Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Rio Tinto eyeing smelter closures unless they pay their way

Rio Tinto eyeing smelter closures unless they pay their way

By Pattrick Smellie

Aug. 10 (BusinessDesk) - Rio Tinto's attempt 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 percent drop in profits to US$5.2 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 percent 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.''

A Deutsche Bank report suggesting the assets may be sold in the first half of next year “although there is a risk this is too optimistic," according to Bloomberg reports.

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.

At the time of the sale announcement last year, observers saw a market for well-run smelters operating at slightly below world's best practice, with the Bluff smelter well-maintained and upgraded since its construction in 1971.

The price of power to the smelter has been politically contentious throughout its life, and Rio's renegotiation attempt comes ahead of the likely sale of a 49 percent stake in state-owned Meridian Energy next year, in a market where industrial electricity demand remains lower than in the mid-2000's.

New Zealand Aluminium Smelters, the 79.4 percent Rio-owned subsidiary which operates the local smelter, struggles for profitability during aluminium price downturns, such as the 20 percent slump seen in the last year. Although it reported a $46 million after-tax profit in the year to Dec. 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.

Writing in the Sydney Morning Herald this week, commentator Colin Maiden said even after Rio wrote down its aluminium assets by more than US$8.9 billion in February, "it has almost $US27 billion invested in a division that is earning next to nothing."

NZAS is one of several entities covering Rio's activities in New Zealand. It also owns RTA Pacific (NZ), Rio Tinto Alcan NZ, and RTA Power (NZ), which administers the smelter contracts.

The company has not replied to questions posed last month by BusinessDesk about the relationships between them, and which show an advance to NZAS of $250 million by RTA Pacific (NZ) last year, and a recapitalisation that saw 550 million new shares issued in RTAPNZ.

RTAPNZ reported a $186.4 million profit after tax.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Our Fresh Water: Monitoring Report Confirms Serious Challenges For Rivers

• nitrogen levels are getting worse at 55 percent and getting better at 28 percent of monitored river sites across New Zealand • phosphorus levels are getting better at 42 percent and getting worse at 25 percent of monitored river sites across New Zealand More>>

ALSO:

Errors Found: Electricity Authority Dumps Transmission Pricing Modelling

The Electricity Authority is ditching the cost-benefit analysis at the heart of its controversial attempt to find a new way to divide up costs for the national grid after finding an expanding range of serious computational errors in the work by Australian consultancy Oakley Greenwood. More>>

ALSO:

New Record: Migrant Arrivals At 129,500 A Year

Annual net migration has been steadily increasing since 2012. "This was mainly due to the rising number of migrant arrivals to New Zealand," population statistics senior manager Peter Dolan said. "Fewer migrant departures also contributed to the increase in net migration." More>>

ALSO:

Launched: NASA's Super Pressure Balloon Takes Flight From NZ

NASA successfully launched its football-stadium-sized, heavy-lift super pressure balloon (SPB) from Wanaka, New Zealand, at10:50 a.m. Tuesday, April 25 (6:50 p.m. April 24 in U.S. Eastern Time), on a mission designed to run 100 or more days floating at 110,000 feet (33.5 km) about the globe in the southern hemisphere's mid-latitude band. More>>

ALSO:

Trade Agreements: TPP Minus US Starting To Gain Ground

The Japanese government is picking up the pace on reviving the Trans-Pacific Partnership trade and investment deal, with talks scheduled next month among the 11 countries left in the pact after the withdrawal by the US after the election of president Donald Trump. More>>

ALSO:

PACER:

Prices Up 2.2%: Annual Inflation Highest In Over Five Years

"Rising petrol prices along with the annual rise in cigarette and tobacco tax lifted inflation," prices senior manager Jason Attewell said. "Petrol prices in New Zealand are closely linked to global oil prices, and cigarettes and tobacco taxes rise in the March quarter each year". More>>

ALSO:

Undertaxed? NZ Income Tax Rate Second Lowest Among Developed Nations

New Zealand workers pay the second smallest portion of their income to the government among developed nations and less than half the average ratio of their Organisation for Economic Cooperation and Development peers. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news