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Rio Tinto unit still in talks on energy supply for NZ smelter

Keywords: Tags  Rio Tinto, Pacific Aluminium, electricity, deal, government, New Zealand, NZAS, New Zealand Aluminium Smelters John Key

SINGAPORE — Rio Tinto Plc’s Pacific Aluminium unit is still in talks with a state energy supplier to renegotiate terms for New Zealand’s only aluminum smelter, after the company rejected a short-term government subsidy intended to keep the plant running.

Pacific Aluminium and Meridian Energy Ltd. have been renegotiating power contract terms for New Zealand Aluminium Smelters Ltd. (NZAS) for the past three-quarters of a year.

“Our electricity contract negotiations with Meridian have progressed more in the past two weeks than in the previous nine months,” Pacific Aluminium said in an e-mailed statement to AMM sister publication Metal Bulletin April 2. “We believe a commercial agreement that is in the best interests of NZAS, Meridian, the New Zealand government and the people of Southland (region) can be reached,” it added.

The company’s statement comes after New Zealand’s Prime Minister John Key spoke to local media about the negotiations. “They came back over the weekend and said, ‘No, we are rejecting the government’s intervention and we will go back to continuing to talk to (state-owned power firm Meridian Energy),” Key said.

The New Zealand government has “no interest in a long-term subsidy of the smelter,” Key said. “If it can’t stand on its own feet, then long-term, it shouldn’t be there.”

Under the current contract, the Invercargill-based smelter must remain open until 2016 and can then be progressively closed, Key said. He added that it would be expensive for Rio Tinto to shut it down faster.

NZAS uses about 15 percent of the nation’s electricity output. Closure of the plant would mean a massive power surplus in a country looking to divest stakes in three state-owned electricity firms, according to local media.

NZAS, which is 79.36-percent owned by London-based Rio Tinto and 20.64-percent owned by Tokyo’s Sumitomo Chemical Co. Ltd., produces about 360,000 tonnes of aluminum each year. About 90 percent of that is exported, largely to Japan.

Aluminum smelters worldwide have been suffering from higher operating costs and low London Metal Exchange prices recently, and Rio Tinto’s underperforming Pacific Aluminium unit has been on the sale block for more than a year. The company took a multibillion-dollar write-down on its aluminum assets for 2012, leading to the company’s first ever full-year loss (, Feb. 14).

A version of this article was first published by AMM sister publication Metal Bulletin.

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