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Rio Tinto reviewing future of Tiwai Point smelter

Wednesday 23rd October 2019

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Global mining giant Rio Tinto is reviewing the future of the Tiwai Point aluminium smelter, including possibly closing the site near Bluff.

The plant, which employs about 990 staff and contractors, makes more than 340,000 tonnes of aluminium annually and is the country’s biggest electricity user. It restarted its fourth pot line a year ago as part of a bid to improve its viability but has since suffered from a combination of low aluminium prices and sustained high electricity prices.

Meridian Energy supplies the smelter and completed a new four-year deal for an additional 50-megawatt supply in May 2018. The main 572 MW supply was agreed in 2013. That agreement, which runs through to 2030, allows the smelter to cut its demand to 400 MW – or entirely – on 12 months’ notice to Meridian.

Meridian chief executive Neal Barclay said the company has been working with operator New Zealand Aluminium Smelters on the issues it faces, which include an upcoming refurbishment bill on one of its pot lines.

“NZAS has advised Meridian that the changes we had offered to date on our contract fall short of the pricing for delivered energy that NZAS needs to re-establish its position as an internationally competitive aluminium smelter,” he said.

“We remain open to negotiating with NZAS and its shareholders on the long-term requirements for the smelter.”

The 48-year-old smelter is 79.4 percent-owned by Rio Tinto, which has been selling or shutting smaller, older plants worldwide to focus on its most profitable operations. Tiwai was previously packaged for sale with five other Australian plants in 2011, but no sale eventuated.

Since achieving the new supply agreement with Meridian, New Zealand Aluminium Smelters has been lobbying hard to also get a change in transmission pricing.

As the country’s biggest power user, its transmission bill has been rising steadily even though it gets little benefit from more than $2 billion of new lines built on the North Island in the past decade. Last year its transmission bill was $66 million when its underlying earnings were only $22 million.

The smelter had been counting on about a $20 million annual benefit from a new transmission pricing model the Electricity Authority has been working on for the past four years. A revised proposal published in July would reduce that to about $11 million and would not be effective before 2024.

NZAS chief executive Stew Hamilton said the company recognised the uncertainty the review created for employees and others in the region who depend on the plant for their livelihoods.

“Rio Tinto is mindful of the importance of our operation to the local community in Southland and we will be consulting with the New Zealand and local governments, the local community, suppliers, employees and customers during this process. This includes working to address very high energy costs.”


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