Rio ditches plans to sell smelter
Tiwai Point aluminium smelter's majority owner Rio Tinto has ditched plans to sell off the plant, after posting a US$1.7 billion (NZ$2.12b) profit within hours of picking up a NZ$30 million dollar subsidy from New Zealand taxpayers.
Rio Tinto owns almost 80 per cent of the Bluff smelter.
Rio Tinto subsidiary NZ Aluminium Smelters signed a new secret power deal with state-owned Meridian Energy yesterday, with the government kicking in a $30m subsidy to ensure the Southland plant continues at least to the end of 2017.
Late yesterday Rio Tinto announced it had returned to profitability in the first half of 2013 but it had to sack thousands of workers and slash $US1.5 billion in costs to get there.
Rio Tinto made a profit of US$1.72 b in the six months to June 30, down 71 per cent from the same period on 2012. However, it's an improvement from a US$3b full-year loss posted in 2012.
The company also announced it had abandoned the attempted sale of its unwanted aluminium assets, which include the Tiwai Pt smelter, which will now be integrated back into its Alcan group.
Morningstar analyst Mark Taylor said he thought the abandoned aluminium sale was responsible from Rio as it was not accepting a low price in a weak aluminium market.
In what was seen as a significant corporate development, Rio abandoned its attempt to sell the cluster of Australasian aluminium assets, known as Pacific Aluminium, after more than a year of trying.
Many of the assets, including the Gove Alumina refinery in the Northern Territory, were losing money and attention will now turn to whether some assets need to be closed down.
However, yesterday's cheaper power deal with Meridian means the Southland plant's future is assured till 2017.
Rio said it would integrate Pacific Aluminium back into its broader aluminium division, but when asked if the assets were good enough to stay on the company's books longer term, CEO Sam Walsh said: "I would like to see further improvement.
"I think the market was aware that Pacific Aluminium was not going to sell. I'm a realist, I'm a pragmatist, let's get on with life."
The retention of Pacific Aluminium is another sign that Rio is finding it hard to sell assets in a bad market, after the company in June abandoned more than a year of efforts to sell its diamonds business.
Sources in New Zealand yesterday had expected Rio to quickly sell the Tiwai Pt plant, after scooping up a $30m windfall from taxpayers and signing the new power deal.
The industry source also said it was "disappointing" to see the Government stumping up with a $3m subsidy for the smelter, when a power deal should have stood on its own.
"I don't think there's a need for a subsidy ... you could expect a lot of others to be knocking at the Government's door for cheaper power now," the source said.
In a new deal announced yesterday, New Zealand Aluminium Smelters will get a cheaper power price from July 1 this year, but the price will rise should the New Zealand price for aluminium rises above agreed, but unspecified, levels.
While giving no figures, Meridian chief executive Mark Binns said there had been a "meaningful reduction" in power prices for the smelter, which would help the smelter be more competitive internationally.
But the hard fought deal was also in "the best interests" of Meridian, which sells 40 per cent of its power to the smelter alone.
Though the Tiwai Pt smelter owners have threatened in the past to close the loss-making plant without a better power deal, the New Zealand source said it was unlikely to be near the top of the list of plants around the world that could be shut.
However, others said the smelter was in the latter stages of its expected life and there was nothing of such scale to replace it, if it was shut.
Closing the smelter would have created a glut of electricity in New Zealand, pushed wholesale and retail power prices down and would forced the closure of some older power plants.