July 9, 2020 / 3:50 AM / a month ago

Rio Tinto to shutter NZ aluminium smelter, putting jobs and economy in peril

(Reuters) - Rio Tinto said on Thursday it will close its aluminium smelter operation in New Zealand due to high costs and a challenging market, putting over a thousand jobs on the line and dealing a blow to the country’s top power producers.

The closure of the New Zealand Aluminium Smelters venture, which is the country’s single largest power user, comes amid forecasts of massive job losses and a looming recession in New Zealand, with the economy crippled by tough restrictions to beat the spread of the coronavirus.

It also puts pressure on Prime Minister Jacinda Ardern, who launched her re-election bid just last week, promising more jobs and financial assistance to businesses.

Finance Minister Grant Robertson said the decision by Rio Tinto, the world’s biggest iron ore miner, was “disappointing” and the timing could not be worse.

“Given the challenging economic situation caused by COVID-19 it is disappointing Rio Tinto has chosen to close the smelter at this time, especially given the support New Zealand has shown the company and how profitable they are globally,” Robertson said.

New Zealand Aluminium Smelters consumes about 5,000 gigawatt hours of electricity a year, roughly 12% of the country’s power. The smelter employs around 1,000 people directly and creates another 1,600 indirect jobs in the Southland region.

Rio has been threatening to shutter the smelter for years as it demanded further subsidies from the government.

The company acknowledged the decision “will have a significant impact on employees, the community and our customers,” but did not elaborate.

“Extensive discussions with a wide range of interested parties have failed to secure a power contract that will enable the operation to become both competitive and profitable,” Rio Tinto said.

DISAPPOINTED

The smelter is a joint venture, with Rio holding a 79.4% stake and Japan’s Sumitomo Chemical Co holding 20.6%. Rio had an underlying loss from it of NZ$46 million ($30.25 million) in 2019.

The closure would mean surplus power supply in New Zealand’s South Island, which would hurt the power companies but have a positive impact on electricity prices.

Shares of Meridian Energy Ltd, a major supplier of power to the smelter, plunged as much as 18.3% on the Kiwi bourse. Shares of all other energy firms also tumbled.

Local power firms slammed Rio Tinto’s decision..

Contact Energy CEO Mike Fuge said all commercial parties had collectively delivered significant cost reductions for electricity to the smelter.

“We’re very disappointed to have played our part in delivering these savings for one of the greenest smelters in the world and to have such limited engagement from Rio Tinto,” Fuge said in a statement.

($1 = 1.5209 New Zealand dollars)

Reporting by Praveen Menon; Additional reporting by Rashmi Ashok in Bengaluru; Editing by Leslie Adler and Dan Grebler

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