Meridian reveals it was willing to go long way to retain Rio Tinto's smelter
Meridian Energy has revealed just how far it was prepared to go to keep its biggest customer, the Rio Tintocontrolled aluminium smelter, at Tiwai Point.
Rio announced a review of the Southland asset in October last year and this week said it planned to close the facility in August 2021.
Chief executive Neal Barclay said Meridian’s performance this financial year was shaping to be strong, but
2022 and 2023 would be “challenging” because of the smelter’s closure.
In a conference call, Barclay said Meridian was prepared to offer Rio cheaper prices in return for some “term” certainty — the minimum being four years. It offered even cheaper power over a 10-year term.
He was confident Meridian’s
10-year deal would have been enough to meet Rio Tinto’s request for a onethird reduction in its power bill.
“The most recent deals that we had on the table was a four-year commitment to term.
“It had some reduced rates. It had a demand-response premium that we felt was in both parties’ interests.
“More recently, the industry came together and was able to offer a transmission charge underwrite.”
All up, the deal was worth initially $50m to Rio Tinto, rising to $70m in two or three years.
“We felt that it was a pretty compelling package. We understood that we met the US dollar cost savings target they talked to us about midway through last year,” he said.
And Rio “could have done better than that”, if it had made a commitment for another 10 years.
Barclay said Rio’s decision looked to be less about power prices and more about its global strategy.
“From our perspective it looks like there is a bigger issue at play in terms of the overall Rio Tinto portfolio.”
Barclay said this year’s ordinary dividend would be strong. However, the company would row back on its capital management programme — meaning no more special dividends.
“The reason for this is that the 2022 and 2023 years will be challenging years financially given the transmission work that needs to be in place to free up the Manapouri and Clutha schemes.”
In February, Meridian declared an interim special dividend of 2.44 cents per share in line with the programme.
The race is now on to allow deepsouth power to reach the north.
State-owned grid operator Transpower needs to build the Clutha Upper Waitaki Lines Project, due for completion in 2023. Then power from the southern generators can readily serve the national power grid.
Barclay said the company’s focus now was on preserving its BBB+ credit rating, which ratings agency S&P has placed on a negative outlook.
S&P said the closure would disrupt the electricity market: “Meridian is materially exposed to the disruption and its financial metrics could weaken without an adequate capital management strategy.”