Mining giant Rio Tinto has warned that it may shut New Zealand’s Aluminium Smelter (NZAS) or reduce production due to a weak market and high energy costs, in a move that could send ripples through the economy.
Rio Tinto said it planned to conduct a strategic review of its interest in NZAS, located at Tiwai Point, to “determine the operation’s ongoing viability and competitive position”.
Alf Barrios, chief executive of Rio Tinto Aluminium, said “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.”
The smelter is New Zealand’s largest single power user. Shares in top power producer Meridian Energy, which has a contract to supply the South Island plant until 2030, fell as much as 8% on the news.
“We expect the short to medium outlook for the aluminium industry to be challenging and this asset to continue to be unprofitable,” Rio Tinto said.
The global miner has said previously it is also holding talks on energy pricing for its three Australian smelters.
Rio said it will complete a strategic review of NZAS, which consumes 40% of Meridian’s generation, in the first quarter of 2020.
“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,” said Barrios.
The strategic review will consider options including cutting production and closure. It will be completed in the first quarter of 2020.
NZAS is a joint venture between Rio Tinto (79.36%) and Sumitomo Chemical Company Limited (20.64%) and employs around 1,000 people.
The head of NZAS has told newspapers the operation needs “tens of millions” of dollars a year in relief to be viable.
However it has been accused of seeking public funds on many previous occasions, prompting the site’s chief executive, Stew Hamilton, to say that Rio Tinto's announcement of a strategic review meant the situation was now more serious.
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