POLL: Will Tiwai terminate on July 1st triggering closure in 2017

[workingdad]

Poll for Joshuatree as per MEL thread

[robbo24]

I don't think so, but I hope so. It will give 2 years for some other lucky industry to pick up a good deal.

It will also give a great opportunity to top up some great divvy stocks.

[Joshuatree]

Thanks working dad.

[sb9]

Think this should be made a Sticky....or else it drops down the list and may not be noticeable to forum.

[Joshuatree]

Just putting this thread back onto for those coming home to relax on the computer with a whisky, beer' G and T.

[janner]

Stands to reason..

If the price is low because of oversupply.. One gets rid of the Middle of the road producers..

Still have cheap and nasty.. Still have High end products.. With plenty of middle of the road ...

Tiwai is definitely high end product..

Of course they will stay..

[Joshuatree]

Three saying yes. Would really appreciate your sharing what you know; why you believe termination will happen. Things often are not as straight forward as they seem.

[peat]

They wont leave - there is too much free/cheap money/electricity to be had and a lot of expenditure to leave.

[janner]

Correct !...

[Sideshow Bob]

The word down South is they don't think will close. Price might be low at the moment, but dollar trending the right way.

[Xerof]

Yeah, I wondered how close Bolivia was to 'down south' SSB and was awaiting a local perspective. a dozen oysters and a smelter please, no fries with that thanks

[axe]

axe thinks no shut down. both parties lose $$$ in that scenario, at the moment its just a big game of chicken between the parties to try and squeeze more $$$ out of the other.

[workingdad]

axe thinks no shut down. both parties lose $$$ in that scenario, at the moment its just a big game of chicken between the parties to try and squeeze more $$$ out of the other.

looking at the gentailers shareprices I would say Tiwai are winning the game so far :mellow:

[Crackity]

Anyone who voted yes in the poll care to share their thoughts on why they voted yes?

[Sideshow Bob]

Yeah, I wondered how close Bolivia was to 'down south' SSB and was awaiting a local perspective. a dozen oysters and a smelter please, no fries with that thanks

Name comes from first time logged on, which was in a hostel in Bolivia whilst watching The Simpsons (in Spanish). Just haven't changed locations. Now in the high plains of Dunedin...

mmmmm, oysters....

[couta1]

Anyone who voted yes in the poll care to share their thoughts on why they voted yes?
No takers from the yes voters (I wonder why) With footing the bill for around 500 million of site remedial work if they walk away it ain't gonna happen anytime soon.

[Joshuatree]

Is it that simple. They had over $500 million LOSS a few short years ago; so could spend say $100 mill year for 5 years rehabilitating as they slowly wind down or $250 mill over 2 years or....

Jantar are you around' whats your opinion from your side.?

[Crackity]

Jantar overseas till late July otherwise I'm sure he would have some input!

[workingdad]

Update. Might have to reset the poll.... Wasn't thinking this was on the cards.

https://www.nzx.com/companies/MEL/announcements/266422

[Harvey Specter]

Update. Might have to reset the poll.... Wasn't thinking this was on the cards.

https://www.nzx.com/companies/MEL/announcements/266422They are as bad as the ComCom. They have had ages to sort this out. My guess is everyone is trying to call each others bluff and no one capitulated. Everyone knows a deal will be done but they are all hoping someone else takes the pain. Trustpower should build them a wind farm - isn't it windy as Sh!t down there?

[Joshuatree]

Copying the Greeks;smart.:D

[IAK]

What? Interesting that Mel didn't move yesterday but MRP went up 3.5%.

[Beagle]

Interesting that Craigs say GNE have the most to lose with a full Tiwai point closure as their relatively higher cost production won't be needed.
Fair value with a full Tiwai closure, mid $1.30's, without $2.20... WOW talk about a high stakes poker game for GNE shareholders, risks too much for my nervous system to deal with hence my recent exit from GNE.

[Joshuatree]

Yes a very good and timely review of the Gentailers ahead by Craigs.GNE offering the best yield by far.So theres the gamble.
Int Craigs Aluminium longrun pricing 10-15% downgrade to US80c/lb then gradual increase to new long run price of US96c/lb in 2021 and AWC a buy.

[IAK]

Craig's are right, Genesis has to pay for fuel (gas/coal) therefore cost of production is much higher. If Tiwai shuts it won't be good news for Solid Energy or Huntly (which supply coal to HTPS) either.
IMO reading between the lines it looks like the smelter is going to stay open but Tiwai are trying to get the best electricity deal.

[sb9]

Yes, that's how I read it too. So does Mr Shadbolt (Mayor of Invercargill) going by this extract from interest.co.nz

"Meanwhile NZAS Chief Executive and site General Manager Gretta Stephens said the extension allowed NZAS to continue pursuing commercially competitive electricity arrangements, which Invercargill Mayor Tim Shadbolt interpreted as meaning the smelter had decided to stay open and was only negotiating the cost of power."

So its down to commercial competitive pricing ....

[pak]

Agree, but maybe Tiwai also wants to buy more time to see what happens in Greece and China? A lot could happen in the next few weeks with those markets that could send ripples our way?

[Dej]

​In relation to this discussion;

Lack of progress on smelter deal disappointing - Binns

Gavin Evans
Meridian Energy says it is disappointed at the lack of progress settling alternative supplies for part of the Tiwai Point smelter's load.
Chief executive Mark Binns says nobody wants to be wasting another month on what has already been a long and complex process involving multiple parties.
He says there is no certainty today that the smelter will remain in operation beyond 2017, but he believes there are sufficient signs that a deal can be done to warrant the one-month extension the company provided last night.
He is adamant that it is up to the smelter and the country’s other generators to come up with a deal for the 172 MW of hedge cover the plant will need in 2017 if it is to continue operating at its current capacity.
“It’s a bit disappointing to be at this point and no alternative deal for the 172 having been concluded. But there’s a few embers still glowing which gives us some confidence that we might be able to do something,” Binns says.
“We’re prepared to put the time and effort into trying to make it happen.”
Timeline
Rio Tinto, the major shareholder in the smelter, has had almost two years to complete a deal for an alternative power supply of that 172 MW from 2017.
Early discussions started about a year ago, but aluminium prices have given up much of their gains since then. Rio may also have under-estimated the harsh realities facing the country’s bigger generators.

Increased must-run geothermal and wind capacity has tended to flatten overall prices and exaggerate the morning and evening price peaks.
Even with Contact Energy’s diesel-fired Whirinaki plant running in recent weeks to meet those peak demand periods, average prices have remained low. According to Electricity Authority data, electricity cost an average $56.33/MWh at Otahuhu last month, down from $84.75 in February.
Mighty River Power last year reduced the capacity of its gas-fired Southdown plant in Auckland and has been running it as a peaker. It plans to dismantle the 19-year-old plant at the end of the year.
Contact, Genesis
Contact, which has been in discussions with the smelter, is running its ageing gas-fired combined cycle plants in Taranaki and Otahuhu less since the commissioning of its 166 MW Te Mihi geothermal plant in May 2014.
It has enough gas and operating hours at the two plants to run them at current rates for two to three years before it needs to invest another $50 million to extend their life.
In February, chief executive Dennis Barnes said the closure of the smelter would see them shut. If they are to remain, he said Contact would need some certainty of term from the smelter to warrant the investment needed to keep them available.
Genesis Energy has also been in talks with Rio. Like Contact, it also has hydro assets on the South Island and thermal plant on the North Island that could help it manage dry-year risk were it to provide a hedge over part of the smelter’s load.
But the company this week put the second of its four 250 MW coal-fired units at Huntly into permanent storage citing the weak demand growth and the commissioning of new renewable plants.
Nor does it have the flexibility of gas supply that Contact has achieved by running down its contract book and building a gas storage facility at Ahuroa and two peaking plants at its nearby Stratford site.
Genesis owns 31 per cent of the Kupe field and contracted in 2006 to take all its gas on what are now relatively expensive take-or-pay contracts. It has sold surplus gas to Contact and has previously burned it in the dual-fuel units at Huntly rather than sell it at a loss.
At the time of its listing in April 2014, it expected its gas overhang would peak sometime between 2015 and 2020 and would return to balance around 2021.

[PSE]

Yes a very good and timely review of the Gentailers ahead by Craigs.GNE offering the best yield by far.So theres the gamble.
Int Craigs Aluminium longrun pricing 10-15% downgrade to US80c/lb then gradual increase to new long run price of US96c/lb in 2021 and AWC a buy.

GNE's yield is not from free cash flow so can't be compared to MEL. The gas turbines and field are being wound down so the yield will drop at some point.
I think there is a good chance Tiwai will shut as the marginal cost of keeping TCC running to sustain it is very high.
They have had years to make this deal, is another month really significant?
MEL will benefit from a Tiwai shutdown.

[Crackity]

I'm impressed by the quality analytical work going on in the HLG thread so thought I'd have a go at Tiwai's financials....



First Rio Tinto -

Rio Tintos 2014 annual report for the calendar year has production from Tiwai of 327,000 tonnes. ( 324 000 in 2013 / 325 000 (tel:2013 / 325 000) in 2012) . Page 195.

Maximum capacity is 365,000 tonnes. Page 218.

Rio Tinto prepares its accounts in USD as the majority of its sales are dollar denominated. Page 224.



Secondly NZAS Ltd - accounts filed April 2015 for the year ended 31 / 12 / 2014 (tel:31 / 12 / 2014)

NZAS does not own the alumina or aluminium ( page 1) - 100% of the revenue from operations was derived from tolling aluminium for the participants ( page 6). NZAS accounts are denominated in NZD.

Tolling revenue of 627 million in 2014 ( 646 million in 2013). As it is a tolling operation with inputs and outputs coming from / going to the company owners it is hard to ascertain whether there is any transfer pricing occurring.

Main expense is listed under the category of raw material, energy and consumables used of 449 million in 2014 ( 476 million in 2013 ). page 4. As the alumina is not owned by the company this must be nearly all electricity expenses - anyone feel like checking the Meridian accounts to see if the smelter electricity revenue amount is disclosed? Employee costs were 89 million in 2014 ( 77 million in 2013).

Depreciation was 52 million in 2014 ( 59 million in 2013).

Pre tax profit of 97 million in 2014 ( 121 million in 2013).

In the balance sheet the company has their power contracts as an asset valued
(using a fair value measurement) at 195 million up from 72 million in 2013. Page 19. Haven't they been getting a good deal!

The historical cost of Tiwai is 1.34 billion dollars. Page 20.

Using the same average USD / NZD conversions Noodles was using on the HLG thread these are how the figures change.....

2014 Raw material,energy and consumables cost ( NZD 449 million)

at 2014 average exchange rate of 0.830600 = USD $373 million
at 2015 year to date exchange rate of 0.740126 = USD $332 million
at 2015 actual exchange rate at the moment of 0.6698 = 301 million



Conclusion - Tiwai ain't closing - processing costs to the owners are dropping rapidly as the NZD drops against the USD - Tiwai want all their current electricity supply and will potentially want more if aluminium prices increase in USD and the NZ / USD exchange rate keeps falling. All the gentailers should be playing hardball on pricing negotiations if they are sensible.....

[PSE]

I'm impressed by the quality analytical work going on in the HLG thread so thought I'd have a go at Tiwai's financials....



First Rio Tinto -

Rio Tintos 2014 annual report for the calendar year has production from Tiwai of 327,000 tonnes. ( 324 000 in 2013 / 325 000 (tel:2013 / 325 000) in 2012) . Page 195.

Maximum capacity is 365,000 tonnes. Page 218.

Rio Tinto prepares its accounts in USD as the majority of its sales are dollar denominated. Page 224.



Secondly NZAS Ltd - accounts filed April 2015 for the year ended 31 / 12 / 2014 (tel:31 / 12 / 2014)

NZAS does not own the alumina or aluminium ( page 1) - 100% of the revenue from operations was derived from tolling aluminium for the participants ( page 6). NZAS accounts are denominated in NZD.

Tolling revenue of 627 million in 2014 ( 646 million in 2013). As it is a tolling operation with inputs and outputs coming from / going to the company owners it is hard to ascertain whether there is any transfer pricing occurring.

Main expense is listed under the category of raw material, energy and consumables used of 449 million in 2014 ( 476 million in 2013 ). page 4. As the alumina is not owned by the company this must be nearly all electricity expenses - anyone feel like checking the Meridian accounts to see if the smelter electricity revenue amount is disclosed? Employee costs were 89 million in 2014 ( 77 million in 2013).

Depreciation was 52 million in 2014 ( 59 million in 2013).

Pre tax profit of 97 million in 2014 ( 121 million in 2013).

In the balance sheet the company has their power contracts as an asset valued
(using a fair value measurement) at 195 million up from 72 million in 2013. Page 19. Haven't they been getting a good deal!

The historical cost of Tiwai is 1.34 billion dollars. Page 20.

Using the same average USD / NZD conversions Noodles was using on the HLG thread these are how the figures change.....

2014 Raw material,energy and consumables cost ( NZD 449 million)

at 2014 average exchange rate of 0.830600 = USD $373 million
at 2015 year to date exchange rate of 0.740126 = USD $332 million
at 2015 actual exchange rate at the moment of 0.6698 = 301 million



Conclusion - Tiwai ain't closing - processing costs to the owners are dropping rapidly as the NZD drops against the USD - Tiwai want all their current electricity supply and will potentially want more if aluminium prices increase in USD and the NZ / USD exchange rate keeps falling. All the gentailers should be playing hardball on pricing negotiations if they are sensible.....

OK i'll bite Mr Crackity, the key figure I was referring to was the 449 million of (mainly) electricity. Did you find out how many GWh this was and then compare it to the cash cost of running a CCGT?
It costs about $70/MWh to run a CCGT, depending on gas, maintenance and carbon pricing (non existent at the moment).
Where is the cash breakeven though where a CCGT becomes a liability rather than an asset, perhaps $50?
Are there any aluminium smelters elsewhere in the world running off high cost electricity like this rather than much cheaper hydro?
This is guts of analysis and I am not saying I have a definite answer. It is certainly a close call, I expect the good people at CEN will be carefully scratching their heads over this one - if it was simple they wouldn't have needed another month.

[Crackity]

Quick question - what is the one month extension for - logically if NZAS wanted to close the smelter the process should have started on July 1 no?

[fish]

Quick question - what is the one month extension for - logically if NZAS wanted to close the smelter the process should have started on July 1 no?

So they must want it open but want a better deal on pricing and supply.
Does it really cost $70 to run a CCGT if you have already one built and in operation and supply the gas yourself-kupe has probably lots more gas than has been stated and maui is still producing and don't todd want to build a new gas fired generator

[PSE]

Quick question - what is the one month extension for - logically if NZAS wanted to close the smelter the process should have started on July 1 no?

Yeah extension to the close date decision 'till first of August. I read the craigs report and realise I was overconfident in the shut of Tiwai.
The analysts think that it will remain open because E3P is committed to take or pay gas.
The cash operating costs of E3P are around $70/MWh and the electricity costs of Tiwai are around $50/Mwh. So I think Tiwai will likely stay open in light of this information which I hadn't considered, with GNE bearing the burden as it needs to burn the gas.
A manure sandwich for holders of GNE the ugly duckling.

[PSE]

So they must want it open but want a better deal on pricing and supply.
Does it really cost $70 to run a CCGT if you have already one built and in operation and supply the gas yourself-kupe has probably lots more gas than has been stated and maui is still producing and don't todd want to build a new gas fired generator
Yes this is the cash operating cost not allowing for depreciation and factoring in present gas prices for NZ generation companies.

[Crackity]

So there we go.....business as usual except Meridian makes more money