Sharechat Logo

Rio Tinto abandons sale of Tiwai Point and other smelters

Friday 9th August 2013

Text too small?

Global metals giant Rio Tinto has told shareholders it has given up trying to sell four Australasian aluminium smelters and associated assets, including the Tiwai Point smelter.

The announcement that Rio will "bring the assets back into our aluminium product group" came just hours after Meridian Energy announced it had renegotiated electricity contracts for the Tiwai Point smelter, which had been hived off into a Rio subsidiary, called Pacific Aluminium.

PacAl included Tiwai Point and three Australian smelters, as well as associated production facilities, and had been on the market since October 2011. Rio, which owns 79.4 percent of Tiwai Point, wrote down the value of the smelter from $606.9 million to just $14.8 million in February this year.

Rio's chief executive, Sam Walsh, announced the intention to retain the PacAl assets during a half year results briefing.

"It is now clear that we can't sell Pacific Aluminium for value in the current market," he said. "We are therefore bringing these assets back in to our aluminium product group."

The group had achieved cost savings across its aluminium group of around US$200 million a year and had disposed of US$1.9 billion of other non-core assets.

"I'm a pragmatist," Reuters reported Walsh as saying. "It doesn't make sense to give things away just so you can tick the box."

There was "no straightforward solution to improving the performance of the group's aluminium group, Rio Tinto Alcan, which has been hit by slumping global metal prices. The Alcan purchase in 2007 is seen in hindsight by investors as a strategic blunder by Rio, since it occurred just before the global financial crisis, which precipitated the global price slump.

Meanwhile, the Labour Party state-owned enterprises spokesman Clayton Cosgrove said the government's failure to get employment guarantees from Rio in exchange for its $30 million "one-off incentive" payment to keep the smelter in New Zealand showed Ministers were "amateurs."

The new electricity contract returns the smelter to electricity prices similar to those charged under previous contracts, which rolled over at the beginning of the year.

The deal requires the smelter to stay open at least until the end of 2016, but after that, the smelter owners can close the facility on 12 months' notice.

Analysts say the new price probably puts Tiwai Point into the middle of the pack for RTA's aluminium production costs. The New Zealand smelter is capable of achieving premium prices because it is one of only a handful globally making very high purity aluminium.

However, much larger and more energy efficient smelters are appearing, especially in China, leaving the world aluminium market over-supplied with smelting capacity.

BusinessDesk.co.nz



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

MARKET CLOSE: Blue-chip stocks Meridian, A2 lead market lower
NZ dollar rises on Brexit hopes, rate cut reassessment
Three not failing, just needs a new owner - MediaWorks CEO
Major investors back new CBL class action targeting directors
Rip Curl purchase a done deal on Kathmandu proxies alone
Comvita chair Neil Craig eyes the exit once he finds a new CEO
Mercury raises guidance on increased storage, high spot prices
Eroad reports strong 3Q sales growth, eyes ASX listing
MediaWorks puts TV business on the block
NZ dollar benefits as preliminary Brexit deal improves risk appetite

IRG See IRG research reports