Rio casts doubt on its Gove alumina refinery's future

Rio Tinto has fingered its Gove alumina refinery in northeast Arnhem Land in the Northern Territory as the worst performer among its ailing aluminium interests, raising questions about the future of the remote operation in the absence of a sustained improvement in prices for its intermediate aluminium product.

The group's aluminium exposure was enlarged with the ill-timed $US40 billion acquisition of Canada's Alcan in 2007 that delivered the Gove project into Rio's broader aluminium portfolio. The portfolio took a $US8.9bn Alcan-related impairment charge in February because of the slump in alumina/aluminium markets.

Aluminium prices continued to weaken in the June half, falling 15 per cent to levels at which 25 per cent of non-Chinese smelting capacity is losing money, including at Rio. Alumina prices followed suit.

Rio has previously earmarked 13 smelters and alumina operations in Australia, the US and Europe for sale, including the Gove operation. Those assets are housed in Rio's Pacific Aluminium unit.

Its financial performance is reported on separately to Rio's not-for-sale alumina/aluminium assets, which posted a meagre $US24 million profit in the June half. Pacific Aluminium's assets are covered in the "other operations" line in Rio's profit report and showed a loss of $US227m for the June half.

Rio Tinto chief executive Tom Albanese told analysts on a conference call for Wednesday's June-half profit report -- group profit was down 34 per cent to $US5.15bn ($4.86bn) -- that the Pacific Aluminium asset "probably most in the position of losing cash in the current market would be the Gove refinery".

He said its performance had not only been affected by the "weakness in the aluminium markets, but also the high cost of (diesel) fuel required for the steam, for the refining process".

On the upside, analysts were surprised to hear that the group's aluminium smelters were "basically holding their own even in the current environment".

Rio chief financial officer Guy Elliott said the trade sale or float of Pacific Aluminium was being hampered by the aluminium industry's tough conditions.

He also gave hope that Gove might yet get to struggle on. "In respect of closures, we are not looking at that at the moment. It is certainly true that some of the businesses are challenged, but we're focused on trying to improve them through various actions."