Rio Tinto to take hit on legacy alumina contracts
PERTH (miningweekly.com) – Diversified miner Rio Tinto has warned of a $178-million impact on its financials during the first half of 2018, due to its legacy alumina contracts.
The miner supplies some 2.2-million tonnes of alumina under legacy contracts, which are priced at a percentage of the benchmark aluminium price.
During the first half of 2018, prices on the London Metal Exchange (LME) averaged $2 209/t, and $450/t for alumina.
Rio’s aluminium CEO Alf Barrios said in London this week that a further $130-million negative impact would be recorded in the third quarter of 2018.
He explained that a near $100-million negative impact on earnings before interest, taxes, depreciation and amortisation would be reported for every 10% increase in the alumina index price, and a near $60-million negative impact for every 10% decrease in the aluminium LME index.
The opposite impact would apply if the index pricing moved in the other direction, Barrios said.
The bulk of Rio’s legacy alumina contracts will end between 2023 and 2030, with some 30% of the contracts to be rolled off post 2023.
The aluminium supply chain has been hit by US sanctions on Russian producer Rusal, reduced capacity at Norsk Hydro’s alumina plant in Brazil and a strike at Alcoa’s refineries in Australia.
Since the start of the year, benchmark aluminium prices on the LME have risen 21%.
Rio Tinto is selling some of its aluminium assets and has its Iceland operations on the market. Last month, Norsk Hydro dropped a $345-million offer for the Iceland assets, which includes the ISAL plant, as well as shares in an anode plant in the Netherlands, and a fluoride plant in Sweden.
Newswire Reuters reported this week that Rio Tinto was close to restarting the sale process.
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