PERTH (miningweekly.com) – Diversified miner Rio Tinto on Wednesday announced a strategic review of its 79.36% interest in New Zealand’s Aluminium Smelter (NZAS) at Tiwai Point.

The review will determine the operation’s ongoing viability and competitive position, given the challenging short- and medium-term outlook for the aluminium industry on the back of the current market conditions and high energy costs.

Rio told shareholders that the NZAS smelter has continued to be unprofitable in the current conditions.

The miner will hold discussions with the government of New Zealand and energy providers to explore options and identify economically viable solutions to find a pathway to profitability for the asset.

“The aluminium industry is currently facing significant headwinds with historically low prices due to an over-supplied market. This means that many aluminium providers are reviewing their positions,” said Rio’s aluminium CEO Alf Barrios.

“Rio Tinto will work with all stakeholders including the government, suppliers, communities and employees in order to find a solution that will ensure a profitable future for this plant.”

The strategic review will consider all options, including curtailment and closure, and will be complete in the first quarter in 2020.

ASX-listed Meridian Energy, which provides electricity to the NZAS facility, told shareholders that the contract with the smelter allowed for a full termination, or for NZAS to reduce consumption from 572 MW to 400 MW, both with a notice period of 12 months.

“NZAS officials have advised us that the economics of the smelter have been challenged due to volatile international prices for aluminium, relatively high energy and transmission costs and the upcoming refurbishment bill to keep one of the potlines operational,” said Meridian CEO Neal Barclay.

“NZAS has advised Meridian that the changes we have offered to date on our contract fall short of the pricing for delivered energy and that NZAS needs to re-establish its position as an internationally competitive aluminium smelter. We remain open to negotiating with NZAS and its shareholders on the long-term requirements for the smelter,” Barclay said.

NZAS is a joint venture between Rio and Sumitomo Chemical Company and employs around 1 000 people.