Mercury in a good position, despite Tiwai Point uncertainty - Fraser Whineray

Mercury NZ's outgoing chief executive Fraser Whineray says the company is in a good position as Rio Tinto evaluates the future of Tiwai Point aluminium smelter.

It is understood much of the discussion surrounding Tiwai centres on transmission pricing of power for the facility, which uses 13 per cent of New Zealand's electricity.

Whineray, who is leaving Mercury to take up a role at Fonterra, said after the release of the company's first-half result that he was watching Rio's review of Tiwai "from afar".

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An outcome of the multinational's review is due by the end of March.

"We are watching that from afar, from a good position in the North Island," he said.

All Mercury's assets are in renewable energy and all are in the North Island.

"For New Zealand it's all about having an orderly exit for the benefit of the communities and also for the benefit of the energy system, rather than just a 12 months' notice thing," he said.

Rio has almost identical notices in other places around the world including, recently, in Iceland, where it has threatened to shut its smelter if it cannot get cheaper power from the country's state-controlled energy supplier.

"It's pretty standard for smelters to look to renegotiate energy deals, particularly going into elections."

Whineray said it was not a question of "will they stay or will they go", because the ageing smelter at Tiwai Point would shut at some stage.

"The smelter's contract with Meridian runs out in 2030 which, in terms of infrastructure, is 10 years away - which is not very far away.

"We do have to think about the scenarios very carefully," he said.

Mercury is investing heavily in renewable power generation - in its existing Waikato hydro system and in wind power.

In the half year, Mercury committing to complete the construction of NZ's largest windfarm at Turitea by building the remaining 27 consented turbines, adding to the 33-turbine project announced earlier in 2019.

Mercury said below-average power generation due to dry weather in the Waikato, and about $14 million in lost earnings arising from its 2019 sale of metering business Metrix, drove its operating earnings down by 15 per cent in the first half to December 31.

The company also revised its operating earnings forecast for 2020 down by $10m due to drier conditions.

Mercury's earnings before interest, tax, depreciation, amortisation and financial instruments (EBITDAF) came to $258m for the half, down from $302m in the previous corresponding period.

Its net profit came to $83m, down from $104m a year earlier.

Whineray said that the result, when adjusted for lower generation and the sale Metrix - sold in 2019 for $270m - reflected "strong execution" across Mercury's business.

Generation during the period fell by 3,428GWh due to drier conditions in the Waikato and important scheduled maintenance on several geothermal stations as part of Mercury's long-term asset management plan.

Despite the fall in earnings, Mercury announced an interim dividend of 6.4 cents per share, an increase of 3.2 per cent.

Mercury said it was now looking at EBITDAF for the year of $500m from an earlier forecast of $510m.

"It was a stable result on an underlying basis with positive moves in their commercial and industrial book offsetting cost increases," Grant Swanepoel, head of institutional research at Craigs Investment Partners, said.

"The downgrade to guidance was entirely due to low inflows into the catchments over the last few weeks," he said.