SYDNEY/MELBOURNE - Australia on Thursday said it would provide A$2.5-billion ($1.76-billion) to help keep global miner Rio Tinto's Tomago aluminium smelter, the country's largest power user, open beyond 2028, as it transitions to renewable generation.

The deal would support 3 GW of new generation for the smelter, with the financial package to be jointly funded by the federal and New South Wales state governments, a government statement said.

The deal includes a new power purchase agreement intended to provide "reliable, internationally competitive" electricity, 100% renewable from 2033, which Rio Tinto said will cut the plant's direct and indirect carbon emissions by a quarter.

Rio Tinto warned in October that Tomago could be forced to close if it failed to secure commercially viable power beyond 2028.

Tomago will invest at least A$1.1-billion in the facility as part of the deal, including A$100-million to drive further decarbonisation activities at the smelter.

“It means Australia keeps a critical piece of sovereign manufacturing capability, while helping Tomago Aluminium continue competitively producing the aluminium needed for the global energy transition,” Rio Tinto Aluminium & Lithium CE Jérôme Pécresse said.

Like several other Australian smelters struggling with high energy costs during the transition to renewables, Tomago was built last century to take advantage of abundant cheap coal-fired power.

Tomago Aluminium will enter a ten-year power deal running from 2029 to 2038 once its current contract, supplied by AGL Energy with coal-fired power, expires at the end of 2028.

The latest lifeline adds to more than A$5-billion pledged by the federal and State governments to help Rio Tinto's Boyne smelter, Glencore's Mt Isa copper smelter, two smelters owned by Trafigura's Nyrstar, and the Whyalla steelworks.

Tomago is likely to take power from government-owned Snowy Hydro from 2028, local media reported. Snowy had no immediate comment.

The federal government announced in December it was seeking to secure long-term, fixed-price energy supply for the smelter, which employs more than 1 000 full-time staff and 200 contractors.

Tomago Aluminium is an independently managed joint venture majority-owned by Rio Tinto, alongside Gove Aluminium Finance and Norsk Hydro.