The break-down in contract negotiations between Meridian and New Zealand Aluminium Smelters over the use of the Tiwai Point smelter will likely have a small negative impact on the price of Mighty River Power but it's not a "showstopper", analysts say.

Meridian chief executive Mark Binns released a statement to the stock exchange this morning saying that despite significant efforts by both parties there remained a "major gap" between them and Meridian believed it was "unlikely" that a new agreement could be reached with Pacific Aluminium."

Devon Funds Management analyst Phillip Anderson said on the face of it looked like negotiations were not going very well.

But Anderson said he understood it was not the end of negotiations and that Meridian's announcement was aimed at kicking the negotiations up the hierarchy to Rio Tinto themselves.


Meridian had been talking with Pacific Aluminium - which is 80 per cent owned by Rio but wants to deal directly with Rio.

Anderson said Binns' announcement could be part of plans to escalate the negotiations in order to prepare Meridian to be the second partial power company float to come to market this year.

Anderson said the announcement had hit Contact's share price - the company was down 3 per cent in early trading but is now down only 1.2 per cent.

"The market is not really panicking about it."

He said it would impact the price of Mighty River Power at the margins.

"But I don't think it is major. I don't think it is a showstopper. It's a risk which has already been flagged. I don't think anything said today changes much."

Milford Asset Management senior analyst William Curtayne the Meridian situation was not a new issue and the announcement today could be good news for Mighty River Power investors as it would force the Government to be clear about the risks to company in its soon-to-be released investment prospectus.

"Having more clarity is not necessarily a bad thing."

Curtayne said the situation would probably result in the bankers having to alter the pricing of the offer moderately.

For those looking to buy Mighty River Power shares it could mean the company will now be cheaper.

But he said Mighty River Power was still a great company which was still giving off a lot of cashflow.

"It won't change that story."

Curtayne said it may also be good news for Meridian in the long term. He said if the company pulled out of selling power to Rio Tinto, it could sell the power to other energy companies like Genesis or Contact, which would allow those companies to shut down their more expensive operations like the Genesis-owned Huntly power station and Contact's Otahuhu station

"It sounds bad at the headline. But in the long run if the market reacts effectively we could end up with a relatively benign outcome."

Curtayne said it was better than the situation be revealed now.

"It's good for them to come out and signal where they are now. It gives the situation more clarity."

He said it could mean the government gets less money for Mighty River Power but more money for Meridian which is worth twice as much.

The Government is in the process of working out the value and pricing of Mighty River Power for its partial float in May.