Rio Tinto announces plans to close New Zealand aluminium smelter in 2021

Rio Tinto's aluminium smelter at Tiwai Point. Photo / Supplied

The Government appears to accept that Rio Tinto's announcement that it plans to wind-down and close the Tiwai Point aluminium smelter is final.

On Thursday Rio Tinto said it planned to close the smelter in August 2021. More than 1000 people are directly employed at the smelter with another 1600 jobs indirectly affected, the company claims.

In a statement more than two hours after Rio Tinto made the surprise decision, the Government gave no signal that it is trying to convince the mining giant to change its mind, saying there was "a degree of inevitability" about the move.

Speaking to media today, Finance Minister Grant Robertson said there were problems in the aluminium market.

"As a sector, it has had its troubles." Rio Tinto was having discussions around the world with Governments.

Robertson said the position of the New Zealand Government had been the same as it had been since 2013.

"This is really not related to Covid-19, let's be frank about that." Rio Tinto had been attempting to sell the smelter since 2011. "This is a decision they've been looking at for many, many years."

Energy Minister Megan Woods said the smelter was receiving large subsidies under the emissions trading scheme while transmission pricing plans released recently would also have lowered the smelter's transmission costs.

"This is a blow for the people of Southland and I feel for them, but we need to look to the future," Robertson said.

Woods said there was "a clear understanding" that direct subsidies were not on the table. The smelter wanted a "prudent discount" on transmission pricing. However a formal application had not been put in.

Robertson said the Government was informed of the decision just prior to the news being released publicly. He repeated that there was a degree of inevitability to the news.

"We'll always keep lines of communication open," Robertson said, however the statement appeared to be "definitive".

Woods said it was "pretty inevitable" that companies would signal that they would put investment plans on hold. "This won't come as a surprise, it was a matter of when, not if." She said a number of wind projects were underway.

Woods said it was the Government's expectation that the site would be cleaned up, which is expected to cost around a quarter of a billion dollars.

NZ First MP Mark Patterson said Rio Tinto was "playing games" with the people of Southland.

"It is unconscionable that despite massive support from New Zealand, multi-billion dollar company Rio Tinto is bailing on Southlanders at the height of an economic crisis," Patterson said in a statement.

"NZ First has consistently warned that Rio Tinto would walk away, just as they did in Australia, when it no longer suited them. And with a 14-month timeframe, this looks like Rio Tinto is using local workers to play hard-ball with New Zealand power companies."

Patterson said it was vital to support the workers who have been affected.

"We will also continue to push to ensure Rio Tinto takes responsibility for the aluminium dross dump in Mataura. It's disgraceful that a huge corporation can behave like this in New Zealand."

Woods said it was the Government's expectation that the site would be cleaned up, which is expected to cost around a quarter of a billion dollars.

"The Government will work with the local community to support economic development in the region to help offset this loss."

Robertson added that there "is a degree of inevitability to the decision" with the smelter put up for sale in 2011.

News that Southland's largest employer could close in just over a year has left local leaders reeling, with Invercargill's mayor in shock.

Early on Thursday Rio Tinto announced that it was terminating its electricity contract with Meridian Energy, as it prepared to close the Tiwai Point aluminium smelter in August 2021.

Stew Hamilton, chief executive of New Zealand Aluminium Smelters told RNZ that he did not believe that a deal could be done to keep the smelter open.

"If we're mistaken, the window is open," Hamilton told Morning Report, adding that the window "is closing fast now we've ended the contract with Meridian".

Tim Shadbolt, Invercargill's long time mayor, told RNZ that he "just can't believe it", because he did not think it would come to this saying he never thought it would come to this.

"[I'm] just devastated", Shadbolt said. His initial concern was for workers and "what alternatives there are and it looks pretty bleak at the moment but we're a resilient community and we'll be doing everything possible to look at the options".

Asked if he was disappointed Government didn't intervene, Shadbolt said, "yes, I thought they could have helped, done something to support it.

"They thought if they could only get rid of Invercargill and the lobbying, that would flood the rest of the country with cheap hydro electricity and that's just not going to happen."

Earlier Invercargill deputy mayor Toni Biddle told Newstalk ZB this morning that it was "incredibly disappointing news" - which she learned of at the same time as the media.

Biddle said she felt let down by the Government.

"All we really wanted was a fair operating environment, so we are very disappointed, but we're also very, very resilient down here, so we will stand together as we face this announcement together, moving forward," Biddle said, expressing hope that Rio Tinto could be convinced to change its mind.

"I don't believe it's over until it's over."

Not viable

The Australian mining giant announced on Thursday that it will start a wind-down of operations and the eventual closure of New Zealand Aluminium Smelters (NZAS).

It comes after its own strategic review concluded that the business is no longer viable given high energy costs and a challenging outlook for the Aluminum industry.

The strategic review concluded "that the smelter, which has made Rio Tinto an underlying loss of NZ$46m in 2019, is not economically viable due to energy costs that are some of the highest in the industry globally, coupled with a challenging short to medium term aluminium outlook".

NZAS is a joint venture between Rio Tinto (79.36 per cent) and Sumitomo Chemical Company of Japan. (20.64 per cent).

It says it employs around 1000 people directly and creates a further 1600 indirect jobs in Southland.

In October the company announced it was undertaking a strategic review, with the head of its New Zealand operations indicating it needed "tens of millions" in annual relief of both transmission costs and electricity pricing.

At the time the Government indicated that the position of the New Zealand Government was that there would be no more relief from taxpayers for the smelter.

A spokeswoman for Energy Minister Megan Woods said the minister was not immediately able to comment this morning.

The review was meant to be completed in late March, but the company has made no announcement about its future since.

Rio Tinto said that "extensive discussions with a wide range of interested parties have failed to secure a power contract that will enable the operation to become both competitive and profitable".

Over the next 14 months the owners will progressively wind-down and close the operation.

"We recognise the decision to wind-down operations at NZAS will have a significant impact on employees, the community and our customers," Rio Tinto Aluminium chief executive Alf Barrios said.

"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.

"We are committed to working with our partners as we progress through detailed planning towards closure and we will do all we can together with the Government to find ways to support the Southland community."

Late in 2019 Barrios flew to New Zealand to meet with Woods and Finance Minister Grant Robertson to stress the risk that the smelter could close.

It appeared to lead to progress, with Barrios writing to the ministers the following day thanking them for an offer to help build a business case for the smelter.

Tiwai Point is the country's biggest electricity consumer and among the world's lowest-carbon producers of aluminium.

It's closure will have a major impact on the entire electricity industry, especially Meridian Energy, New Zealand's largest electricity generator, which owns the nearby Manapouri Power Station.

Meridian chief executive Neal Barclay said the news was "a huge blow to the Smelter workforce and the Southland community".

The company, majority owned by taxpayers, had worked hard to find a solution acceptable to the smelter and its shareholders.

"Ultimately Rio Tinto has arrived at a different conclusion and has decided
to terminate their contract with us," Barclay said in a statement.

"As a company we have always known an exit is a possibility and we have planned for it. An exit does provide our country with a unique opportunity to accelerate decarbonisation, making way for new growth opportunities across numerous sectors."

Rio Tinto reported a $46.2 million underlying loss from its New Zealand aluminium smelting interests in 2019 - despite near-record production.

The company owns 79.4 per cent of the Tiwai Point aluminium smelter, which produced 353,293 tonnes of saleable metal last year, the most since 2011.

But lower aluminium prices and higher energy, labour and raw material costs saw underlying earnings at Rio's Pacific Aluminium NZ business drop $67.8m from the year before.

- More to come