Tiwai Point smelter to close, 1000 jobs to go

Rio Tinto has said it will close the Tiwai Point aluminium smelter.

The company said yesterday it would start planning for the eventual closure of New Zealand’s Aluminium Smelter (NZAS) after a strategic review which ‘‘showed the business is no longer viable given high energy costs and a challenging outlook for the aluminium industry’’.

The closure would result in the direct loss of 1000 jobs, with 1600 jobs indirectly connected to the smelter also under threat, the company said.

Rio Tinto Aluminium chief executive Alf Barrios said the company recognised the closure would have a significant impact on the Southland community.

Finance Minister Grant Robertson said it was disappointing Rio Tinto chose to close the smelter, especially given the support New Zealand had shown the company, and how profitable it was globally.

Since the smelter opened taxpayers had been subsidising Rio Tinto to keep it open, either directly or indirectly through cheaper power, and Emissions Trading Scheme allocations of over $48 million per year, Robertson said.

Energy Minister Megan Woods said it was disappointing Rio Tinto decided to close one of the world’s lowest carbon aluminium smelters in favour of keeping open coal plants. But Rio Tinto’s decision ‘‘not to extend their generous power contract with Meridian’’ would have a positive impact on power prices, she said.

By shortly after 11am, investors had wiped more than $2.8 billion off the value of NZX-listed electricity companies.

Meridian shares were trading down 11 per cent at $4.69, valuing the business at $12b. Shares in Contact Energy were down about

12 per cent, Mercury down 5 per cent, Genesis Energy shares down

7 per cent and Trustpower’s shares had fallen almost 3 per cent.

‘‘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,’’ Barrios said.

Mining giant Rio Tinto owned 79 per cent of NZAS, with 20 per cent owned by Japan’s Sumitomo Chemical Company.

Invercargill mayor Sir Tim Shadbolt expressed his devastation for the community.

Shadbolt said he was shattered

by the news of the closure, ‘‘just absolutely shattered’’.

‘‘Not just because of the jobs, that’s the worst scenario, but it’s the families, schools and small businesses that are dependent on the smelter.’’

Meridian Energy confirmed in a statement to the NZX that Rio Tinto had given notice it would be terminating the smelter contract from August 31.

Robertson said the Government would support the Southland economy.

‘‘This day has unfortunately been on the cards for some time now, but nevertheless the final decision is a blow to Southland and all those who work at the smelter,’’ he said.

A 25 per cent slump in aluminium prices over the last 18 months, increasing power costs, and over-capacity had affected the smelter. In February, it posted a $46m loss due to volatile prices and power costs.

Aluminium prices fell from US$1730 (NZ$2633) a tonne when Rio Tinto announced its strategic review in October to US$1451 in May, as a result of the coronavirus pandemic, but have since recovered somewhat to US$1634 per tonne.

Tiwai Point aluminium smelter chief executive Stewart Hamilton said his priority was the staff affected by the closure.

‘‘It’s been very difficult for the staff involved as those in the wider community.’’

Staff were notified at 8am that NZAS would ‘‘start to plan the wind down of operations by the end of 2021’’.

The decision was not taken lightly and was a very serious decision but fundamentally the smelter was losing money, he said.

The smelter’s electricity transmission costs had risen from $40m in 2008 to $65m last year.

The smelter sources most of its power from Meridian’s Manapouri hydro scheme. It consumed about 13 per cent of the country’s power generation.

Although the closure of the smelter would be expected to reduce electricity prices, only a proportion of the electricity generated by Meridian’s Manapouri hydro scheme could be readily redeployed to other users.

Tiwai Point used the electricity equivalent of 776,000 households.

‘‘It is very unfortunate we could not find a solution with our partners.’’ Alf Barrios Rio Tinto Aluminium chief executive