Rio Tinto eyeing smelter closures
Fri, 10 Aug 2012 2:11p.m.
By Pattrick Smellie
Rio Tinto's bid to renegotiate New Zealand's largest electricity contract, for its aluminium smelter at Bluff, comes as the company's chief executive warns of "difficult decisions" ahead if its older smelters cannot be made commercially viable.
Rio, the world's third-largest mining company, reported a 34 per cent drop in profits to $US5.2 billion ($NZ6.42 billion) for the six months to June 30 on Tuesday, dragged down in particular by the sustained collapse in world aluminium prices.
The same day, NZDX bond issuer Meridian Energy announced it had received a request from Rio to reopen negotiations on electricity contracts worth around 15 per cent of total New Zealand electricity consumption, which kick in from January next year and were concluded in 2007.
Under the new contracts, which run to 2030, Rio's take or pay obligations will rise from 543.75 Megawatts annually at present to 572MW annually, with the electricity price calculated on a formula taking into account exchange rates and global aluminium prices.
The smelter bought an extra 81MW of electricity in 2011 on the wholesale electricity spot market, taking total consumption to 625MW.
Asked by journalists about the future for the aluminium business, Rio's chief executive, Tom Albanese, said it was right to keep smelters running if they could be made profitable, but "if they cannot be viable, we have difficult decisions to make".
Among assets for sale is a bundle of Australasian smelters, dubbed Pacific Aluminium, which Rio has also indicated it may try to float by initial public offering.
New Zealand Aluminium Smelters, the 79.4 per cent Rio-owned subsidiary which operates the local smelter, struggles for profitability during aluminium price downturns, such as the 20 per cent slump seen in the last year.
Although it reported a $46 million after-tax profit in the year to December 31, that was only thanks to a one-off $65.9 million settlement of a long-standing insurance claim.
Without that, the local unit would have reported a second year of losses in the region of $20 million.
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