Money Editor for NZ Herald

Tiwai deal gets analyst nod

Water spilling from Meridian's Benmore Dam in the Waitaki Valley. Photo / Simon Baker
Water spilling from Meridian's Benmore Dam in the Waitaki Valley. Photo / Simon Baker

Meridian's deal with New Zealand Aluminium Smelters is a good short term solution to create certainty around its share market listing, says one analyst.

William Curtayne from Milford Asset Management, said the contract renegotiation was positive because it kept the smelter open but Meridian and the government had not committed a long term subsidy to secure the deal.

The government will pay a one off $30 million to secure the contract while Meridian has agreed to charge a lower price for electricity supplied to the smelter until January 2017.

"[It's] positive that the deal is only signed until January 2017 as the price offered to [NZAS shareholder] Rio is low and Meridian should be able to sell this at a higher price into the general wholesale market when the contract expires."

Curtayne said the Government had obviously decided it would gain more than $30 million from the Meridian sale by having increased certainty around the contract.

"[The Government] have obviously decided that more than $30m will be gained in the Meridian sale with better pricing due to the increased certainty around this contract."

Curtayne said Meridian would get less money from the smelter but if NZAS had pulled the plug on the plant it would probably have got a similar amount of money if the power was sold elsewhere.

But he said one key important factor to come from the negotiations was the guarantee from NZAS shareholders Rio Tinto and Sumimoto that they will back the smelter until 2017.

"The guarantees from NZAS parent Rio Tinto and Sumimoto are very important for Meridian. This is because Rio may spin NZAS off into its own vehicle. This vehicle may collapse with weak aluminium prices and hence not be able to pay off its contract with Meridian. This issue was probably the major sticking point in the contract."

But another analyst said he had hoped for a longer term deal which would have provided more certainty.

Phillip Anderson, an analyst with Devon Funds Management said the renegotiation had only shifted the earliest closure date back a year.

"The earliest closure date has been moved from 01/01/2016 to 01/01/2017."

Anderson said the old contract already linked power price rises to any rise in the New Zealand dollar value of aluminium.

"The old contract terms are largely preserved but the Government has chipped in $30m to secure the smelter for an extra year.

"Beyond that the fate of the smelter still rests with global economic conditions and aluminium prices in particular. I was hoping for a longer term deal which provided more certainty."

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