Smelter threat wipes away $2b
More than $2 billion has been wiped off the value of power companies following the announcement that the aluminium smelter in Bluff is being reviewed and could close down.
The smelter directly employs about 900 Southlanders, but its possible closure could have ramifications well beyond the region by flooding the market with cheap electricity.
The smelter, which is undergoing a ‘‘strategic review’’, has enjoyed cheap power from the Manapouri hydro plant since 1971, and consumes about 13 per cent of the country’s electricity supply, according to the Electricity Authority.
That could be unleashed on to the market in the event of a closure, potentially putting the skids on power prices.
Independent electricity retailers contacted by Stuff were reluctant to discuss the possible implications for power prices, noting that threats to close the smelter had been made before.
But Meridian Energy shares were down almost 8 per cent in lunchtime trading on the NZX, slashing its value by just over $1b.
Contact, Mercury, Genesis and
Trustpower were also hit hard, with their shares falling by between 3 per cent and 7 per cent, also knocking more than $1b off their combined values.
The smelter is owned by New Zealand Aluminium Smelters (NZAS), whose major shareholder is resources giant Rio Tinto.
‘‘The review will consider all options for the future of the smelter, including the option of closure,’’ the smelter’s electricity supplier, Meridian Energy, said in a statement to the NZX.
It had been advised Rio Tinto would provide an update on the review by the end of March.
NZAS chief executive Stew Hamilton has not sugar-coated the situation.
The decision to hold a strategic review of the smelter was a serious step, he said.
A theme of public online comments to the possible closure was that NZAS threatens closure every few years to get cheaper electricity prices, but Hamilton said: ‘‘This is different. This is quite serious, the financial position of the smelter is serious.
‘‘It’s the first time Rio Tinto has announced a strategic review for the site, and that means they are actually going to formally go through the process of assessing all the options including curtailment and closure.’’
It was ‘‘hard to know’’ how likely closure was, but it was one of the options to be considered.
The Rio Tinto review would look at all options, he said.
Those options ranged from operating at the status quo, which would require a cheaper power price, to closure of the plant.
When asked why the announcement had been made after the smelter reported a $220m profit last year, Hamilton said the price of aluminium has dropped about 25 per cent since last year.
‘‘That means we are losing money and have been for the last 12 months, so the financial security of the smelter is difficult.
He told the smelter’s staff of the strategic review yesterday and was to meet with Southland leaders later in the day.
The reaction from staff was one of uncertainty, he said.
The main focus now was to keep staff safe and focus on the stability of the plant.
Hamilton said Southlanders were supportive of the smelter and NZAS was proud of it.
‘‘It’s the highest purity, lowest carbon smelter in Australasia and the world ... we want to be here longer term.’’
But a fundamental reset in its power price was needed for it to be sustainable in the longer term, he said.
Deputy Prime Minister Winston Peters said he did not know if the smelter would close, saying there had been ‘‘countless’’ talks in the past.
The smelter’s business model was to ‘‘turn water into money by aluminium’’, he said.
‘‘I think that is still a great idea.’’