The owners of Australia’s biggest aluminum smelter, including Rio Tinto Group (ASX: RIO), are set to receive a government bailout to keep the plant operating as it grapples with high energy costs, according to people familiar with the matter.
After lengthy talks, majority owner Rio and its partners at the Tomago smelter in New South Wales will get financial support from both the federal and state governments, said the people, who asked not to be named because the discussions were private.
An announcement is expected Thursday, including further details of the package and plans for the smelter’s future, they said.
Rio Tinto owns slightly more than half of the Tomago plant, which has produced aluminum for more than 40 years. Gove Aluminium Finance Ltd. and Norsk Hydro ASA also hold stakes in the joint venture that operates the plant.
Rio declined to comment, while the Tomago joint venture didn’t respond to a request for comment. The Australian government and the New South Wales state government also didn’t respond immediately when contacted for comment.
Higher energy prices have battered the power-intensive aluminum industry worldwide, triggering a wave of closures and cutbacks. Years of expansion in China, where smelters are subsidized and typically incur lower costs, have intensified global competition.
Rio has previously said that electricity accounts for more than 40% of Tomago’s operating costs. Prime Minister Anthony Albanese pledged financial support during a visit to the plant in December, months after Rio warned that soaring energy costs could force it to close when an existing power-supply contract expires later this decade.
As part of any arrangement, the smelter’s owners would spend at least A$1 billion ($706 million) on maintenance and upgrades, the government said in a statement at the time. Separately, in March, Rio secured A$2 billion in combined federal and state government funding for another Australian smelter, Boyne, in the state of Queensland.
The company is not alone in securing Australian state funding: last year, the federal and respective state governments provided packages of support to Glencore Plc for its Mount Isa copper smelter and associated refinery, while Trafigura Group subsidiary Nyrstar Australia received funding for its Port Pirie lead smelter and Hobart zinc works.
The Tomago bailout was first reported by the Australian Financial Review.
(By Paul-Alain Hunt)