Rio Tinto looks ready to close ageing Gove smelter

Global metals giant Rio Tinto looks likely to close its ageing aluminium smelter at Gove, in Australia's Northern Territory, three months after cutting a deal to keep its Tiwai Point smelter in New Zealand open until at least 2017.

Australian media reports say the company has told NT and federal politicians there is no point in further negotiations over the smelter, which is adjacent to a bauxite mine, production from which is likely to be exported for smelting in the future.

If confirmed, the news is bleak for jobs in the sparsely populated Northern Territory, with major impacts on Aboriginal employment and recriminations flying over whether the territory's government scuppered a possible deal by reducing its offer of discounted natural gas to run Gove, which can also operate on more expensive fuel oil.

The Australian news website reports today that the decision will be a blow to the 4,000 residents of the nearby town of Nhulunbuy and would cost the NT economy around A$400 million a year.

The Gove refinery has been losing about A$30 million a year and is one of the oldest in the fleet of Australasian smelters that Rio packaged as Pacific Aluminium and attempted to sell. That effort came to an end shortly after the decision on Tiwai Point, in late August, with the PacAl assets folded back into the parent company's troubled global aluminium division, Rio Tinto Alcan.

A final decision has yet to be announced.

The Tiwai Point deal came ahead of the Meridian Energy float and saw Rio successfully renegotiate electricity contracts signed in 2007, but which did not come into force until January this year, back to levels slightly lower than prices paid in the previous contracts.

The New Zealand government added a $30 million cash sweetener, reasoning that loss of some 800 direct jobs at the smelter near Bluff was too high a price to pay politically and for the Southland economy.

The deal gives Rio the option of exiting its New Zealand operation on more favourable terms than in the past, with a requirement for 15 months' notice if it decides to terminate the contract at January 2017, or 12 months' notice if it decides after that date to wind down operations.

Global aluminium prices have been depressed since the global financial crisis in 2008, which arrived shortly after Rio Tinto bought the Alcan global aluminium business at what turned out to be an inflated price, given the subsequent dive in metal prices.

(BusinessDesk)