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Rio Tinto (ASX:RIO) to shut NZ aluminium smelters

Rio Tinto (ASX: RIO) has announced it’s going to shut the NZ aluminium smelters. The Rio Tinto share price is up around 3%.

What is Rio Tinto?

Rio Tinto’s origins date back more than 145 years but today it is one of world’s largest aluminium and iron ore producers, with much of its sales revenue coming from its operates in Western Australia. It also owns, fully or partly, mining projects for copper, diamonds, uranium and other minerals.

The end of New Zealand Aluminium Smelters (NZAS)

Rio Tinto is planning for the wind-down of operations and the eventual closure of NZAS after the conclusion of its strategic review. The review concluded that it wasn’t viable because of high energy costs and a challenging short to medium term outlook for the aluminium industry.

As a result, NZAS has given Meridian Energy (ASX: MEZ) a termination notice, the Meridian share price is down 9% this morning.

In 2019 Rio Tinto made an underlying loss of NZ$46 million on the smelter. The energy costs are among some of the highest in the world. It couldn’t secure a power contract that would enable competitive and profitable operations despite extensive discussions with a wide range of interested parties.

The smelter employs around 1,000 people directly and creates a further 1,600 indirect jobs in Southland.

Rio Tinto Aluminium CEO Alf Barrios said: “We recognise the decision to wind-down operations at NZAS will have a significant impact on employees, the community and our customers. It is not a decision we have made lightly and without significant careful consideration.”

Summary

It’s never good to see people lose their jobs. Businesses have to be profitable to remain in operation, so I can see why Rio Tinto made the decision. I’m not sure it’s a buy right now, with how strong the iron ore price is right now. It’s best to buy miners when the commodity price is low like in 2016.

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