Rio Tinto warns of an uncertain future for Australia's largest aluminum smelter

Rio Tinto warned that Australia's biggest aluminium smelter Tomago may have to close down if it cannot source power at rates commercially viable beyond 2028, when its current electricity deal expires.

Tomago Aluminium, the largest power user in New South Wales, was built to take advantage Australia's abundant and cheap coal.

Rio Tinto stated that power accounts for more than 40% in Tomago’s operating costs. Both coal-fired options and renewables are expected to increase sharply once the existing contract expires. This could threaten Tomago’s commercial future.

Rio Tinto stated that the main challenge is to find energy at competitive prices.

Rio Tinto reported that despite months of consultations and its electricity supply contract expiring in December 2020, Tomago was unable to secure an economically viable deal for electricity beyond 2028. AGL did respond immediately to a comment request. The warning highlights the increasing strain that high energy prices are putting on Australia's large industries, especially those who rely on large and steady power supplies.

The metals processing industry in Australia has been hit by the rising cost of energy and labour. The country announced earlier this month that it would provide a bailout of A$600,000,000 ($389.88,000,000) over three years to Glencore's Mount Isa Copper Smelter and Townsville Refinery. Trafigura’s Nyrstar zinc and lead operations, as well as the Whyalla Steel Plant have received government assistance.

Jerome Dozol, CEO of Tomago Aluminium, said that "unfortunately, all market offers received to date show that future energy prices will not be commercially viable and there is considerable uncertainty as to when renewable projects at the required scale will become available."

Rio Tinto said that the decarbonisation of assets requires solutions supported by both state and federal governments.

Rio Tinto is consulting its employees about the future of their operations but has not yet made a decision. Tomago employs more than 1,000 permanent employees and 200 contractors.

The process will be open until the 21st of November and employees and union representatives can provide feedback before a final decision is made.

In February,

Former Rio chief Jakob Stausholm stated that he was unable to provide any assurances on the future of Tomago because of high electricity prices. He hoped for clarity by mid-year.

Rio Tinto owns the majority of Tomago with 51.55%, Gove Aluminium has 36.05%, and Norsk Hydro holds 12.4%.

AGL Energy nor Norsk Hydro didn't immediately respond to our request for a comment. Gove Aluminium was not immediately reachable.

(source: Reuters)