Economy
Is Beaconsfield the Canary in the mines?
The imminent closure of the Beaconsfield gold mine (ABC Online HERE) may be a warning that other big miners are pondering similar action, not least the user of some one-third of the state’s power output, the RioTinto-owned Comalco smelter at Bell Bay. As The Age and The Australian reveal, big miners are feeling the economic heat … but there could be a silver lining to the potential disaster …
The Bell Bay smelter uses a huge amount of the state’s power output – at a highly-subsidised rate … would that not be returned to domestic use; power prices reduced accordingly to home and small business users, who are really suffering. Having lower cost and renewable power statewide is a considerable asset for growing small business; and an attraction for more people to live here. And … sales over Basslink also reduces coal use on mainland Australia.
• Background: What RioTinto says about its Bell Bay Smelter:
The Bell Bay smelter began production in 1955. It was Australia’s first aluminium smelter and was developed as a joint venture of the Commonwealth and Tasmanian Governments. This smelter is located on the north coast of Tasmania and has an annual production capacity of 160,000 tonnes. The site on the Tamar River in Northern Tasmania was chosen due to the availability of competitive hydro-electric power and deep water port facilities.
Comalco purchased the smelter in 1960, when production was about 12,000 tonnes. Since that period, plant expansions have increased production capacity to 160,000 tonnes a year. About half of the smelter’s metal is shipped to domestic markets with the balance exported mainly to South East Asia, New Zealand and the US. In recent years, Comalco has been optimising the smelter’s production and performance, resulting in operating cost savings and environmental improvements. As Tasmania’s major consumer of electricity, the Bell Bay smelter has helped to support development of Tasmania’s hydro-electric industry.
• The Age
Rio Tinto’s aluminium woes
Barry FitzGerald
November 29, 2011
RIO Tinto’s efforts to improve the performance of its aluminium division – one greatly enlarged with the ill-timed $US38 billion ($A39.1 billion) acquisition of Alcan in 2007 – has fallen victim to the crash in aluminium prices.
At its Sydney investor briefing yesterday, Rio revealed that at current aluminium prices, the earnings of the division are expected to be ”around break-even in the second half of 2011”.
The revelation was no rude shock for the market, with most analysts having already pencilled in losses for the aluminium division because of the freefall in metal prices.
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Aluminium prices have fallen by 26 per cent in the past six months to US89¢ a pound in response to flagging demand in Europe and continued strong production by Chinese smelters.
Rio told investors that the current metal price was ”well below” the global industry’s marginal cost of production. ”The short-term outlook remains challenging as the industry experiences higher input costs and lower London Metal Exchange prices,” Rio said.
Rio wants to improve aluminium margins to the 40 per cent level required to qualify it as a so-called tier-1 business. It was hoping to achieve that by 2014, with a previously announced sale of 13 under-performing aluminium assets – a key plank in the business improvement plan. But the fall in the metal price now makes 2015 a more realistic target.
The metal’s weakness also cast doubts over Rio’s ability to achieve better than fire-sale prices for the aluminium assets earmarked for sale. ”This is not a very benign environment in which to sell a business,” Rio finance director, Guy Elliott said.
But he said that while Rio was ”keen” to quit the nominated assets, it would not be done at any price. ”It has got to be a good value transaction when it is done.”
He confirmed that Rio had numerous options for the sale, ranging from a float, a trade sale and/or a distribution in specie to shareholders. But he said the in-specie distribution option had additional complexity because of Rio’s dual-listed company structure.
Under the asset upgrade plan, there would be a wholesale exit from the aluminium smelting business in Australia, as well as the Gove alumina refinery in the Northern Territory.
Read more: http://www.theage.com.au/business/rio-tintos-aluminium-woes-20111128-1o37w.html#ixzz1fDbVxA2E
• The Australian:
Big miners fear global deep freeze
by: Matt Chambers and David Uren
From: The Australian
November 29, 2011 12:00AM
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BHP Billiton and Rio Tinto – the giant miners feeding the enginerooms of the global economy – say the eurozone crisis has entered a dangerous new period, and warned of global contagion and frozen credit markets.
As Wayne Swan prepares to hand down the government’s mid-year economic and fiscal outlook today, BHP chief executive Marius Kloppers warned the world was “entering into the next phase of this whole contagion”.
Rio chief executive Tom Albanese said that, while conditions had not suddenly worsened, the prolonged crisis was “reducing prospects for economic growth in Europe and that’s having knock-on effects around the world”.
The government’s economic statement will reveal that the Treasurer is relying on a rebound in Australia’s economic growth as well as tax rises and spending cuts to deliver its promised budget surplus next year in the face of a global downturn.
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The forecasts will be consistent with a new economic outlook issued last night by the Organisation for Economic Co-operation and Development, which said Australia’s economic growth next calendar year would hit 4 per cent.
But the OECD said this depended on Europe being able to “muddle through” its crisis and warned there remained a severe risk of a “highly devastating” outcome. Australia would be exposed to a loss of business and consumer confidence, and a sharp fall in export revenue as commodity prices fell, it warned.
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Mr Albanese said there had been a steady decline in conditions in recent months and it was getting to the stage where lending would be restricted outside Europe.
“This has been a steady deterioration that is in its third or fourth month,” he told The Australian. “As it goes longer and longer, it’s having the effect of reducing prospects for economic growth in Europe and that’s having knock-on effects around the word. But more importantly, it’s having a crisis-of-confidence effect on the financial markets in Europe, which is going to certainly have lending restrictions on a global basis.”