Smelter owner New Zealand Aluminium Smelters (NZAS) was undertaking work to determine the level of maintenance capital expenditure it had to undertake.
It was expected the company would have to make a decision soon on its deferred maintenance spend.
"Committing to capex is a good indication NZAS is likely to stay open for longer. However, it is clear the outcome of the transmission pricing methodology review is becoming increasingly important,'' Mr Foster said.
In March, the NZAS contact with Meridian Energy was amended to allow the smelter to defer its decision on contract volumes, which would allow NZAS to incorporate the TPM paper result - now expected in May - into its thinking, Mr Foster said.
With regard to the profitability of NZAS, Forsyth Barr's tracking indicated in March the operating profit/tonne ratio fell 37% to $181 a tonne.
The main drivers of the fall were an increase in the cost of alumina (up 8.5%) and the lift in the NZ dollar-US dollar cross (up 1.7%).
To further underscore the importance of the TPM, if maintenance capex was assumed to be $50million, NZAS was cash-flow positive only 53% of the time since the beginning of 2013.
However, the amount of time NZAS was cash-flow positive increased to 76% if transmission prices were $30million less, he said.
"We maintain our view the TPM is likely to provide NZAS with transmission cost relief of about $30million a year, which is lower than the $50million-a-year saving indicated in the last TPM paper published in June 2015.
"That relief, combined with a cautiously positive medium-term aluminium sector outlook, should be enough to ensure NZAS stays open.''
Meridian had made its contract with NZAS publicly available, although anything to do with pricing had been redacted, Mr Foster said.
Most of the key contract terms were well known to the market, such as termination clauses and the ability to drop contracted volume to 400MW from the current 572MW.
Based on Forsyth Barr's review of the documents, other points of note were. -
● The aluminium price thresholds where Meridian received higher prices were $3000 a tonne and $4000 a tonne.
The current aluminium price was $2200 a tonne and the last time prices were above $3000 a tonne was in June 2011.
Those higher prices were not expected to be triggered any time soon.
● NZAS had rights to temporarily drop volumes to undertake maintenance.
The forthcoming decision on whether to drop demand to 400MW or stay at 572MW was a permanent decision, not a temporary one based on the extent of maintenance needing to be undertaken.
Forsyth Barr's view was NZAS would stay at 572MW because of the economies of scale of higher production.
● Some good-faith clauses where NZAS outlined its intentions after the expiry date on December 31, 2030, if not terminated earlier.
While NZAS was supposed to outline its long-term intentions before December 31, 2020, it was not likely to change any of the dynamics around whether the smelter stayed open or closed.
