22 Jan 2013

Faint hope price rise may prompt smelter rethink

7:52 am on 22 January 2013

Resource analyst David Lennox says recovering aluminium prices might prompt the new boss of Rio Tinto to rethink the sale of its Bluff aluminium smelter as part of a shake up of the entire company.

Rio Tinto announced last week it was writing down the value of its coal business in Mozambique and its aluminium businesses to the tune of $US14 billion.

The company also appointed Sam Walsh, the head of its Iron Ore and Australia divisions, as the company's new chief executive.

Despite the writedowns, investors approved of the appointment of a new boss, believing he will have a more disciplined approach after two failed acquisitions

Rio acquired its majority stake in New Zealand Alumimium Smelters after buying Alcan for $US38 billion in 2007.

Mr Lennox, at the Australian-based Fat Prophets investment adviser, says Rio is unlikely to change its sale plans but the new chief executive is expected to look closely at the individual businesses.

But Mr Lennox says two factors - stable energy costs and better aluminium prices - may prompt Mr Walsh to reconsider the Bluff smelter.

"If (he) could see some positive outlook for the price of aluminium ... they (executives) would need to see some control of the escalation in energy prices, then perhaps there is the potential for the aluminium business to be brought back in," Mr Lennox says.

Meridian Energy says it's still in talks with Rio Tinto about its contract to supply electricity to the Bluff smelter.

Rio wants to renegotiate cheaper power prices as the new contract comes into force this year.