Meridian's Binns hopeful of keeping smelter contract

Wednesday 18th February 2015

Meridian Energy chief executive Mark Binns is hopeful of retaining the Tiwai Point smelter as a customer, but acknowledged there's still some uncertainty with New Zealand Aluminium Smelter's contract open to termination this year.

The Wellington-based electricity generator-retailer supplies electricity to the New Zealand Aluminium Smelters, majority-owned by Rio Tinto, which consumes about one-seventh of the nation’s electricity. It renegotiated the contract in 2013 when Rio Tinto threatened closure ahead of Meridian’s initial public offering, leaving the smelter’s owner an option to terminate its contract on July 1 this year, ending the arrangement from the end of 2016, and keeping the price it paid for power at pre-2013 levels.

Binns told analysts the future of the smelter was ultimately in the hands of its owner, who are investigating their options on whether to switch suppliers or close down the operation, but that based on Meridian's modelling of aluminium prices and the exchange rate, the smelter should be running a cash surplus.

"At this point we remain hopeful a positive decision will be made," Binns said.

Meridian today reported a 21 percent increase in first-half earnings before interest, tax, depreciation, amortisation and fair value adjustments to $324.3 million, and flat profit of $117.1 million. Revenue rose 22 percent to $1.33 billion.

The company's board elected to increase future dividend payouts as a ratio of free cash flow, and plan to return $625 million over the next five years, subject to business remaining largely the same, including the Tiwai Point smelter owners not terminating their contract.

Binns said Meridian had options if NZAS ends the contract, and if it closed the smelter completely, something Binns called the "nuclear situation", Meridian would likely compete more aggressively in the retail space.

Meridian’s retail contracted sales rose to 2,993.4 gigawatt hours (GWh) from 2,885.7 GWh a year earlier, with sales to the smelter unchanged at 2,525.4 GWh. Wholesale contracted sales rose to 3,131.5 GWh from 2,959.8 GWh.

The stock rose 2.1 percent to $1.94, and have gained 8 percent this year.

BusinessDesk.co.nz

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