the electricity generator-retailer that ultimately attracted a $30 million government sweetener. 


Meridian today said the contract set an agreed price for the annual 438 gigawatt hours supply and was supported by contracts with Contact Energy, Genesis Energy and Mercury NZ. It sits separately from the main supply deal providing 572 MWh to 2030. 


"The smelter provides one of the world's purest sources of aluminium and we believe this increase in production reflects a real confidence and commitment to the smelter operation and to Southland," said Meridian chief executive Neal Barclay. "This arrangement further demonstrates that New Zealand remains a good place to invest and that our electricity markets provide more certainty than those of many other countries - this is a real source of competitive advantage for New Zealand internationally." 


Meridian shares last traded at $2.94 and have increased 1.3 percent, compared to a 3.2 percent decline in Contact shares, an 11 percent drop in Genesis, a 5.3 percent fall for Mercury and a 5 percent slide for Trustpower. 


NZAS employs 650 people and a further 150 contractors and contributes $525 million to the Southland economy, according to its website. Southland's gross domestic product of $5.69 billion in the March 2017 amounted to 2.1 percent of GDP that year, while its 55,200 people employed made up 2.1 percent of the country's total employed as at Dec. 31, 2017, with an unemployment rate of 3.7 percent compared to the national 4.5 percent. 


The smelter owner is hoping to be a beneficiary of the delayed transmission pricing methodology for the national grid, and in Pacific Aluminium's submission to the Productivity Commission's inquiry in shifting to a low carbon economy, the mining company said NZAS's electricity costs are "very high" relative to its global peers, despite its proximity to generation, which meant "it has thin operating margins with the profitability of the smelter therefore highly exposed to fluctuations in both the New Zealand dollar and the LME (London Metals Exchange), affecting its ability to achieve long-term commercial sustainability."



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