Rio Tinto's aluminium smelter in New Zealand.
Photo by: Rio Tinto
MELBOURNE – Meridian Energy, New Zealand's top power producer, on Wednesday played down market expectations that Rio Tinto would keep its New Zealand Aluminium Smelter (NZAS) open when it decides on the plant's fate in the next month.
The global miner's smelter at Tiwai Point is New Zealand's largest power consumer, using around 12% of the country's electricity. A shutdown of the plant would trigger a sharp drop in power prices and deal a hefty blow to the sector.
Rio Tinto said last October it would review the plant's future. NZAS said this week all options, including curtailment and closure, were being considered, with an update expected in the first quarter.
Meridian CEO Neal Barclay said it was logical to assume Rio Tinto would not shut the smelter, which he dubbed "Smexit", as the plant is cash-positive and produces high purity, low carbon intensive aluminium.
To keep it open, Meridian has offered lower power prices and flexibility on power supply, depending on whether Rio goes ahead with an upgrade of one the plant's production lines. The plant may also get a cheaper transmission deal.
However Barclay said that may not be enough for Rio.
"Having met some of the senior Rio Tinto executives, I get the distinct impression they don't understand our nation's free market and non-protectionist approach for large industrials, and they don't enjoy the same level of sovereign support as elsewhere," Barclay told analysts on an earnings call.
He said Meridian's package for the smelter "goes nowhere near Rio's request for a third off their current delivered energy bill."
"So what may seem logical to external commentators may not seem logical to the ultimate decision makers in this instance," Barclay said.
NZAS, owned by Rio Tinto and Japan's Sumitomo Chemical, this week reported an underlying net loss of NZ$46-million for 2019, down from a net profit of NZ$22-million the previous year, which it blamed on weaker, volatile aluminium prices and expensive energy.
"No matter how hard or efficiently the team here works, we can't consistently offset the high price of power and transmission charges we face," NZAS CEO Stew Hamilton said in a statement on Monday.
"This means we swing from delivering small profits to losses for our owners, making our financial viability uncertain."
Meridian's shares slipped 0.6% on Wednesday after it reported a 28% rise in first-half underlying profit, in a broader market that was down 1.2%.