Indication of Tiwai Point value surety

The aluminium smelter at Tiwai Point, Bluff. Photo: Supplied
The aluminium smelter at Tiwai Point, Bluff. Photo: Supplied
Rio Tinto subsidiary Pacific Aluminium has reported a net loss of $46million related to its interest in the New Zealand Aluminium Smelter for 2019.

The company, which houses Rio Tinto’s 79% shareholding in the Tiwai Point smelter, recorded an overall loss of $313million for the year ended December, compared with a prior year profit of $207million.

The underlying loss fell to $46million, however, from the previous year’s $22million profit after accounting for ‘‘fair value of financial instruments’’, or hedges used to insure against volatility in power prices.

The company said 2019 aluminium prices were 15% lower during 2019 than the prior year, averaging $US1791 a tonne — but had dropped to below the $US1700-a-tonne level this month.

NZAS chief executive Stew Hamilton said the result underscored the reasons for the strategic review at Tiwai Point smelter, which should be complete by the end of next month.

He said over the year the smelter had made $NZ422million in payments to New Zealand suppliers, including $NZ58million to suppliers in Southland.

‘‘It is one of two smelters in the world producing ultra-high purity aluminium and the only one producing this using electricity generated from renewable sources.’’

Forsyth Barr investment adviser Damian Foster said while the result would seem to provide ammunition for the potential closure of the smelter, NZAS had posted underlying net losses in the past.

‘‘What is interesting is the fact that there are no impairment charges listed. That tells us that Rio sees reasonable value in the business as they aren’t making any structural adjustments to the business ahead of any potential closure.’’

Mr Hamilton, however, said the company had been unable to offset the high price of power and transmission charges it was facing.

“This means we swing from delivering small profits to losses for our owners, making our financial viability uncertain,” Mr Hamilton said.

An Electricity Authority review of power transmission prices has raised the prospect of transmission price relief of about $25million for the smelter, though this remained at consultation stage.

‘‘If we can secure an internationally competitive power arrangement that enables us to be consistently profitable and a transmission charge that more accurately reflects the service we receive, NZAS will be well placed to continue to be a vibrant part of the New Zealand economy.’’

He said the electricity costs topped any other smelter’s.

‘‘Most smelters, especially those located close to generation like NZAS, pay considerably less.’’

Meridian Energy ordinary shares dropped 1.9% to $5.44 yesterday.

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