The Tiwai smelter is one of New Zealand's largest single exporters by value and has provided hundreds of jobs in Southland during the past 40 years, manufacturing some of the highest-purity aluminium available in the world.
Bids worth billions of dollars will be sought by Rio Tinto for the assets of the new company, Pacific Aluminium, which will encompass, along with Tiwai Point, the Gove bauxite mine and alumina refinery; Boyne Smelters and its associated Gladstone Power Station; the Tomago smelter; and the Bell Bay smelter, all in Australia.
Research by Craigs Investment Partners indicates Tiwai has an estimated value of $US1.1 billion ($NZ1.38 billion), while all seven assets under the new Pacific Aluminium umbrella are valued at almost $US7 billion.
The sales are expected to improve the performance of Rio's aluminium operation, which has struggled since Rio made the ill-fated Alcan acquisition for $US38 billion in 2007, The Australian reported this week.
Craigs broker Peter McIntyre said, because of the size and scale of each individual operation, just a few major companies would have the ability to bid.
Of the top 10 aluminium producers around the world, bidders could include Alcoa in the United States, Alumina in Australia, Chinese state-owned Chalco or mining giant BHP Billiton.
Alcoa and Alumina also have respectively a 60% and 40% share in joint-venture company Alcoa World Alumina and Chemicals, the world's largest aluminium business.
Mr McIntyre did not rule out the possibility of Tiwai Point being floated on the stock exchange, given the value of each asset had been identified individually, alongside after-tax profit forecasts for 2011.
Rio has only signalled the possibility of selling the assets in the Pacific Aluminium bundle, but several analysts believe Rio could also float a new company.
Mr McIntyre said Rio's preference appeared to be a separate sale, but selling a floated entity could be more attractive to some buyers.
He said in recent years, China's automotive industry alone had seen annual growth rates in aluminium use increase by 7%-14%.
"Aluminium is the second-largest metal market in the world.
"There's likely to be interest from China because of demand, but it's important to New Zealand that the buyer takes a long-term view of ownership," Mr McIntyre said.
Rio Tinto released few details on the proposed sale of Pacific Aluminium, other than saying a strong balance sheet meant it could choose the timing and method for selling the assets, cautioning that may not proceed until the global economic climate improved.
Mr McIntyre said while the assets being bundled together were profitable for Rio, there remained suggestions of high costs being attached to aluminium production in general.
Rio Tinto had indicated it wanted to rationalise those divisions and instead concentrate its efforts on increasing cash flow, he said.
On Tuesday, Rio Tinto said it had committed an additional $US1.3 billion to the development of the huge Simandou iron-ore field project in Guinea.
"Rio Tinto is accelerating the development of the Simandou iron ore project in Guinea with the approval of a further $US211 million for continued studies and $US1.11 billion of funding for commitments for early works and procurement," the mining giant said in an official statement, AFP reported.
The announcement brings the total amount spent or committed to the project to $US3 billion, including $US700 million paid to the Guinean Government to secure the right to mine in two sections of the huge deposit.
NEW ZEALAND ALUMINIUM SMELTER AT TIWAI POINT
• Commissioned 1971.
• Valued at $US1.1 billion ($NZ1.38 billion).
• Forecast after-tax profit 2011, $114 million.
• Rio Tinto Alcan - 79.36%.
• Sumitomo Chemical Company - 20.64%.
• Staff 750, plus associated contract workers.
• Alumina from the Yarwun and Queensland Alumina refineries, Australia.
• High purity primary aluminium produced into ingot, billet, and rolling block.
• About 90% of aluminium exported; annual revenue $1 billion.
• Contributes $506 million to Southland economy, or 13.5% of Southland's GDP.
• Year-to-August exports at $1.25 billion; 2009 production 271,902 tonnes.
• Uses 12% of New Zealand's electricity.
• Has new, confidential, contract sealed with Meridian Energy from 2013 to 2030, for electricity supply.
• More than $500 million spent upgrading and expanding plant in the mid-1990s.
- SOURCE: Rio Tinto/New Zealand Herald
