9 Aug 2013

Rio Tinto announces $US4.2bn earnings

7:30 am on 9 August 2013

The company that is the majority owner in the Tiwai aluminium smelter, Rio Tinto, has announced earnings in the six months to June of $US4.2 billion.

The New Zealand Government has agreed to spend $NZ30 million on subsidising the Southland smelter.

In a statement to share markets on Thursday, Rio Tinto said the earnings were down 18% on last year because of lower market prices.

It said its cost reduction programme was gaining momentum and it was also reducing staff numbers worldwide by more than 2000.

Smelter deal 'removes uncertainty'

A fund manager says the Tiwai Point smelter deal removes uncertainty that has been hanging over the electricity sector for the past 12 months.

Meridian Energy announced on Thursday that it had reached a deal with New Zealand Aluminium Smelters (NZAS) on the cost of electricity after more than a year of negotiations.

The Government hopes to list Meridian on the stock market later this year. Until now, uncertainty over the electricity negotiations had cast a shadow over the initial public offering (IPO).

Craig Stent, an energy analyst at Harbour Asset Management, says the striking of a cheaper deal with the smelter gives potential investors in Meridian much more clarity. Without it, he says "investors would either need to price that uncertainty or essentially not participate in the IPO, so it might have been a bit of a struggle for the Government to get Meridian away."

Analyst expects Govt will recoup money

A financial analyst says the Government should get back the money it is spending on subsidising the Tiwai Point smelter through higher proceeds from the sale of shares in Meridian.

State-owned Meridian Energy sells 40% of its power to the smelter.

Milford Asset Management analyst William Curtayne says a deal with the Government over the smelter was inevitable.

"More than likely they'll get their money back with a higher sales price than if they didn't do it, you need a 1% improvement in the sale price of Meridian to make $30 million back."

Mr Curtayne says in the long term, the smelter may struggle to compete with newer smelters around the world.

Meridian says Tiwai deal commercial

Meridian Energy says its deal with the Tiwai Point smelter is commercial, and one which it would have done, even if the Government wasn't its owner.

Meridian chief executive Mark Binns says there was no Government interference in the negotiations. He wouldn't say how much lower the re-negotiated price is from the original contract.

Meridian is due to release its annual results on Monday 12 August.