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Almost 10,000 tonnes of ouvea premix, a by-product of the smelting process, was dumped at the site in 2014 by Taha, which was under contract to New Zealand Aluminium Smelter to provide a zero waste solution for the substance.
A "handshake deal" was made with concerned parties last week, but Gore District Council (GDC) mayor Tracy Hicks said today the Rio Tinto board turned it down.
"It's fair to say everybody is feeling pretty sick.
"I'm annoyed at how this has played out and the performance of Rio Tinto over this period."
When wet, the substance is capable of generating ammonia gas, which could be harmful to human health or the environment.
Floods in the region this week sparked fears the chemicals could become saturated and hazardous.
Mr Hicks questioned whether some of the millions the company would be saving in its "sweetheart deal” over power, could be used to expedite the removal of the dross.
Gore District Chief Executive Stephen Parry today announced the deal he had struck with New Zealand Aluminium Smelters CEO Stewart Hamilton has been scuppered by Rio Tinto.
"To say I am devastated is an understatement.
"We had a deal, sealed with a good old-fashioned Southland handshake, but Rio Tinto’s bosses have reneged.”
He said the deal would have resulted in the dross being removed from Mataura by the end of June and sent to a building on the Tiwai Point complex for storage. The building is not part of Analco's processing plant at Tiwai.
"It’s my understanding from conversations with Stewart that Rio Tinto’s rationale for refusing to take the dross was that it didn’t want any more liabilities on the Tiwai site before the company’s strategic review is completed at the end of March.”
Mr Parry said the original deal struck with all Southland councils, landowners and NZAS to move the dross stored throughout Southland was still in place.
"However, at this point I can’t offer Mataura residents any concrete method by which we can accelerate the removal process.
"It would be ideal if Stewart Hamilton could attend the meeting in Mataura, on Friday, to explain to our residents in more detail why his company can’t take the dross.”
Mr Hamilton issued a statement to the Otago Daily Times saying: "We have fully co-operated with GDC regarding the council’s long-standing plans to remove the material that is stored at the Mataura Paper Mill.
"We remain committed to a solution that removes the material. NZAS has committed to contributing $1.75 million to the costs of safely removing and processing the material."
Mr Hicks condemned NZAS’s performance in managing its contract with Taha.
A press release from Gore District Council said when the council became aware it was at the mill, it was advised to allow Taha to apply for a resource consent retrospectively.
A consent was issued with a number of conditions, including a $2.3million bond. Taha appealed the bond and did not pay anything to the Council.
Taha went into liquidation and its principals left NZ for Bahrain during mediation in the Environment Court with the Council.
The catalyst for Taha going into liquidation was NZAS not renewing its contract with the company.