The government of New Zealand offered Rio Tinto a short-term subsidy to help pay for electricity for its aluminum smelter in Tiwai Point in southern New Zealand. Rio Tinto rejected the offer because, according to Prime Minister John Key, the mining giant was seeking a longer-term solution to address the losses of Pacific Aluminum, which runs the smelter and is 80 percent owned by Rio Tinto.
The smelter is losing money as the price of aluminum has dropped with weakened demand and the production of aluminum has increased in China.
Rio Tinto believes that it can still find a way to lower the cost of electricity in order to keep the smelter running. The company has been negotiating directly with state-owned power company Meridian Ltd for the past nine months. Meridian, however, stated last week that the two parties are still far apart.
The smelter consumes approximately 15% of New Zealand’s total output of power.
If the smelter shuts down, it is feared that an overabundance of electricity will drive down electricity prices. The price decline will also threaten the planned partial privatization of two state-owned power companies: Mighty River Power Ltd and Genesis Energy.
(Edited from Reuters and Dow Jones Newswires)