Rio Tinto surprised yesterday by revealing – in the midst of a recession – that it will close its ageing New Zealand aluminium smelter with the loss of 1,300 direct jobs and thousands more in other sectors.
Rio announced yesterday that it will start planning for the wind-down of operations and the eventual closure of New Zealand Aluminium Smelters (NZAS) following the conclusion of a strategic review which has shown the business is no longer viable given high energy costs and a challenging outlook for the aluminium.
As a result, NZAS has given Kiwi power utility, Meridian Energy notice to terminate the power contract, which will end in August 2021, when the wind-down of operations is expected to complete.
The closure would result in the direct loss of 1,000 jobs, with 1,600 jobs indirectly connected to the smelter also under threat, the company said. Rio Tinto owns 79% of NZAS, with 20% owned by Japan’s Sumitomo Chemical Company.
Rio said the strategic review concluded that the smelter, which made an underlying loss of $NZ46 million in 2019, is not economically viable due to energy costs that are some of the highest in the industry globally, coupled with a challenging short to medium term aluminium outlook.
Rio said that talks with other companies failed to secure a power contract that will enable the operation to become both competitive and profitable.
NZAS produced aluminium in the form of ingot, billet and rolling block. Most of the smelter’s alumina powder was imported from Australia, with 90% of its product exported. The smelter at Tiwai Point used the electricity equivalent of 776,000 households or 13% of all the power used in New Zealand.
Rio Tinto Aluminium chief executive Alf Barrios said “We recognise the decision to wind-down operations at NZAS will have a significant impact on employees, the community and our customers.
“It is not a decision we have made lightly and without significant careful consideration. It is very unfortunate we could not find a solution with our partners to secure a power price reduction aimed at making NZAS a financially viable business. We will, therefore, terminate the power contract and move to close the operation.
“We are committed to working with our partners as we progress through detailed planning towards closure and we will do all we can together with the government to find ways to support the Southland community.”
Rio shares rose 3.2% to $98.67, not because of this decision but because of a rise in iron ore and copper prices.