Rio Tinto Group, the world’s second-biggest mining company, plans to suspend alumina production at its unprofitable Gove refinery and focus on bauxite output due to low prices and an elevated exchange rate.
“Our aluminium business is facing challenging market conditions and tough decisions are needed,” chief executive Sam Walsh said in an e-mailed statement. “We have a firm belief in the potential of the bauxite operation, a quality asset with a long-term future.”
Rio has been reviewing the operation since at least last October, including talks with government to supply cheaper gas. Aluminum, which is smelted from alumina, was Rio’s least profitable business unit last year, earning net income of $3 million on sales of $10.1 billion, according to data compiled by Bloomberg.
Key reasons influencing the decision were continuing low alumina prices, a high exchange rate and substantial after-tax losses for the refinery despite considerable efforts to improve refinery performance during that time, Rio said. The suspension process will take some time. At this early stage, it is expected the process of suspending production would start in the first quarter of 2014 and be phased during the year.
Rio’s shares rose 2.7 percent at 10:11 a.m. in Sydney, while the benchmark S&P/ASX 200 Index was little changed.
Gove, located 650 kilometers (404 miles) east of the Northern Territory’s capital Darwin, has about 1,400 employees and contractors, according to Rio’s website. Output was 1.6 million metric tonnes in the first nine months of 2013, representing about 24 percent of Rio’s total production.
A priority will be establishing long-term certainty for the bauxite operation and its 350 employees and contractors, Rio said.
“There is no doubt it is a challenging path ahead,” Walsh said. “We are working in partnership with the Northern Territory and Australian governments, the broader community and traditional owners to identify initiatives to create new opportunities for the people of Nhulunbuy.”