(updated with section on Market View)
Rio Tinto will suspend operations at its Gove alumina refinery in Australia as it was no longer a viable business in the current market environment, the miner said on Friday November 29.
“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 Tinto said, adding that the process would take some time.
Earlier this week the miner had warned it may close the refinery.
Among the reasons for the decision were continuing low alumina prices, a high exchange rate and substantial after-tax losses for the refinery despite considerable efforts to improve performance, Rio Tinto said.
“This is a very sad day for everyone associated with Gove. It has been an extremely difficult decision and we recognise it will have a significant effect on our employees, the local community and the Northern Territory,” Sam Walsh, ceo, said in a statement.
The miner is working in partnership with the Australian and Northern Territory governments to identify ways for the people of Nhulunbuy, he said.
“Our aluminium business is facing challenging market conditions and tough decisions are needed, but those decisions are so much harder when our employees and local communities are affected as they are in Nhulunbuy,” he added.
“We have a firm belief in the potential of the bauxite operation, a quality asset with a long-term future," Walsh said.
Rio Tinto said it will continue to mine bauxite at Gove and said priority will be for establishing long-term certainty for the bauxite operation and its 350 employees and contractors.
Earlier, the company had considered converting the alumina refinery to gas-powered but this was not pursued.
Gove produced 1.6 million tonnes of alumina and 5.76 million tonnes of bauxite in the nine months ended September 30. The operation in Australia’s Northern Territory is part of Rio’s Pacific Aluminium unit, which the miner had tried but failed to sell.
Gove has about 1,400 employees, according to Rio’s website.
“Markets are driven by sentiment and knee jerking,” Paul Adkins, md AZ China, said adding, “we are likely to see some whipsawing of price until the market adjusts to the new reality”.
“In a big picture sense, it will make little difference to the market. We are talking about less than 3 million tonnes of alumina on an actual basis,” he said.
Gove produces more than 8.2 million tonnes per annum of bauxite and 2.7 million tonnes per annum of alumina, according to the company website.
Any drop in alumina will be more than offset by the freeing up of 8 million tonnes of bauxite, he added.
“I expect Rio Tinto will announce an expansion of the mining operations, to create a few extra jobs up there,” Adkins said.
“So the total supply equation doesn’t change, or slightly improves, if one thinks of alumina as a transitory product – halfway between the red dirt and the finished metal,” he added.
“China has plenty of refining capacity, and could easily absorb any extra bauxite, or build additional capacity as needed,” he added, saying, “Far more preferential for the Chinese than building capacity in Indonesia.”
A bauxite producer in Indonesia said that big trading firms and companies have shown interest to build refineries in Indonesia.
“There has been some interest in building alumina refineries here including from Rusal and Glencore,” he said.
He also said that it’s not easy to substitute Australian bauxite with Indonesian bauxite and vice versa in a downstreaming plant using a particular feed.
Metal Bulletin's alumina index was at $326 per tonne fob Australia, recovering from the lows seen in September, but was still below the $351.79 per tonne levels seen earlier this year.
(updated with section on Market View)