Contact Falls on Rio’s N.Z. Smelter Concerns: Wellington Mover

Contact Energy Ltd. (CEN), New Zealand’s largest publicly-traded energy supplier, fell after Meridian Energy Ltd. said it was unlikely to agree to new price terms with Rio Tinto Ltd.’s South Island aluminum smelter, stoking concerns that the facility may close and leave a power glut.

Meridian advised Rio unit Pacific Aluminium, which has been seeking to change its electricity contract since July, of its “bottom line” position on Tiwai Point, it said in a statement. State-owned Meridian said it may instead engage with Rio and minority investor Sumitomo Chemical Co. about the future of the smelter, which consumes one-seventh of New Zealand’s electricity.

Contact shares fell as much as 3.5 percent in Wellington, heading for their biggest daily decline since Oct. 9.

“I think we’re going to be worrying about it for the next six months, until we’ve got certainty on what the medium term looks like,” Grant Swanepoel, an Auckland-based analyst at Deutsche Bank AG with a ‘buy’ rating on Contact, said in a telephone interview.

Contact, which supplies a quarter of the nation’s electricity, and other power companies would face less demand for their power if Tiwai closed. Rio transferred Tiwai and other aluminum assets into a separate unit in 2011 to boost the group’s financial performance, as aluminum producers struggle with weak markets due to an overcapacity of smelters.

Contact’s shares were down 4 New Zealand cents, or 0.7 percent, at 2:19 p.m. in Wellington. They recovered earlier losses after Pacific Aluminium said that an agreement with Meridian could occur and that talks “had progressed more in the past two weeks than in the previous nine months,” according to an e-mailed statement.

New Zealand’s government has been in talks with Rio, seeking to assist the Meridian negotiations, State Owned Asset Minister Tony Ryall said in an e-mailed statement. He also sought to assure potential investors in the upcoming Mighty River Power share sale that all relevant information about the smelter’s contract would be in that offer document.

The existing agreement remains in place until at least Jan. 1, 2016, with “significant financial and other obligations beyond that,” said Ryall.

Mighty River Power is the first of three state-owned energy companies, including Meridian, that the government plans to partially sell in share offerings.

To contact the reporter on this story: Chris Bourke in Wellington at cbourke4@bloomberg.net

To contact the editor responsible for this story: Chris Bourke at cbourke4@bloomberg.net

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