Power shares

[whatsup]

With the NZX down 246 points or 2.2% atm and power company shares in particular whatsup ?

Contact down 9.7%
Genesis down 4.9%
Mercury down 8%
Meridian down 8.2% !

[penn]

I know! Just asked the same question on the CEN thread.

[whatsup]

I know! Just asked the same question on the CEN thread.

Just noticed that, what is going on surely they all cannot be shedding divs atm !

[bull....]

in case you missed it

Owners of Tiwai Pt aluminium smelter seek talks with the Government, raising possibility of closure
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12278907

thats why all the gentailers are crashing

[trader_jackson]

https://www.stuff.co.nz/business/116801034/rio-tinto-to-review-future-of-aluminium-smelter-in-bluff

This is whats up - would dramatically cut revenues/cashflows
Even a 'renegotiation' (best case scenario) could cause revenues/cashflows to stagnate = dividends no longer expecting to increase at or above inflation (and possibly even decrease) = very, very bad for companies that are valued basically off being a dividend payer (as they are overvalued to ridiculously overvalued, depending on the gentailer, on any other metric other than yield)

[penn]

I have never taken much notice of the Morningstar recommendations, but they have a big red SELL on MEL

[Tomtom]

They've had a long run of good performance so I'm not that worried about some adjustment to valuations.

I'm more concerned about local economic factors like long running under-target CPI, low business confidence, low impact fiscal policy and RBNZ not having many bullets left. Tiwai alone isn't a high impact event but the cumulative pressure may cause a downturn.

[whatsup]

They've had a long run of good performance so I'm not that worried about some adjustment to valuations.

I'm more concerned about local economic factors like long running under-target CPI, low business confidence, low impact fiscal policy and RBNZ not having many bullets left. Tiwai alone isn't a high impact event but the cumulative pressure may cause a downturn.

except for the 1000 direct employees and the thousands and many more down stream workers, say good by to the Southland economy along with the dairy industry re carbon credits, nice one Labour !

[boysy]

Rio Tinto having a go again can’t blame them with JK chucking them cash a few years ago. The reality is closing the smelter would cost a load and it’s still profitable at these prices

[couta1]

I have never taken much notice of the Morningstar recommendations, but they have a big red SELL on MEL A rare day when I agree with tj and Morningstar at the same time. Lol

[winner69]

They've had a long run of good performance so I'm not that worried about some adjustment to valuations.

I'm more concerned about local economic factors like long running under-target CPI, low business confidence, low impact fiscal policy and RBNZ not having many bullets left. Tiwai alone isn't a high impact event but the cumulative pressure may cause a downturn.

The world’s buying heaps of our goods in spite of these ‘global headwinds’

Total exports going gangbusters - doesn’t that say our economy going pretty good.

[winner69]

A rare day when I agree with tj and Morningstar at the same time. Lol

As I agree with you Couts does that mean I agree with tj and Morningstar as well ....WOW

Mum and Dad investors putting term deposit money into gentailers are going to ask ‘heck where’s my money gone’ one day.

[winner69]

Tiwai comes up every few years - it always gets sorted

No need to worry ...or panic.

[couta1]

As I agree with you Couts does that mean I agree with tj and Morningstar as well ....WOW

Mum and Dad investors putting term deposit money into gentailers are going to ask ‘heck where’s my money gone’ one day. And to think Beagle was telling punters not long ago that these companies we're the best thing since sliced bread. The lynch mob might be out soon to give him a good old snout whacking.

[boysy]

Fairly certain unless they bought in the last few months they would still be laughing all the way to the bank let’s see how the shares trade going forward ....

[Arthur]

Tiwai comes up every few years - it always gets sorted

No need to worry ...or panic.

Last time they tried this blackmail he folded like a wet newspaper

[Beagle]

Tiwai comes up every few years - it always gets sorted

No need to worry ...or panic.

Good to see some common sense from a well respected institution https://www.harbourasset.co.nz/research-and-commentary/electricity-demand-smelting-away/

[dreamcatcher]

International investors looking for a good deal regarding CEN SP. Currently well below last GS TP $8.40 (AUG)

CEN or MCY possible inclusion into Sept MCSI index replacing FBU ...........??

"Contact is currently presenting to international investors in Singapore, Tokyo, Frankfurt, Zurich, London, Boston and New York. This presentation has been re-issued with minor changes to pages 22 and 41 to provide clarity around the calculation definitions and added the source references to information presented."

[whatsup]

Last time they tried this blackmail he folded like a wet newspaper

Arthur, a wet newspaper is pretty hard to fold !

[percy]

Good to see some common sense from a well respected institution https://www.harbourasset.co.nz/research-and-commentary/electricity-demand-smelting-away/

Thank you for posting the link.Very interesting.
13% of NZ's power generation is a very valuable asset for MEL to hold long term.

[k14]

For anyone interested in hearing some information from the horses mouth, Meridian held an investor call yesterday. You can listen to it here https://www.meridianenergy.co.nz/investors

[Lola]

Last time they tried this blackmail he folded like a wet newspaper

Tiwai point is the worlds most inefficient aluminium plant. Closing it is pretty certain this time around. Might have to encourage oil exploration in the deep south to take up a bit of slack.....yeah right.

[RTM]

For anyone interested in hearing some information from the horses mouth, Meridian held an investor call yesterday. You can listen to it here https://www.meridianenergy.co.nz/investors

Thanks. Appreciate the link.

[whatsup]

Last time they tried this blackmail he folded like a wet newspaper

Arthur, Last time I heard Jacinda DID NOT have any balls, she has a lot of things, teeth etc , but NO BALLS !

[Arthur]

Hope never to check either of them myself, but he showed all the balls of a gelding when he folded to Rio's "Bluff"

[Beagle]

For anyone interested in hearing some information from the horses mouth, Meridian held an investor call yesterday. You can listen to it here https://www.meridianenergy.co.nz/investors

Welcome to the forum and thank you.

[bull....]

if you think the smelter wont close , good opportunity? rates are not going higher anytime soon

[couta1]

if you think the smelter wont close , good opportunity? rates are not going higher anytime soon Good opportunity for what, losing capital.

[RTM]

Just listened to the investor presentation....Well worthwhile if you have the time.
I was impressed by Neal Barclay.

As an aside, but nevertheless interesting, everyone asking questions was male.

[k14]

Welcome to the forum and thank you.
Thanks, long time lurker!

Cliff notes of the call:
- Meridian not going to "bend over" and take a hit for the rest of the market (those were the CEO's words not mine).
- Sounds like Meridian do pretty extensive modelling to determine the financial position of the smelter and they believe it is cash flow positive at the current Alu prices.
- Big lump of CAPEX ($63M) required to continue operation of one of their pot lines. Meridian seem quite skeptical at the quantum of CAPEX required and to a lesser extent the timing.
- Around $110M of spend by Transpower required on lower south island grid improvements to allow the power to get out of Southland (this impacts both Manapouri and the Clutha stations). Then an additional $150M required to upgrade the HVDC link. Timing would be ~3 summers for lower south island upgrades and 5 years for HVDC upgrades. During this time the effect on all south island generators would be quite heavy with the stations further south effected the most.

My take is this is just posturing by Rio Tinto to get a better deal. They are not going to shut down a factory that makes money. Time will tell (lets see how well this post ages!).

[Beagle]

https://www.marketscreener.com/MERIDIAN-ENERGY-LTD-22072933/consensus/
Analysts fair value of $4.28 before this latest announcement by Rio Tinto. I think its clear the risk profile has changed and MEL will cop the most "treatment" if Rio Tinto pull the plug as it will take many years to divert the power north. Time will tell. $5 looks full value to me in this current landscape of heightened risk and uncertainty.

k14 - Keep posting mate, I'm liking the effort you make to share your point of view. I agree its unlikely that Rio will pull the pin but what is clear is that they want a better deal which will cost someone a lot of annual earnings, probably MEL. Rio seem very unhappy about transmission pricing and I don't think Transpower's review of their pricing model is helpful enough. Despite Labour's massive surplus I don't think they are of a mind to be helpful either.
Normally I would say site make good costs would make a favourable resolution more likely but if they're up for ~ $60 capex to overhaul one of the pot lines, then that's also a factor that makes the outcome less certain.

[mikeybycrikey]

Good to see Rio Tinto back for their regular top up of corporate welfare. Nice work if you can get it. Govt really needs a long term plan to reduce the effectiveness of this negotiating tactic.

[Baa_Baa]

FWIW, MoaningStar downgrades big time, cites Tiwai effect.



Moaning Star Ratings 23/10/2019













$ at posting

MS $Value

Reco

% diff

$ diff


GNE


$ 3.07

$ 2.40
Reduce


22%

$ 0.67


MCY


$ 5.04

$ 3.90
Reduce


23%

$ 1.14


MEL


$ 5.00

$ 3.70
Sell


26%

$ 1.30


TPW


$ 8.40

$ 6.30
Reduce


25%

$ 2.10

[couta1]

FWIW, MoaningStar downgrades big time, cites Tiwai effect.



Moaning Star Ratings 23/10/2019















$ at posting


MS $Value


Reco


% diff


$ diff



GNE

$ 3.07


$ 2.40

Reduce

22%


$ 0.67



MCY

$ 5.04


$ 3.90

Reduce

23%


$ 1.14



MEL

$ 5.00


$ 3.70

Sell

26%


$ 1.30



TPW

$ 8.40


$ 6.30

Reduce

25%


$ 2.10



Lol Morningstar are shining stars for once.

[44wishlists]

Market doesn't like uncertainty. So from now, till March when the review is out, the SP for the power shares ain't looking too bright. If going purely for the div, I would rather opt for HLG.

[couta1]

Market doesn't like uncertainty. So from now, till March when the review is out, the SP for the power shares ain't looking too bright. If going purely for the div, I would rather opt for HLG. Absolutely.:t_up:

[Beagle]

I don't put much stock in moaning-blackhole but the point is that its highly likely that most of the true professional analysts will be downgrading for the significant extra risk and all the gentailiers have enjoyed an exceptional run.

[couta1]

Holders that paid near $5.50 are in for a whole lot of pain, capital loss will make divvies look miserable (Been there done that) PS-If it looks and smells overcooked then it is overcooked.

[Beagle]

Holders that paid near $5.50 are in for a whole lot of pain, capital loss will make divvies look miserable (Been there done that) PS-If it looks and smells overcooked then it is overcooked.

Like some other share at $18 eh mate...oh wait, that share pays no divvies to ease holders pain :p
Anyway...aside from the fundamental change in the risk landscape its well worth noting that CEN, GNE and MEL have all broken down through their 100 day moving averages. For what its worth TPW and MCY haven't.

[couta1]

Like some other share at $18 eh mate...oh wait, that share pays no divvies to ease holders pain :p
Anyway...aside from the fundamental change in the risk landscape its well worth noting that CEN, GNE and MEL have all broken down through their 100 day moving averages. For what its worth TPW and MCY haven't. That sounds very much like a code that you've sold your holdings.

[IAK]

Hope never to check either of them myself, but he showed all the balls of a gelding when he folded to Rio's "Bluff"

Can't see the Government caving in to Rio Tinto this time. Southland is a true blue National seat (so there's little for them to lose in the way of votes) and the Greens will look at this as an opportunity to shut down all the dirty thermal power stations.

[percy]

That sounds very much like a code that you've sold your holdings.

Cashed up to buy your PAZ shares.?

[Beagle]

Cashed up to buy your PAZ shares.?

:lol: :lol: Yes please !

[horus1]

Tiwai have exceptional security of supply and that requires a lot of xtra transmission assets specifically put in for them. They pay 5.5c/Kwh which must be about cost for energy and should not get reductions for transmission. They have to be faced down. Their profit all depends on the bauxite price which they control so it is a question of transfer pricing . This is written by an x TP CEO and senior manager of NZED in Dunedin who had a lot to do with Comalco . Remember Muldoon doubled the price a long time ago . You have to be tough with them.

[Beagle]

Rio Tinto talking tough https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12279394

[Timesurfer]

With all the Council's declaring Climate "Emergencies" if Labour/Greens return it might be an opportunity for them to turn off fossil fuels too. If the children mining the cobolt can keep up we could all be electric in no time.

[Beagle]

Tiwai have exceptional security of supply and that requires a lot of xtra transmission assets specifically put in for them. They pay 5.5c/Kwh which must be about cost for energy and should not get reductions for transmission. They have to be faced down. Their profit all depends on the bauxite price which they control so it is a question of transfer pricing . This is written by an x TP CEO and senior manager of NZED in Dunedin who had a lot to do with Comalco . Remember Muldoon doubled the price a long time ago . You have to be tough with them.

Sorry I can't find the link to the article yesterday, I did try. The nub of the issue is that Rio believe the $66m they pay in transmission costs each year, (which absolutely dwarfed their net profit) is more than than the total capital value of the transmission assets used. I have no idea as to the validity of their claim but its not far as the crow flies from Manapouri to Invercargill and if there is substance to their claim that they are effectively paying more than the capital value of the asset every single year just to use it, then obviously that's a completely absurd situation. Rio went on to say in that article that their transmission charges are ten times higher than the average for other smelters around the world. On the face of it you have to wonder a bit if the transmission pricing review, (which will grant them as I understand it, about $11-12m relief per annum next year and a similar amount again on top of that per annum from 2024, went far enough and was fair ?

[Airw0lf]

Sorry I can't find the link to the article yesterday, I did try. The nub of the issue is that Rio believe the $66m they pay in transmission costs each year, (which absolutely dwarfed their net profit) is more than than the total capital value of the transmission assets used. I have no idea as to the validity of their claim but its not far as the crow flies from Manapouri to Invercargill and if there is substance to their claim that they are effectively paying more than the capital value of the asset every single year just to use it, then obviously that's a completely absurd situation. Rio went on to say in that article that their transmission charges are ten times higher than the average for other smelters around the world. On the face of it you have to wonder a bit if the transmission pricing review, (which will grant them as I understand it, about $11-12m relief per annum next year and a similar amount again on top of that per annum from 2024, went far enough and was fair ?

Yeah but the problem is that Tiwai rely on more than just the assets from Manapouri to Tiwai. For example, if there was an issue with the lines to/from Manapouri, or if there was a temporary issue with Manapouri output itself, Tiwai would still be handily supplied by power from elsewhere on the grid. When the South Island experiences sustained dry hydro conditions, power flows south from the North Island to supply Tiwai and other South Island consumers. Their arguments seem clear and simple until you look at it more closely and realise that they are beneficiaries of an interconnected grid. If this were not the case, Tiwai would be free to purchase the assets between them and Manapouri and disconnect themselves from the rest of the grid. In fact, the Electricity Industry Participation Code allows for discounted transmission charges if you could prove this ability to go "off-grid". The fact that Rio have not even remotely suggested this as a possibility kind of proves my point.

[Airw0lf]

One further point - if they do decide to cease operating the smelter, it's not as simple as just walking away. If I remember correctly the exit costs are quite substantial (tens, if not more, of millions) - there's a fair bit of remediation work they need to do on the site. I stand to be corrected on this though as I am not an expert on the resource consents and such that they operate under.

[Beagle]

Fair enough AirwOlf, its certainly a complex situation. The Government probably need to have a think about the bigger picture and what the cost is if a fair percentage of those 1000 workers end up on a benefit. Maybe some pragmatism is called for ?

[Scrunch]

One further point - if they do decide to cease operating the smelter, it's not as simple as just walking away. If I remember correctly the exit costs are quite substantial (tens, if not more, of millions) - there's a fair bit of remediation work they need to do on the site. I stand to be corrected on this though as I am not an expert on the resource consents and such that they operate under.

Its an old article from 2015 but states the then past clean-up cost estimate was $200 to $400m. Add at least another 5-years of inflation and these are probably on the low side.

www.stuff.co.nz/business/industries/69790812/smelter-site-rehab-encouraged-in-district-plan

[Beagle]

I am pretty sure Rio will have a very different viewpoint on the cost of the minimum amount of site rehabilitation that is legally required.
This isn't their first rodeo in that regard.

[blackcap]

Fair enough AirwOlf, its certainly a complex situation. The Government probably need to have a think about the bigger picture and what the cost is if a fair percentage of those 1000 workers end up on a benefit. Maybe some pragmatism is called for ?

Interesting point. What about the 500 workers at TV3 that end up on a benefit... more pragmatism and government intervention called for? Or is that different? Not that I do not want the smelter to carry on but sometimes we need to look at the bigger picture I feel. 1,000 jobs gone yes, but for the rest of NZ it will be a windfall in lower power prices etc and it means NZ inc will have more energy resource to supply anticipated increase in demand (that is contingent on energy being able to be transported North from Manapouri)

[Beagle]

Good point blackcap. Where do you draw the line in the sand ?

[winner69]

Dairy farmer spokesman on radio said collectively dairy farmers use more electricity than Tiwai and its one of their biggest input costs blah blah .....do they get government assistance?

[Beagle]

Dairy farmer spokesman on radio said collectively dairy farmers use more electricity than Tiwai and its one of their biggest input costs blah blah .....do they get government assistance?

Drought relief when required. Payments to the income equalisation scheme allowing spreading of income. R&D tax credits.
Herd scheme stock valuation methodology that allows farmers to use stock values from 30 years ago, (who else can do that ?).
Only 5% of emissions will be included in the emissions trading scheme. I am sure I have forgotten many other forms of assistance.
Level playing field or does Govt pander to some forms of business because its politically expedient to do so ?

[horus1]

Believe me Tiwai use transmission assets at Dunedin, North Makerawa , and lines from Twizel to Invercargill at least. The story they are putting out is false . They deliver no benefit to NZ and should have been gone years ago. The price they get energy for is cost and they cannot exist on Manapouri generation alone.

[limmy]

Perhaps southland can be the first to start using electric cars when Tiwai closes down. This could be a good thing for NZ.

[Bobdn]

Drought relief when required. Payments to the income equalisation scheme allowing spreading of income. R&D tax credits.
Herd scheme stock valuation methodology that allows farmers to use stock values from 30 years ago, (who else can do that ?).
Only 5% of emissions will be included in the emissions trading scheme. I am sure I have forgotten many other forms of assistance.
Level playing field or does Govt pander to some forms of business because its politically expedient to do so ?

I just assumed Winner was joking when he asked that question :)

A little bounce for Genesis today so I took the opportunity to reduce my holding just a tad. I've sort of got it to that level that if Rio stays, that's great. If it doesn't, well at least I reduced a little and no hard feelings (I also own Rio Tinto directly). This approach means that I don't have to get all hot and bothered waiting until March next year.

I see my Devon Alpha fund has a swag of CEN - will be interesting to see what approach Devon takes on this.

I'm guessing the Government will do whatever it takes to Keep the smelter going. Losing 1000 jobs in Southland in an election year and the immense hit to Kiwisaver accounts (a lot of basic kiwisaver accounts have far too much in NZ shares and therefore far too much exposure to the gentailers) will give the Government plenty of incentive to sort this.

[RTM]

I'm guessing the Government will do whatever it takes to Keep the smelter going. Losing 1000 jobs in Southland in an election year and the immense hit to Kiwisaver accounts (a lot of basic kiwisaver accounts have far too much in NZ shares and therefore far too much exposure to the gentailers) will give the Government plenty of incentive to sort this.

You will need to check with Winston. But personally I am not counting on the government doing very much at all.

[iceman]

Believe me Tiwai use transmission assets at Dunedin, North Makerawa , and lines from Twizel to Invercargill at least. The story they are putting out is false . They deliver no benefit to NZ and should have been gone years ago. The price they get energy for is cost and they cannot exist on Manapouri generation alone.

Tiwai uses about 13% of our national generation 24/7, 365 days a year, EVENLY. Peak to trough ratio 1 to 1. How on earth are we going to turn that into domestic consumption that sucks most of it between 5Pm-8Pm each day, peak to trough ratio something like 1 to 6 ? We need big steady users like Tiwai or we will pay dearly for the transmission.

[forest]

Tiwai uses about 13% of our national generation 24/7, 365 days a year, EVENLY. Peak to trough ratio 1 to 1. How on earth are we going to turn that into domestic consumption that sucks most of it between 5Pm-8Pm each day, peak to trough ratio something like 1 to 6 ? We need big steady users like Tiwai or we will pay dearly for the transmission.

Hi iceman, the NZ dairy industry uses a lot of large coal boilers to create heat for the milk powder production, I would think that a lot of Tiwai's electricity use can be consumed by new replacement electrical boilers.
They are also likely to run 24 hours a day. The Dairy industry would love cheaper clean energie.

[kiora]

Free CC
https://www.stuff.co.nz/environment/climate-news/116695150/free-carbon-credits-worth-billions-will-continue-being-allocated-for-decades

[forest]

https://www.stuff.co.nz/business/113599336/fonterra-burning-coal-to-dry-milk-insane-and-must-stop-says-british-energy-expert

[Beagle]

https://www.interest.co.nz/business/102265/rio-tintos-dangling-potential-closure-tiwai-point-front-government-whats-its-power

[IAK]

https://www.interest.co.nz/business/102265/rio-tintos-dangling-potential-closure-tiwai-point-front-government-whats-its-power

Thanks for posting Beagle. Found this interesting ...."S&P Global Ratings said Genesis Energy and Contact Energy would face a higher degree of risk because of their exposure to thermal generation, while Meridian Energy and Mercury NZ would face less risk given their portfolios fully consist of renewable generating assets."

[Beagle]

I think many people, myself included forgot about the risk of the gentailiers with Rio's right at any time to pull the plug with 12 months notice.
What I also didn't realise because I got so lazy with the predictable steady rise of these shares was that since a year ago when for example MEL was $3.10, was that at the peak of $5.54 in early September the shares were up a whopping 79% plus dividends for a total shareholder return of approx. 85% in just the last year, on top of good gains in previous years.

I think people, (myself included) have really flocked to the gentailiers as a haven of safety in such uncertain times. Some REIT's like GMT for example are also trading at extraordinary premiums of circa 30% to their NTA based on a what is probably a perception of real safety.

Food for thought...What happens to REIT and Utility prices if there's no recession and China and the USA reach a trade deal and growth and risk are on again and interest rates rise... What happens if Rio really does pull the plug this time ?

[couta1]

I think many people, myself included forgot about the risk of the gentailiers with Rio's right at any time to pull the plug with 12 months notice.
What I also didn't realise because I got so lazy with the predictable steady rise of these shares was that since a year ago when for example MEL was $3.10, was that at the peak of $5.54 in early September the shares were up a whopping 79% plus dividends for a total shareholder return of approx. 85% in just the last year, on top of good gains in previous years.

I think people, (myself included) have really flocked to the gentailiers as a haven of safety in such uncertain times. Some REIT's like GMT for example are also trading at extraordinary premiums of circa 30% to their NTA based on a what is probably a perception of real safety.

Food for thought...What happens to REIT and Utility prices if there's no recession and China and the USA reach a trade deal and growth and risk are on again and interest rates rise... What happens if Rio really does pull the plug this time ? These thoughts have already been alluded to by some of us for quite a while now, like I said if it smells and looks overcooked it is indeed overcooked.

[Beagle]

There was no point in selling while they were in a clear uptrend.

[percy]

I prefer GNE and MEL shares to holding bonds.
The future of electricity looks sound in NZ.
Manapouri is a great asset for MEL and NZ.

[Beagle]

Yeah they have been a great bond alternative and I think a lot of people have viewed them as such and invested on that basis but long dated bonds can go down in value as interest rates rise, and so can the gentailiers. Been a fantastic run this past year especially and still could be going forward but its less clear now which way they will go in the next 12 months, in my opinion.

Agreed Percy, Manopouri is a very special place. I've done the doubtful sound full day tour and highly recommend it for anyone wanting a taste of this wonderful place https://www.realjourneys.co.nz/en/destinations/doubtful-sound/more-info/ Not sure if they still go down into Manopouri power station to see the generators at work or not, anyone know ? but that was a real treat as was doubtful sound and lake Manopouri is absolutely awesome too, possibly the best part of the trip. Not cheap but a trip well and truly worth doing !

[Grimy]

We did a half day tour about 10 years back which included going down the underground power station access road to a viewing point of the generators/turbine shafts.
Not near as exciting as when I was about 12 and Dad worked for the NZED and on a South Island holiday we were able to travel to the power station on the workers boat and wander around on the generator floor. No H&S issues then!

[Airw0lf]

Thanks for posting Beagle. Found this interesting ...."S&P Global Ratings said Genesis Energy and Contact Energy would face a higher degree of risk because of their exposure to thermal generation, while Meridian Energy and Mercury NZ would face less risk given their portfolios fully consist of renewable generating assets."

Except that Meridian are at the bottom of the South Island so will face considerable bottlenecks in getting their generation to market for ~5 years whilst the necessary grid upgrades are performed. Depending on your investment horizon, this may or may not matter.

[percy]

Today's announcement from bauxite producer Metro Mining [MMI.asx] gave a positive outlook for bauxite.In fact they are looking to ramp up their production.
So perhaps Rio are playing games.?

[Sideshow Bob]

No, they no longer take the tours into the powerhouse at Manapouri. Stopped in 2015, after concerns from Worksafe.

Interesting article here https://www.odt.co.nz/regions/southland/powerful-exploits-engineering

[GTM 3442]

Out of a mixture of ignorance and idle curiosity, when the Bluff smelter does finally close, does the Manapouri power plant have a future as a big wet storage battery, able to balance the load or take up the slack on calm days when all those clean green windmills aren't turning?

If it does, then would Meridian be the right entity to own it?

[Beagle]

No, they no longer take the tours into the powerhouse at Manapouri. Stopped in 2015, after concerns from Worksafe.

Interesting article here https://www.odt.co.nz/regions/southland/powerful-exploits-engineering

Many thanks indeed. What a fabulous summary of the history behind the Manapouri power station.

[percy]

Out of a mixture of ignorance and idle curiosity, when the Bluff smelter does finally close, does the Manapouri power plant have a future as a big wet storage battery, able to balance the load or take up the slack on calm days when all those clean green windmills aren't turning?

If it does, then would Meridian be the right entity to own it?

They do own.
Most probably for the next one thousand years too.

[GTM 3442]

They do own.
Most probably for the next one thousand years too.

They most assuredly do, percy.

But at the end of the day, the current configuration of the New Zealand electricity network, environment, and market is the result of a series of political decisions.

And what the Minister giveth, the Minister may also take away.

There's that quote from a British PM (Wilson, I think) - "A week is a long time in politics" - so a thousand years may be slightly on the optimistic side.

[Beagle]

We are starting to see emerging signs of optimism (yes again) over a possible trade deal between the US and China. Time will tell on that front.
S&P 500 hit an all time record and various experts on CNBC reported they now see the possibility of a recession in the US in 2020 or 2021 as slim.
10 year US govt stock rate up 10 basis points overnight and a breakout from the recent low range.
Its could be an interesting few months ahead for the power shares if defensive shares are no longer flavour of the month, (year ?), and with Rio's feral approach and all.
Some have had a truly fantastic run (total shareholder return for MEL was about 85% for the year to early September) and it would appear to be (at the very least) time for a breather.

[Cricketfan]

If interest rates were to go up, what other shares would be worth looking at to replace these power shares?

[Beagle]

HGH, AIR, BRM, HLG...all are under consideration by me for additional investment, well perhaps apart from BRM which I have truck loads already.
ZEL maybe too but wait for the Govt completed fuel study in early December.

[Balance]

https://www.stuff.co.nz/national/politics/opinion/116992574/mps-turn-up-the-heat-as-smelter-closure-consensus-grows

Even though I hold power company shares, wholeheartedly agree that it's time to shut Tiwai Pt down.

$200m for building and upgrading transmission lines to grid the power up north is nothing. - NZ spends $600m a week on social welfare payments and services.

[horus1]

A key question is whether TiWai have to pay for the write off of the transmission assets put in for them. North Makarewa Sub, Tiwai Sub, a double circuit transmission line from Tiwai etc.Has Transpower thought about it or does the NZ taxpayer and consumer pay.?

[Scrunch]

https://www.stuff.co.nz/national/politics/opinion/116992574/mps-turn-up-the-heat-as-smelter-closure-consensus-grows

Even though I hold power company shares, wholeheartedly agree that it's time to shut Tiwai Pt down.

$200m for building and upgrading transmission lines to grid the power up north is nothing. - NZ spends $600m a week on social welfare payments and services.

My guess at this stage is it will come down to the Nov 2020 election and the campaigning leading up to this. Southland is a National supporting electorate. Labour therefore has less to lose by not coming up with some sort of support package. Can either main party gain or retain enough votes to be worth supporting or in some backhand way engineering a deal that has the smelter stay?

[blackcap]

https://www.stuff.co.nz/national/politics/opinion/116992574/mps-turn-up-the-heat-as-smelter-closure-consensus-grows

Even though I hold power company shares, wholeheartedly agree that it's time to shut Tiwai Pt down.

$200m for building and upgrading transmission lines to grid the power up north is nothing. - NZ spends $600m a week on social welfare payments and services.

Resource consent could be an issue.

[Balance]

Resource consent could be an issue.

Come to Auckland and see how resource consent is not an issue with the super disruptive infrastructure works being undertaken all over the freaking city.

In the name of upgrading thoroughfares close to where I live, properties have lost half their backyards and some of these properties are up on hills.

[bull....]

mercury were saying the aluminium people are sabre rattling and they dont see them closing anytime soon but may in the future one day.

[Sideshow Bob]

It's gonna close at some stage in the future, but given the reported profit last year, hard to see why they would be in a hurry. OK, aluminum prices are down, but currency is better but they're having another crack at the taxpayer and the Gubermint via power/transmission companies. There are ups and downs like most businesses, but should be able to ride it out for a while.....especially in the light of $200m+ remediation costs. Not to mention labour/redundancy costs.

https://www.newsroom.co.nz/2019/06/05/621735/tiwai-point-smelter-nets-207m-profit

[Beagle]

Its not $30,000 per job. It seems widely accepted that the smelter is responsible for about 1000 employees and another 2,000 contractors and employees of other business's that rely on the smelter for their income. So its really about $10,000 per family as a one-off grant from National that supported families for many years now, much cheaper than the unemployment benefit which is a recurring benefit not a one-off. I wonder how these families who enjoy housing at some of the cheapest prices in New Zealand will cope having to shift elsewhere ? 3,000 families deeply affected....hmmmm, that's pretty significant !

Secondly it won't be anything like as cheap as $200m to upgrade the transmission lines. That was a 2012 dollars estimate and that doesn't take into account the upgrade in transmission line between the south and north island. I think the true cost is likely to be much higher.

[horus1]

I have seen 2-3 studies on the benefit to NZ of Tiwai. All have been negative for NZ. Get rid of it.

[Bobdn]

https://www.stuff.co.nz/national/politics/opinion/116992574/mps-turn-up-the-heat-as-smelter-closure-consensus-grows

This quote made me laugh. "..investors who bought shares in the power companies partially privatised by the previous government would be burnt badly". Even today, even after the announcement, we've all still made a ton of money and people could lock in profits now if they want. So, badly burnt really doesn't apply. I mortgaged my house to the tune of $240,000 to buy power shares (something I won't do again!). It just seemed like one of those one in 30 to 40 year opportunities like when Labour privatized Telecom. I've recently reduced my position :)

I'll keep my more modest Genesis holding for some years yet, regardless of Rio Tinto. This Labour Government's oil and gas policy has made Kupe a more valuable asset. Sadly I sold my CEN shares before they really took off over the last year. Oh well, it wasn't actually my money anyway and I felt I should give it back to the bank.

[iceman]

Yes Bobdn it makes you wonder how such uninformed people get to write major articles in our main newspapers !

[Joshuatree]

Recent investors will be burnt, fair comment for those poor suckers.

[iceman]

Can't see how " "recent investors" can be classed as " investors who bought shares in the power companies partially privatised by the previous government would be burnt badly". Stretching it a bit there me thinks.

[Balance]

Its not $30,000 per job. It seems widely accepted that the smelter is responsible for about 1000 employees and another 2,000 contractors and employees of other business's that rely on the smelter for their income. So its really about $10,000 per family as a one-off grant from National that supported families for many years now, much cheaper than the unemployment benefit which is a recurring benefit not a one-off. I wonder how these families who enjoy housing at some of the cheapest prices in New Zealand will cope having to shift elsewhere ? 3,000 families deeply affected....hmmmm, that's pretty significant !

Secondly it won't be anything like as cheap as $200m to upgrade the transmission lines. That was a 2012 dollars estimate and that doesn't take into account the upgrade in transmission line between the south and north island. I think the true cost is likely to be much higher.

If ever there was a time to close down Tiwai, it is now when NZ is enjoying full employment and there are employers screaming out for workers.

Also, there are 235,000 migrant workers on temporary work visas - the Tiwai affected workers will be absorbed into the workforce in no time.

As for the usual pathetic stories about them having to retrain or relocate elsewhere, tough cheese - most of us in our life time have had to do that to better our prospects - sometimes to other countries.

When the car assembly industry in NZ was shut down over the 1990s, there were cries of anguish that the tens of thousands employed were doomed forever. Did not turn out that way and NZ benefited as consumers did not have to pay horrendous prices for poorly assembled cars from a protected industry.

Same thing will happen with Tiwai closure - rest of the country will get cheaper electricity and businesses will become more competitive.

BTW - I do own power company shares.

[iceman]

Interesting Balance but not sure it is that simple. Tiwai doesn't just employ an ex number of people. They provide a significant economic boost to a geographical area that is under utilised but contributes a significant amount to our national economy, from agriculture, fishing. and natural tourism. It also helps maintaining a reasonable population in the area, to support the vital primary industries down there.

You say power will become cheap for Kiwis if Tiwai closes, but transporting all that electricity to the top of the North Island where you and Beagle live, from our environmentally friendly production in the South Island is expensive and would require a lot of money spent on upgrading transmission infrastructure in a safe and efficient manner. We do not want to end up like California that has annual fire disasters largely due to old, outdated and inefficient electricity infrastructure due to the population having grown to fast in relatively small geographical area far away from electricity generators.

After spending the last couple of weeks in the crazy and stupid mess that is Auckland roading today, I personally think we should adjust our immigration laws to make the top of the North Island out of bounds for immigrants and send them down south for at least the first 5 years of their residency in NZ and allow them to buy only fully electric cars. Minimal time travelling to work (no traffic jams) and close to a huge source of cheap and environmentally friendly power supply and ample opportunity to work in primary (natural) industries. Ship them in from countries that are largely producing electricity from coal and we have done our bit for the environment.
Also make it a condition of residency permit that a couple have only 2 children, to avoid unnecessary consumption and emissions.

I digress :-)

[Balance]

Interesting Balance but not sure it is that simple. Tiwai doesn't just employ an ex number of people. The provide a significant economic boost to a geographical area that is under utilised but contributes a significant amount to our national economy, from agriculture, fishing. and natural tourism. It also helps maintaining a reasonable population in the area, to support the vital primary industries down there.

You say power will become cheap for Kiwis if Tiwai closes, but transporting all that electricity to the top of the North Island where you and Beagle live, from our environmentally friendly production in the South Island is expensive and would require a lot of money spent on upgrading transmission infrastructure in a safe and efficient manner. We do not want to end up like California that has annual fire disasters largely due to old, outdated and inefficient electricity infrastructure due to the population having grown to fast in relatively small geographical area far away from electricity generators.

After spending the last couple of weeks in the crazy and stupid mess that is Auckland roading today, I personally think we should adjust our immigration laws to make the top of the North Island out of bounds for immigrants and send them down south for at least the first 5 years of their residency in NZ and allow them to buy only fully electric cars. Minimal time travelling to work (no traffic jams) and close to a huge source of cheap and environmentally friendly power supply and ample opportunity to work in primary (natural) industries. Ship them in from countries that are largely producing electricity from coal and we have done our bit for the environment.
Also make it a condition of residency permit that a couple have only 2 children, to avoid unnecessary consumption and emissions.

I digress :-)

Agree with you re Auckland and immigration policies - if only it is possible and as simple in the real world to attract quality migrants to live in Southland!

As for infrastructure upgrade, it can be done and we should not wait for a crisis like when Auckland nearly ran out of power in 1998* to put in the transmission grid.

*https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12033654

[Beagle]

Interesting perspective Balance thanks for sharing your viewpoint. Bogey in the room we haven't talked about is transmission losses. Even if the ALL the infrastructure was put in place to transport Manopouri power to Auckland what percentage gets lost in transmission losses ?

Agree Iceman, Auckland roads are diabolically bad.

[RTM]

Interesting perspective Balance thanks for sharing your viewpoint. Bogey in the room we haven't talked about is transmission losses. Even if the ALL the infrastructure was put in place to transport Manopouri power to Auckland what percentage gets lost in transmission losses ?

Agree Iceman, Auckland roads are diabolically bad.

Be better once the port is moved ! :)

[Blue Skies]

Just add to that re the transmission lines, have read commentary getting the necessary resource consents granted, across National Parks, Maori land, privately owned land, etc if not next to impossible, could take till the next century.
If this could be circumvented, I don't know, but also a possible major hurdle.

[Beagle]

Was involved as a trustee in one of my clients properties in the Waikato many years back when Transpower upgraded transmission lines to Auckland.
He really got stuck into them for compensation to erect their giant pylons on his farm. Can't say any more for client confidentiality reasons other than, yes, it would cost mega bucks to put in the infrastructure, if indeed it could ever be done. MEL in particular look vulnerable to me.

[fungus pudding]

Just add to that re the transmission lines, have read commentary getting the necessary resource consents granted, across National Parks, Maori land, privately owned land, etc if not next to impossible, could take till the next century.
If this could be circumvented, I don't know, but also a possible major hurdle.

Obviously it's more profitable to sell it locally at a discount. That should attract industry if Tiwai won't meet a reasonable price. IOW don't send it north - bring a couple of big customers south.

[horus1]

I ran this a major part of this Industry for 15 years and was a senior manager for 30-40 years. Believe me we would be better off if Tiwai closes. The Transmission will get upgraded, and people will get new jobs. When you pay 5,5C/Kwhr and I pay 15 - 20 c/Kwhr this is a cross subsidy to Tiwai.

[Beagle]

I ran this a major part of this Industry for 15 years and was a senior manager for 30-40 years. Believe me we would be better off if Tiwai closes. The Transmission will get upgraded, and people will get new jobs. When you pay 5,5C/Kwhr and I pay 15 - 20 c/Kwhr this is a cross subsidy to Tiwai.

As I understand it your 15-20 cents per kw/hr includes the lines charge (AKA transmission costs) whereas Tiwai's 5.5 cents per kw/hr doesn't and they are a relatively short distance from the dam whereas you're probably not ?
Also isn't their demand load reasonably constant whereas yours like mine will have significant peak's and trough's ?
Comparing apples and oranges ?

[blackcap]

As I understand it your 15-20 cents per kw/hr includes the lines charge (AKA transmission costs) whereas Tiwai's 5.5 cents per kw/hr doesn't and they are a relatively short distance from the dam whereas you're probably not ?
Also isn't their demand load reasonably constant whereas yours like mine will have significant peak's and trough's ?
Comparing apples and oranges ?

I think you might be right. With Flick a while back I was paying 6c Kwhr and the lines charges component was 10c Kwhr. You are right in saying that the bulk the NZ consumer pays is in the line charges. Tiwai is very close to Manapouri (in relative terms) so that is why they get the 5.5 cents. But 5.5 cents is pretty much what the wholesale market (up to a year ago before Labour buggered it) paid for their electricity.

[Bart]

I think you might be right. With Flick a while back I was paying 6c Kwhr and the lines charges component was 10c Kwhr. You are right in saying that the bulk the NZ consumer pays is in the line charges. Tiwai is very close to Manapouri (in relative terms) so that is why they get the 5.5 cents. But 5.5 cents is pretty much what the wholesale market (up to a year ago before Labour buggered it) paid for their electricity.

FYI, currently I pay with Flick 14c/kWh for the lines component (just changed to smart plan which charges 22c/kWh during peak hours and 6c/kWh off-peak), and over the past year i pay on average 14c Kwhr for the power. That market driven spot price jumped from about 7c/kWh over the preceding 4 years, so Tiwai is getting a good deal. The good news is that Flick pays the same spot price for my excess solar power.

[horus1]

Tiwai gets much of its energy from the North it doesnt just come from Manapouri. You cannot justify 5.5 vs 15 c/Kwhr and the other factor is that Tiwai has the highest reliability in the country , gauranteed. I have outages so their transmission charges should be high.

[Balance]

https://www.stuff.co.nz/national/the-detail/117070250/the-detail-the-tiwai-point-aluminium-smelter-bluff

"Tiwai is close to power generation, and the fact that it's hydro power makes it the cleanest operating smelter in the world. It is one of only two smelters in the world producing ultra-high purity aluminium."

Guess we will find out in March what will happen.

Until then, my bets are that the grubby one & the Labour Coalition will bend backwards and let the power consumers of NZ take one for the Southland economy.

Election year next year, see?

[horus1]

Sorry, article is wrong and I was in charge in most of the SI for electricity in the 90's etc. The NZ electricity Industry is only 65 % non CO2 , the renewable bit isnot so important. Shows how good the PR people are doesn't it. That is fact.

[Balance]

Sorry, article is wrong and I was in charge in most of the SI for electricity in the 90's etc. The NZ electricity Industry is only 65 % non CO2 , the renewable bit isnot so important. Shows how good the PR people are doesn't it. That is fact.

So hydro-power supplied to Tiwai does not change its green credentials relative to say, China’s coal fired aluminium plants?

[bull....]

although caution is warranted in regard to tiwai , seems like a lot of over reaction to bail out of all power stocks.

cen - 14%
mel - 13%
mcy - 4%
gne - 4%
tpw + 3%
vct - 1%
ift + 1%

highlights that cen and mel have had quite a sell down last month but others have not , hardly a massive sell down occurring of the sector for the last month. looks like mel and cen have re rated the most due to profit taking on there out performance based on the news event. at the end of the day most people i would imagine are still well in the money and enjoying a good income from divs.

if tiwai were to close i would imagine a bigger correction were to occur to stock prices and dividends

[Blue Skies]

I see the drop in aluminium prices is being reported as a 'slump in prices', by implication providing justification for Tiwai closing the plant if they don't get an even better deal from Govt.
In a recent interview with Rod Oram, among other points he raised was that although prices have dropped, they are still right on the 10 year average. Prices have dropped from a recent peak to an average, they've been higher but also been lower.
Presumably the plants viability is based on averages rather than the peaks.
This seems fairly significant but doesn't seem to get a mention in any of the articles I've read in the main papers.
More pre negotiation PR spin?

[stoploss]

I see the drop in aluminium prices is being reported as a 'slump in prices', by implication providing justification for Tiwai closing the plant if they don't get an even better deal from Govt.
In a recent interview with Rod Oram, among other points he raised was that although prices have dropped, they are still right on the 10 year average. Prices have dropped from a recent peak to an average, they've been higher but also been lower.
Presumably the plants viability is based on averages rather than the peaks.
This seems fairly significant but doesn't seem to get a mention in any of the articles I've read in the main papers.
More pre negotiation PR spin?

Its PR spin , surely such a large company would have a forward hedging policy in the Aluminium market ...they obviously negotiate a long term price on the electricity so why wouldn't they marry that up on the other side.....

[Balance]

although caution is warranted in regard to tiwai , seems like a lot of over reaction to bail out of all power stocks.

cen - 14%
mel - 13%
mcy - 4%
gne - 4%
tpw + 3%
vct - 1%
ift + 1%

highlights that cen and mel have had quite a sell down last month but others have not , hardly a massive sell down occurring of the sector for the last month. looks like mel and cen have re rated the most due to profit taking on there out performance based on the news event. at the end of the day most people i would imagine are still well in the money and enjoying a good income from divs.

if tiwai were to close i would imagine a bigger correction were to occur to stock prices and dividends

Tiwai will NOT close - for 2 reasons :

1. It's election year in 2020 and this government of misfits is not going to lose an election for the sake of $30m to $50m - which it will happily throw Tiwai's way. If National and John Key can do it, why not Labour? Tiwai has timed its scare tactics to perfection - with the grubby one losing some of her gold dust with her u-turns and broken promises.

2. Rio has had to cease negotiations about building a replacement aluminium plant to utilize spare hydro-power in Malaysia because the Malaysians decided they can sell the power at higher prices than to attract a long term power guzzling plant . Also, the replacement cost for a new aluminum plant is estimated to be in excess of $2 billion.

[sb9]

Tiwai will NOT close - for 2 reasons :

1. It's election year in 2020 and this government of misfits is not going to lose an election for the sake of $30m to $50m - which it will happily throw Tiwai's way. If National and John Key can do it, why not Labour? Tiwai has timed its scare tactics to perfection - with the grubby one losing some of her gold dust with her u-turns and broken promises.

2. Rio has had to cease negotiations about building a replacement aluminium plant to utilize spare hydro-power in Malaysia because the Malaysians decided they can sell the power at higher prices than to attract a long term power guzzling plant . Also, the replacement cost for a new aluminum plant is estimated to be in excess of $2 billion.

Agree with that, just the usual scaremongering by Tiwai to twist Govt's arm in an election year and get a handout...

[Snow Leopard]

...2. Rio has had to cease negotiations about building a replacement aluminium plant to utilize spare hydro-power in Malaysia because the Malaysians decided they can sell the power at higher prices than to attract a long term power guzzling plant ....

Yes, they sell it to me at RM0.27/kWh (delivered to the air-con).

I thought the Rio negotiations ceased in early 2012.

I could bore the pants off you with details of the Sarawak electricity system and it's future aspirations, but if you are interested it is on that internet thingy.

[Beagle]

although caution is warranted in regard to tiwai , seems like a lot of over reaction to bail out of all power stocks.

cen - 14%
mel - 13%
mcy - 4%
gne - 4%
tpw + 3%
vct - 1%
ift + 1%

highlights that cen and mel have had quite a sell down last month but others have not , hardly a massive sell down occurring of the sector for the last month. looks like mel and cen have re rated the most due to profit taking on there out performance based on the news event. at the end of the day most people i would imagine are still well in the money and enjoying a good income from divs.

if tiwai were to close i would imagine a bigger correction were to occur to stock prices and dividends

Has been a sizeable correction and some more today as well. The market has long exhibited a strong dislike for fundamental uncertainty and until this Tiwai point thing is resolved...

[Balance]

Has been a sizeable correction and some more today as well. The market has long exhibited a strong dislike for fundamental uncertainty and until this Tiwai point thing is resolved...

Therein lies the opportunities in the market?

Think ATM, Serko, Xero, Synlait and FBU (Ralph Waters' time) when uncertainty allowed shrewd investors to buy in and make mega returns.

https://www.stuff.co.nz/business/117012855/rio-tinto-turns-up-the-heat-over-aluminium-smelter

To me, it's very clear that Rio Tinto has the full measure of this current pathetic U-turning Labour government - they will win the concessions they want - because it's election year in 2020.

It's that simple.

So happy to add to my power shareholdings on the backfoot as the 'frightened' ones sell out.

[Airw0lf]

Therein lies the opportunities in the market?

Think ATM, Serko, Xero, Synlait and FBU (Ralph Waters' time) when uncertainty allowed shrewd investors to buy in and make mega returns.

https://www.stuff.co.nz/business/117012855/rio-tinto-turns-up-the-heat-over-aluminium-smelter

To me, it's very clear that Rio Tinto has the full measure of this current pathetic U-turning Labour government - they will win the concessions they want - because it's election year in 2020.

It's that simple.

So happy to add to my power shareholdings on the backfoot as the 'frightened' ones sell out.

Just watch out - this government is a big fan of exporting hydrogen from NZ one day and zero carbon electricity. They might see Tiwai exiting as a great way to kill off Huntly and also start producing green hydrogen.

[Balance]

Just watch out - this government is a big fan of exporting hydrogen from NZ one day and zero carbon electricity. They might see Tiwai exiting as a great way to kill off Huntly and also start producing green hydrogen.

Sometime in the future - but not in 2020 or 2023, election year.

The track record of this government is - forget about green and promises about the environment - it's all about returning to power in 2020 and further beyond.

[Beagle]

Therein lies the opportunities in the market?

Think ATM, Serko, Xero, Synlait and FBU (Ralph Waters' time) when uncertainty allowed shrewd investors to buy in and make mega returns.

https://www.stuff.co.nz/business/117012855/rio-tinto-turns-up-the-heat-over-aluminium-smelter

To me, it's very clear that Rio Tinto has the full measure of this current pathetic U-turning Labour government - they will win the concessions they want - because it's election year in 2020.

It's that simple.

So happy to add to my power shareholdings on the backfoot as the 'frightened' ones sell out.

I have learned that momentum is a powerful force not to be underestimated. They may be a buy again at some point in 2020, in my opinion.

The thing is Utilities and REIT's have been massive outperformers in 2019 as the herd flocked to the intrinsic safety of these types of investments seriously concerned that a bad recession was a very real possibility for 2020. Its starting to look like this global recession is considerably less likely.

REIT's and Utilities have done incredibly well but doesn't mean that they'll be outperformers in 2020. If we get some sort of reasonable trade deal (which I am sure the pure narcissist will want so he can enhance his chances of being drunk on power for another 4 years), growth, cyclical and value shares could be the outperformers in 2020.

My best guess (and that's all it is), is REIT's and utilities will underperform the market between now and at least the first few months of 2020. Of course if there's no trade deal at all and the trade war hots up then they'll be back in fashion again in the blink of an eye.

[Balance]

I have learned that momentum is a powerful force not to be underestimated. They may be a buy again at some point in 2020, in my opinion.

The thing is Utilities and REIT's have been massive outperformers in 2019 as the herd flocked to the intrinsic safety of these types of investments seriously concerned that a bad recession was a very real possibility for 2020. Its starting to look like this global recession is considerably less likely.

REIT's and Utilities have done incredibly well but doesn't mean that they'll be outperformers in 2020. If we get some sort of reasonable trade deal (which I am sure the pure narcissist will want so he can enhance his chances of being drunk on power for another 4 years), growth, cyclical and value shares could be the outperformers in 2020.

My best guess (and that's all it is), is REIT's and utilities will underperform the market between now and at least the first few months of 2020. Of course if there's no trade deal at all and the trade war hots up then they'll be back in fashion again in the blink of an eye.

Good thoughts, Beagle.

There is also another factor - interest rates.

[penn]

The market for power shares looks strong today withe the fast tracking of the transmission lines. MEL up 4% at the moment, and the others looking strong.

[horus1]

I cannot understand this. Surely this confirms a high riskof Tiwai closing

[Beagle]

The market for power shares looks strong today withe the fast tracking of the transmission lines. MEL up 4% at the moment, and the others looking strong.

Can you call improving connectivity of Manopouri output of from 2023 in to 2022 fast tracking ?
In an ugly break-up scenario where Rio gives just 12 months notice of closure there's still quite a gap there where there's an awful lot of power with no home to go too.
I think they're trying to hedge their bets horus1 which makes sense as sooner or later they'll be pleased they did.

[Snoopy]

I cannot understand this. Surely this confirms a high riskof Tiwai closing


Both Contact and Meridian have by far the greatest generating capacity in the South Island. I guess they are the most likely to suffer if Tiwai closes and they can't get their power north? Having said that $5m from Contact and $5m from Meridian is not big money in power infrastructure investment terms.

The other reason to do this is gamesmanship. If Tiwai know that power from Manapouri can be redeployed elsewhere relatively quickly, then there is less likelihood of Tiwai playing 'hard ball' with their own power price negotiations. That's how I see things anyway,

SNOOPY

[Jaa]

Both Contact and Meridian have by far the greatest generating capacity in the South Island. I guess they are the most likely to suffer if Tiwai closes and they can't get their power north? Having said that $5m from Contact and $5m from Meridian is not big money in power infrastructure investment terms.

The other reason to do this is gamesmanship. If Tiwai know that power from Manapouri can be redeployed elsewhere relatively quickly, then there is less likelihood of Tiwai playing 'hard ball' with their own power price negotiations. That's how I see things anyway,

SNOOPY

With interest rates so low, now is a great time to for NZ Inc to commit to long term infrastructure upgrades as the Reserve Bank and Government have requested (Megan Woods is very impressive). Great to see NZ Inc working together.

Also Snoopy, analysts have stated that Contact has the most to lose from a Tiwai shut down, then Meridian. Hence why Contact fell more than Meridian over the last while.


In an ugly break-up scenario where Rio gives just 12 months notice of closure there's still quite a gap there where there's an awful lot of power with no home to go too.

You are talking about 6 months or so in an asset with a lifetime of what? 50? 100 years? A one off and a good chance to do a bit of serious maintenance/improvements.

[dln]

In an ugly break-up scenario where Rio gives just 12 months notice of closure there's still quite a gap there where there's an awful lot of power with no home to go too.
A vacated Tiwai would make an excellent pre-connected green hydrogen plant.

[Beagle]

You are talking about 6 months or so in an asset with a lifetime of what? 50? 100 years? A one off and a good chance to do a bit of serious maintenance/improvements.

MEL shareholders will be hoping its more than 50 years since it was built in 1971 and is 48 years old already ! Anyway...I agree with the other Beagle that $5m each is chump change in terms of capex for CEN and MEL to help Transpower speed up grid development and thus give them options if Rio pull out.

Should be another good day for REIT's and utilities as it seems we're in risk off mode again and US 10 year rates fell more than 10 basis points.
Not sure how much juice they have left in them with this smelter overhang issue though so I'll be sitting on my paws.

[Davexl]

Has anybody seen this? Bit of a bombshell to drop just as NZ Inc goes on holiday. Looks like the Cap has been put on Cap-in-Trade:

https://www.stuff.co.nz/national/politics/118348591/government-proposes-capping-emissions-at-2020-levels-with-huge-changes-to-ets-pricing

"This means businesses will be paying at least $20 for every tonne of emissions and possibly up to $50. The fixed price at which the Government sell the credits would move from $35, up from $25 now.

Climate Change Minister James Shaw said research showed that a $40 price was around the point where businesses started seriously investing in cleaner technology.
The aim is to see net emissions peak at around 2020 levels and then begin falling from 2022, according to a draft "emissions budget" for the years 2021-2025. This budget would be superseded by the first emissions budget from the Climate Change Commission in 2022."

Seems to me this will gradually kill coal use on the Rankines, but also act to put a cap on Gas use emissions also, mostly affecting Contact and Genesis plant?

Contact is mostly Gas generation but Genesis is duel fuel with the Rankines is that correct?

Obviously favours Electric boilers eg in the Dairy industry, affecting their S. Island plants and strongly incentivising Renewables at long last.

Here's hoping Contact and particularly Genesis don't take a hit with loss of fuel flexibility eg with Coal, and Gas doesn't become too expensive and push power pricing up for the baseload generation plants and consumers long term too much.

On the flip side perhaps the economics for Genesis running their 3rd Rankine unit now stack up for baseload Gas generation, particularly if Tiwai decides to quit and we have more dry years with Climate change...

Disclosure: Own Genesis and Trustpower shares.

[Beagle]

I'm with National on this. Very poor form to drop this bombshell on business just before Christmas.

Greenies gone mad. Won't make one iota of difference to the world climate but WILL affect people's power prices, GNE have just done a round of price increases for power and gas for consumers and will need to do another one sooner rather than later if these extreme measures come in.

GNE to be most affected I would think.

[horus1]

Open your eyes. This is mild compared to what has to be done. Put your own solar in and stop being ripped of by the Electricity Industry. It is beneficial to mercury and Meridian.

[Beagle]

My eyes are wide open. The best way to make an enduring difference is to plant a whole lot of trees.

[Davexl]

My eyes are wide open. The best way to make an enduring difference is to plant a whole lot of trees.

And then not harvest them as that releases the CO2 over time. https://www.stuff.co.nz/business/farming/114167973/forests-are-fastest-way-to-soak-up-carbon-dioxide-but-not-all-trees-are-equal

I am hoping for a rational climate change strategy to emerge where their is a clear differentiation between oil and gas discoveries where Gas is promoted at Oils and Coals expense. With Gas CO2 emmisions at 1/2 of Coal's we have a viable strategy for a future Hydrogen generation and export economy once the Carbon Capture issue is sorted. Gas has to be available as a transition energy source for the baseload generation in Dry years. and Coal boilers have to be switched to Electric and Biomass where feasible. The only downside to Gas is the issue of methane leakage which has to monitored by satellite. Their is a global monitoring centre for Methane being set up at Massey University as we speak. https://www.japantimes.co.jp/news/2019/11/06/asia-pacific/science-health-asia-pacific/methane-satellite-mission-new-zealand/. Methane has 25 times the impact of CO2 and can reduce the overall benefits of Gas if leaks are not tightly controlled. Legislation should also be brought in to at least burn any previously flared methane and generate power eg in Capstone turbines. IMO.

[bull....]

buying mel , mcy at the worst time after the te wai smelter news would be seeing you with sizable gains now. mel nearly back to all time highs. dow utilities just hit record high overnight too.

[dibble]

Bit of news of interest - nanowires, old discovery but recent development is these things producing (small amount) of electricity from humidity and, crucially, recharging themselves to some degree. Possibly both a threat and opportunity for the long term.

https://www.sciencemag.org/news/2020/02/electric-bacteria-create-currents-out-thin-and-thick-air

[bull....]

wonder if falling global demand and prices for aluminium will make it even harder for rio to keep smelter open

[troyvdh]

And of course the ramifications for listed power companies..we live in interesting times eh

[percy]

And of course the ramifications for listed power companies..we live in interesting times eh

Certainly do.
Rio Tinto have the bauxite needed to make Aluminium.
Should they be able to sell their bauxite to Chinese Aluminium Smelters for a top price, there will be no reason to keep Tiwai Point Smelter operating.
I would think to keep their profitable bauxite mining going, they will keep Tiwai operating.
All depends on their transfer pricing, and Chinese demand for bauxite.
Short term demand will be weak,but the longer term demand may be strong.
I have shares in Bauxite miner Metro Mining, and they are ramping up production to meet forecast demand.

[iceman]

Certainly do.
Rio Tinto have the bauxite needed to make Aluminium.
Should they be able to sell their bauxite to Chinese Aluminium Smelters for a top price, there will be no reason to keep Tiwai Point Smelter operating.
I would think to keep their profitable bauxite mining going, they will keep Tiwai operating.
All depends on their transfer pricing, and Chinese demand for bauxite.
Short term demand will be weak,but the longer term demand may be strong.
I have shares in Bauxite miner Metro Mining, and they are ramping up production to meet forecast demand.

I sure hope Tiwai continues in NZ, for many reasons, Other than the obvious importance to the local economy, seeing this relatively environmentally friendly smelter replaced by a coal spewing smelter in China that emits 10x more CO2 into the air, is a terrible thought. They have enough issues there now making electricity (from coal) to fuel their fast increasing number of electric cars. Go figure !!

[horus1]

I hope they close . They have not added economic benefit to NZ for many years and they really use electricity that is 63% non CO2. The talk about it being environmentally good energy is wrong . I used to run the NZ electricity sector

[troyvdh]

Wow..horus..I for one look forward to further posts...however I realise that may not be possible..anyways..cheers

[Beagle]

Big fall in the price of Aluminium today. This is going to be a line ball decision and could easily go either way.

[ratkin]

Big fall in the price of Aluminium today. This is going to be a line ball decision and could easily go either way.

Is there a set date for the decision?

[Beagle]

Not that I can recall but I think its due pretty soon, from memory by April sometime.

[k14]

Is there a set date for the decision?
31st March. However there's nothing stopping them saying they need more time and take another 3-6 months!

[Joshuatree]

Jantar , Hi are you still around? Be great to get some thoughts from you re the subjects on these threads. cheers JT

[IAK]

Not sure if the government will come to the party this time. Not exactly a Labour stronghold down there in Southland either. "Mataura dross: Environment Minister targets smelter company in letter."

https://www.rnz.co.nz/news/political/411402/mataura-dross-environment-minister-targets-smelter-company-in-letter

[see weed]

I hope they close . They have not added economic benefit to NZ for many years and they really use electricity that is 63% non CO2. The talk about it being environmentally good energy is wrong . I used to run the NZ electricity sector
Wow, I did my apprenticeship with the old NZED.

[Carpenterjoe]

Any of you guys follow GNX, NEW, IFN? All are on the ASX. They are interesting little power companies. I have gone pretty heavy on GNX.

Sorry its the wrong thread, but might be of intrest to some.

[Marilyn Munroe]

Rio Tinto, will they go or will they stay?

Transpower are moving their pieces around on the chess board if they go.

https://www.transpower.co.nz/clutha-upper-waitaki-lines-project

Boop boop de do
Marilyn

PS Could someone explain why you would upgrade Roxburgh - Liningstone and Aviemore - Benmore but not the lines between.

[k14]

Rio Tinto, will they go or will they stay?

Transpower are moving their pieces around on the chess board if they go.

https://www.transpower.co.nz/clutha-upper-waitaki-lines-project

Boop boop de do
Marilyn

PS Could someone explain why you would upgrade Roxburgh - Liningstone and Aviemore - Benmore but not the lines between.
Go and have a look at page 22 of the Meridian FY20 HY results. I think that is the best explanation of the upgrades I have seen. The Aviemore - Livingstone line has already been duplexed (along with the Roxburgh - Clyde line) a few years back.

[bull....]

think vector might throw spanner in the works of the supposed transpower subsidy to rio

Vector says if smelter gets Transpower discount then it may ask for one too
https://www.stuff.co.nz/business/120042792/vector-says-if-smelter-gets-transpower-discount-then-it-may-ask-for-one-too

opens up a whole can of worms for other industries to seek subsidy.

[Joshuatree]

Any of you guys follow GNX, NEW, IFN? All are on the ASX. They are interesting little power companies. I have gone pretty heavy on GNX.

Sorry its the wrong thread, but might be of intrest to some.

GNX i held but sold down (and out of many )of my stocks on the 4th feb. GNX has its own thread.

Have kept power companies though plan to ride this out with them and need the income.

[Tomtom]

While I appreciate the Tiwai descision is important I think it would be remiss of us not to realise these are businesses are predominantly non-cyclical dividend payers in a declining rate environment. People will likely postpone a holiday or purchase long before they go back to living by candle light and heating pots of water over a wood fire.

[Beagle]

While I appreciate the Tiwai descision is important I think it would be remiss of us not to realise these are businesses are predominantly non-cyclical dividend payers in a declining rate environment. People will likely postpone a holiday or purchase long before they go back to living by candle light and heating pots of water over a wood fire.

That's very true. After food and shelter ones power bill is right up near the very top of the list of priorities but the $64,000 question is how would a Tiwai Pt closure affect the profitability of the various companies in this sector and their ability to pay dividends ?

[King1212]

Based on the current situation, where china economy is slowing down... world is fighting the virus, uncertainty over world economy..I think it is high likely that Tiwai will be closed down.

Cindy will help those workers anyway.

[Carpenterjoe]

GNX i held but sold down (and out of many )of my stocks on the 4th feb. GNX has its own thread.

Have kept power companies though plan to ride this out with them and need the income.

It will be interesting if Tiwai closes down and production is moved to Tomago how that will effect spot prices in nsw. Anyway just a
thought. I can't see NZ consumers paying less for electricity.

[Tomtom]

...how would a Tiwai Pt closure affect the profitability of the various companies in this sector and their ability to pay dividends ? How many companies will still be paying dividends, much less at the same level, if we have a servere recession? For most of us risk is relative.

"...as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know." - Donald Rumsfeld

[850man]

I see aluminium prices are currently at their lowest in 3 years and on a steep downward trajectory... wonder if this and the current economic crisis will be the catalyst for Rio Tinto pulling the plug so to speak on Tiwai

[Sideshow Bob]

I see aluminium prices are currently at their lowest in 3 years and on a steep downward trajectory... wonder if this and the current economic crisis will be the catalyst for Rio Tinto pulling the plug so to speak on Tiwai

Remediation costs for closure would be significant. Might close down a few potlines......?

[Beagle]

Remediation costs for closure would be significant. Might close down a few potlines......?

That's spooky, you read my mind. I was thinking exactly the same thing earlier today.

[k14]

I see aluminium prices are currently at their lowest in 3 years and on a steep downward trajectory... wonder if this and the current economic crisis will be the catalyst for Rio Tinto pulling the plug so to speak on Tiwai
Yes, but if you convert them to NZD then they are not much different to 6 months ago. I am sceptical that Rio would change their decision of staying open/closing due to COVID19. They would have largely already made up their mind prior to the outbreak. One theory I heard recently is that they will announce closure but just to get more leverage with the power companies for a better deal then later this year they will reverse their decision and stay open. Pretty risky strategy though. If they didn't already have enough of the general population against them, this would cement them as public enemy #1.

[Balance]

I see aluminium prices are currently at their lowest in 3 years and on a steep downward trajectory... wonder if this and the current economic crisis will be the catalyst for Rio Tinto pulling the plug so to speak on Tiwai

Like good farmers know that droughts do happen but we are okay in a country blessed with plentiful rain , Rio Tinto does not make multi-billion investment decisions based upon short term events.

[Joshuatree]

according to industry (https://aluminiuminsider.com/pacific-aluminium-blames-high-power-prices-and-low-aluminium-prices-for-losses-at-tiwai-point/)
More smelters announce possible closure due to high power costsPacific Aluminum, a division of Rio Tinto Group, recently reported a loss due to high power and transmission costs at its Tiwai Point aluminum smelter in New Zealand, according to industry reports (https://aluminiuminsider.com/pacific-aluminium-blames-high-power-prices-and-low-aluminium-prices-for-losses-at-tiwai-point/).
The company noted rising power costs were more harmful than weak aluminum prices, which dropped by around 15% last year.
The company previously announced it would make a decision on whether to keep the smelter operating by the end of March 2020.
Australian operations face similar issues.
According to a recent report (https://ieefa.org/australias-aluminium-smelters-need-a-technology-retrofit-to-offer-demand-response-capacity/) from the Institute for Energy Economics and Financial Analysis, Australia’s four major aluminum smelters all face critical power issues that could result in closures.

[bull....]

aluminium at new lows today in US dollars

Coronavirus is double shock for China's giant aluminium sector
https://www.reuters.com/article/china-health-aluminium-home/rpt-column-coronavirus-is-double-shock-for-chinas-giant-aluminium-sector-andy-home-idUSL8N2AL4O8


Aluminium producer Norsk Hydro says coronavirus will likely impact demand, activitieshttps://www.nasdaq.com/articles/aluminium-producer-norsk-hydro-says-coronavirus-will-likely-impact-demand-activities-2020

will the lower dollar and power company subsidies ( if they do it ) be enough to keep tiwai open against the backdrop of lower world demand. Rio is due to announce soon there decision.

[ratkin]

No doubt an impossible question to answer, but if Tiwai does close then how much more could it knock off the current prices? They are starting to look pretty beat up, and could closure already be partly built in?

[stoploss]

No doubt an impossible question to answer, but if Tiwai does close then how much more could it knock off the current prices? They are starting to look pretty beat up, and could closure already be partly built in?

We would all be winners , just as with the reduced prices at the pump due to less oil demand . If they toss the toys out of the cot and go home , we can distribute that power
to NZ consumers at maybe 14 cents a unit instead of the 18-23 odd we all pay now . Rumour has it Rio was maybe paying 5 cents a unit , so its a win ,win.

[trackers]

No doubt an impossible question to answer, but if Tiwai does close then how much more could it knock off the current prices? They are starting to look pretty beat up, and could closure already be partly built in?

I've got a friend fairly high up in Meridian, so I've got an insight to this.

Essentially from what I understand, Rio want to negotiate now, whilst they still have leverage. Their operation here is profitable (note: pre this disaster), and is 'eco friendly' so what they are saying is largely bluster.

At the moment the hydro station is connected directly to tiwai, and not anywhere else. There is a 2 year programme to link it to the main grid, which will then have dual power supplies north and be great to the country.

So if Rio walk away, Meridian take a 2 year max hit which is very doable for them in what is a highly profitable period. Rio know this and are trying to lock something in while they still have some power ( yay pun!)

[Airw0lf]

I've got a friend fairly high up in Meridian, so I've got an insight to this.

Essentially from what I understand, Rio want to negotiate now, whilst they still have leverage. Their operation here is profitable (note: pre this disaster), and is 'eco friendly' so what they are saying is largely bluster.

At the moment the hydro station is connected directly to tiwai, and not anywhere else. There is a 2 year programme to link it to the main grid, which will then have dual power supplies north and be great to the country.

So if Rio walk away, Meridian take a 2 year max hit which is very doable for them in what is a highly profitable period. Rio know this and are trying to lock something in while they still have some power ( yay pun!)

I hope your friend high up in Meridian isn't telling you that Manapouri hydro station isn't grid connected - that's complete rubbish. Manapouri is fully integrated into the national grid, as is Tiwai. However if Tiwai were to exit, Manapouri's generation (and a lot of other South Island hydro generation) would face bottlenecks in getting to market further north. There are transmission projects that can be employed to fix this capacity issue but I'd be shocked if it could all be done in 2 years. It would be closer to 3-5 in my estimation. However we can all agree that during that period (however long it may be) Meridian's generation revenues will suffer due to a combination of low price and/or spilled water that can't be made into electricity. In that time, generators like MCY and GNE with stronger North Island presences will potentially perform better than MEL.

My two cents on Rio's thinking - absolutely they will want to play hardball right now with Meridian. They will point to the low aluminium price, etc. but the reality is that this decision will swing on their view of the long-run aluminium price, not today's price. Crude oil is at $25 - that doesn't mean people aren't going to continue investing in oil and gas.

Lastly, don't forget that if Rio exits, they are on the hook for a very large remediation cost. So that's a significant NPV negative hole for them in the exit scenario. Continuing operations needs to be even more NPV negative than that for them to want to quit.

[Jaa]

Aluminum price in both NZD and AUD must be starting to look pretty good following today's crash!

Follow the USD price here: https://www.bloomberg.com/quote/LMAHDS03:COM

[bull....]

Aluminum price in both NZD and AUD must be starting to look pretty good following today's crash!

Follow the USD price here: https://www.bloomberg.com/quote/LMAHDS03:COM

demand going drop so probably more pain to come. the biggest benefit if RIO close the smelter is cheaper power for consumers as it floods the market , probably help more people now than the ones who lost there job in southland

[ratkin]

I am guessing much less electricity used during a lockdown?

Although with winter coming on, home use should be far higher than normal. Will that be enough to set industrial stoppages?

[percy]

I am guessing much less electricity used during a lockdown?

Although with winter coming on, home use should be far higher than normal. Will that be enough to set industrial stoppages?

Come for a run over to my area,Hillsborough/Opawa and note the big number of Nissan Leaf cars,and you will be buying power shares.!.
Take care to watch out for all the electric bikes,they are faster than they look.
Talking of cars did you ever buy your the vehicle from Turners,to park where your neighbour parked his camper van.?

[ratkin]

Come for a run over to my area,Hillsborough/Opawa and note the big number of Nissan Leaf cars,and you will be buying power shares.!.
Take care to watch out for all the electric bikes,they are faster than they look.
Talking of cars did you ever buy your the vehicle from Turners,to park where your neighbour parked his camper van.?

Haha not yet, there is a bit of a truce at the moment. Genesis is certainly on the watchlist but will probably wait for the smelter decision.

[bull....]

way the power shares are falling , rio must be going to bail

[Beagle]

way the power shares are falling , rio must be going to bail

Yes, its looks like the word has got out to industry insiders and they're telling their mates to bail.

[Tomtom]

Just wait for the next round of business subsidies surely? Keep the staff with the subsidies, mothball the plant and get 12-18 months to see if there will be a bounce or a depression.

[Sideshow Bob]

Yes, its looks like the word has got out to industry insiders and they're telling their mates to bail.

Normally MEL, GNE, MCY etc would be a safer haven in these sorts of times.

When they are all down 8-9% this morning, certainly seems that way......

[whatsup]

way the power shares are falling , rio must be going to bail

That would be the kiss of death for any govt, IMHO they should negotiate hard but keep RIO in N Z ( if at all possible ) .

[bull....]

That would be the kiss of death for any govt, IMHO they should negotiate hard but keep RIO in N Z ( if at all possible ) .

direct subsidy to rio would be politically risky , transpower subsidy which they are looking at , vector has said they take them to court if they do that and at the end of the day rio fundamentals are getting worse with lower world demand for aluminium and falling prices. least they could drop power prices for everyone if rio closes plant be biggest stimulus for households

[ratkin]

direct subsidy to rio would be politically risky , transpower subsidy which they are looking at , vector has said they take them to court if they do that and at the end of the day rio fundamentals are getting worse with lower world demand for aluminium and falling prices. least they could drop power prices for everyone if rio closes plant be biggest stimulus for households

Yeah, and Electricity prices for the consumer likely to be in the PMs thoughts

[Tomtom]

Deflation does have some benefits in the short term. However all the major players will consequently shelve their projects and conserve cash. It won't just be be the plant workers out of the job. Deflation rapidly becomes unpalatable to most governments.

[blackcap]

way the power shares are falling , rio must be going to bail

NZ energy futures would indicate otherwise with prices holding up quite well.

https://www.asx.com.au/asx/markets/futuresPriceList.do?code=EA&type=FUTURE

[macduffy]

Yes, its looks like the word has got out to industry insiders and they're telling their mates to bail.

Either that or someone's jumping to conclusions or spreading rumours! Mind you, the gentailers are some of the easiest stocks to sell with the best liquidity. The rest of the market has since caught up!

PS Nothing to do with Power shares but I've just noticed that the latest posts, RYM and SKL, adjacent on the listing, are written respectively by Tomm and Jerry!

:)

[Lewylewylewy]

gentailers... i always miss read that word.

That aside, do you think that economic damage increases the chance of rio quiting and therefore gentailers are priced too highly?

Also, they say that after a war, the leader always gets another go round. I think that this covid19 debacle will have the same effect. I'm not sure if Jacinda will care about Rio's departure. Might try to sell the consequent drop in electricity prices as a good thing she did.

Just an alternate perspective for you to enjoy.

[Food4Thought]

gentailers... i always miss read that word.

That aside, do you think that economic damage increases the chance of rio quiting and therefore gentailers are priced too highly?

Also, they say that after a war, the leader always gets another go round. I think that this covid19 debacle will have the same effect. I'm not sure if Jacinda will care about Rio's departure. Might try to sell the consequent drop in electricity prices as a good thing she did.

Just an alternate perspective for you to enjoy.

I like the perspective. Such a major use of electricity that plant uses. Best part of we Zealand for diving down there.

Try Preservation Inlet... Cod as long as your arm... solid 8 hour trip by boat... certainly not for the faint hearted

[fish]

direct subsidy to rio would be politically risky , transpower subsidy which they are looking at , vector has said they take them to court if they do that and at the end of the day rio fundamentals are getting worse with lower world demand for aluminium and falling prices. least they could drop power prices for everyone if rio closes plant be biggest stimulus for households

Rio are reviewing their options and could use the uncertainty of corvid-19 economic damage to postpone their final decision.
I do not know for sure but I guess they will have to close for 4 weeks and then maybe will re-open the pots they can run on cheaper contracted prices

[bull....]

Rio are reviewing their options and could use the uncertainty of corvid-19 economic damage to postpone their final decision.
I do not know for sure but I guess they will have to close for 4 weeks and then maybe will re-open the pots they can run on cheaper contracted prices

delay doesnt change much in way of fundamentals and im sure the power companies do deal to keep smelter open but it be at s/h expense , also demand for electricity will be well down this year now due to lock down and business failures to come. im for letting rio stand on there own feet not for subsidies if gentailers are so keen to throw millions at rio they should throw millions at consumers to if rio closes.

[Jaa]

Delay gives NZ Inc more time to progress the transmission upgrades already announced and squeezes RIO's leverage.

Anyone have any insight into national power demand during the lockdown? Any trends apparent yet? I would assume demand would drop, but not by that much, maybe 5%?

[Playa]

delay doesnt change much in way of fundamentals and im sure the power companies do deal to keep smelter open but it be at s/h expense , also demand for electricity will be well down this year now due to lock down and business failures to come. im for letting rio stand on there own feet not for subsidies if gentailers are so keen to throw millions at rio they should throw millions at consumers to if rio closes.
A lot more people will be at home using more power as well,instead of being in the office

[mfd]

Delay gives NZ Inc more time to progress the transmission upgrades already announced and squeezes RIO's leverage.

Anyone have any insight into national power demand during the lockdown? Any trends apparent yet? I would assume demand would drop, but not by that much, maybe 5%?

I haven't done any sums yet, but maybe it would be reasonable to look at the difference between a regular weekend and weekday and take that as the approximate reduction? Not exactly comparable but maybe a good start.

[boysy]

https://www.em6live.co.nz/PlanningRegion.aspx?planningregion=lsi

[k14]

Rio are reviewing their options and could use the uncertainty of corvid-19 economic damage to postpone their final decision.
I do not know for sure but I guess they will have to close for 4 weeks and then maybe will re-open the pots they can run on cheaper contracted prices
I read confirmation this morning that Tiwai will be open for the duration of the lockdown.

[Cyclical]

I'm not sure if Jacinda will care about Rio's departure. Might try to sell the consequent drop in electricity prices as a good thing she did.

The Greens would surely love it too, right? Those dirty boats coming over from Aus with alumina, the ability to dial back some of the non-renewable power generation. I can't really see the COL trying too hard to retain them.

[Sideshow Bob]

Short term economic reality might rule - ie job losses and hole in Southland economy, the power comapnies (they all still majority own), export revenue etc.

[Joshuatree]

Think there is only one thats still majority owned,Contact?. Remember John (double whammy) Key flogged off our other ones to us!

[Snoopy]

Think there is only one thats still majority owned,Contact?. Remember John (double whammy) Key flogged off our other ones to us!


JK flogged off minority stakes in Genesis, Mercury and Meridian. So the government still has a 50% controlling shareholding in those. Contact ownership is now very highly dispersed, since the former majority owner, Origin Energy in Australia, sold out.

SNOOPY

[Sideshow Bob]

Think there is only one thats still majority owned,Contact?. Remember John (double whammy) Key flogged off our other ones to us!

No, Meridian etc were only partial floats. Crown still retains 51%.

[Beagle]

Aluminium price is about 10% lower than when Rio started their strategic review but our dollar has fallen by a similar amount. 50/50 call this one.

[Joshuatree]

Thanks guys. I'd like a new memory bank installed.

[Cyclical]

Short term economic reality might rule - ie job losses and hole in Southland economy, the power comapnies (they all still majority own), export revenue etc.

You'd hope so. We'll be paying for this event for a long time to come.

[Playa]

With everybody staying home and winter approaching, there may be more power the usual being used,may be good for the power companies

[macduffy]

With everybody staying home and winter approaching, there may be more power the usual being used,may be good for the power companies

Offset, of course, by lower commercial and industrial demand. Net result?

[Jaa]

Offset, of course, by lower commercial and industrial demand. Net result?

From em6live link posted, daily demand seems to be at the bottom of the expected band for the last couple of days. Sticking with my 5% drop predication at least while the lockdown is in effect.

RIO's costs/price ratio really hasn't change much but their competitive environment might have. They have lost bargaining power though, lots of businesses asking for bailouts now. Why favour RIO over say AIR NZ or all the small businesses?

Predict RIO will take slightly lower transmission fees, maybe negotiate a bit of cheaper power commercially, close a pot line perhaps and punt the decision down the road for another year.

[horus1]

Jaa , what a good summary and conclusion.

[Beagle]

From em6live link posted, daily demand seems to be at the bottom of the expected band for the last couple of days. Sticking with my 5% drop predication at least while the lockdown is in effect.

RIO's costs/price ratio really hasn't change much but their competitive environment might have. They have lost bargaining power though, lots of businesses asking for bailouts now. Why favour RIO over say AIR NZ or all the small businesses?

Predict RIO will take slightly lower transmission fees, maybe negotiate a bit of cheaper power commercially, close a pot line perhaps and punt the decision down the road for another year.

AKA things are too fluid and hard to call so lets kick the can down the road and see what happens.

[Sideshow Bob]

AKA things are too fluid and hard to call so lets kick the can down the road and see what happens.

I can't recall, but understand remediation costs of the site etc are something like $250m - so pretty grunty if accurate. Also the smelter isn't 100% Rio - Sumitomo own 20% so they would have to be on the same page.

Must imagine that Rio would have tried to hawk their 80% over recent years??

[Joshuatree]

Rio trying to screw down power prices in Iceland too


Sound familiar? Rio Tinto considers shutting Iceland smelter ...www.odt.co.nz (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&ved=2ahUKEwisnKep2LfoAhXkQ3wKHeI6CoAQFjAEegQIBRAB&url=https%3A%2F%2Ficelandmonitor.mbl.is%2Fnews%2Fn ews%2F2020%2F02%2F12%2Fwill_isal_aluminum_smelter_ close%2F&usg=AOvVaw02q7JjrzDCzf3VFsMffQtC) › news › world › sound-familiar-rio-tinto-considers-sh...

[macduffy]

Yes, they are, JT. But it's a legitimate tactic to try when the price of your product is under pressure.

[Joshuatree]

Obviously. Tiwai is not alone.

[horus1]

China is over it and their Al will be in full production ,others restricted. Pretty tough for Tiwai.

[thedrunkfish]

Offset, of course, by lower commercial and industrial demand. Net result?

Quite right there macduffy. I would have thought consumption would be alot lower with manufacturing plants shut down.

[artemis]

Mr Robertson announced yesterday that infrastructure projects will be key to recovery, and that housing and clean energy are specifically being looked at. That should be good news for the energy and construction sectors, though what are the chances this government will use the situation to advance their ideology. Apart from 100% chance, that is.

[blackcap]

Mr Robertson announced yesterday that infrastructure projects will be key to recovery, and that housing and clean energy are specifically being looked at. That should be good news for the energy and construction sectors, though what are the chances this government will use the situation to advance their ideology. Apart from 100% chance, that is.

One silver lining is that there will not be any money left over for the expensive uneconomic clean energy infrastructure. They will try and advance their ideology I agree, but they like all socialists will come to realise that other peoples money does run out eventually.

[Simsee]

I wonder if the smelter announcement today to close number four pot line could be read as positive for the remaining three keeping going? One would think that if the decision was going to be close the lot then why bother with just announcing one? Thoughts of others appreciated

[Joshuatree]

"The strategic review will consider all options, including curtailment and closure and will be complete in the first quarter in 2020."
The above from RIO's oct announcement, note first qtr of RIO ,not our power companies.Their first qtr results last year were released on 14th april so any time up until around then im surmising , for the announcement.

[k14]

I wonder if the smelter announcement today to close number four pot line could be read as positive for the remaining three keeping going? One would think that if the decision was going to be close the lot then why bother with just announcing one? Thoughts of others appreciated
Yes, I agree. Whilst the announcement was typically useless from Rio, it does mean that the close down was not a foregone conclusion prior to the COVID outbreak. Closing potline 4 is pretty minor in the big scheme of things, 50MW out of 620 means the majority of load is still there. Totally understand that the current situation means extension of the timeframe but very poor form that they didn't provide anything apart from a throwaway "still in progress" comment, but we have come to expect that from RT!

[Joshuatree]

Why would they? They have control of the timing and decision making.They are making the most of their bargaining position and going to the wire to screw down more savings from the power companies, NZ govt.As Mac says a legitimate tactic.

[macduffy]

From memory, they've closed down one potline before. A sensible move when price/demand for one's product reduces.

[freddagg]

It was only re-opened 15 months ago. Jacinda was there for the opening ceremony, wonder if she will be there for the closing ceremony.
https://www.stuff.co.nz/business/industries/109146959/green-credentials-market-opportunities-feted-as-pm-reopens-tiwa-potline

[Airw0lf]

From memory, they've closed down one potline before. A sensible move when price/demand for one's product reduces.

Although one of the key reasons for closure in this case was issues with physical distancing and covid, not (just) economics.

[Joshuatree]

Aluminium on a downtrend since 2018 from $2500 to a low today of $1530

[Beagle]

Aluminium on a downtrend since 2018 from $2500 to a low today of $1530

Yeah, pretty sure it was $1,700 when they started the review and they were complaining it had come down from $2000.
$1,530 and falling looks pretty ominous to me.

[Joshuatree]

Been pointed out to me that our $ has been too high for some years and Rio go quiet when $NZ is below 60c , like now.

[Joshuatree]

Tiwai aside the gentailers are a few of the reliable divvy payers left. Could even these come under threat with the regulator/Govt forcing down power prices to help out people struggling to pay there bills especially with autumn /winter heading our way.?

[macduffy]

Tiwai aside the gentailers are a few of the reliable divvy payers left. Could even these come under threat with the regulator/Govt forcing down power prices to help out people struggling to pay there bills especially with autumn /winter heading our way.?

We're in uncharted waters now. I wouldn't rule anything out.

[Beagle]

Agreed. Nothing is safe in a depression. People are going to need to learn to live a simple life off whatever welfare they're entitled too and chew up as little capital as they can get away with.

[trader_jackson]

https://www.stuff.co.nz/business/120766811/power-consumption-falls-sharply-with-nz-in-lockdown

You'd think the free cash flows (of which the gentailers pay almost all of it out via dividends) of the entire sector would be hit... dividends already looking stretched for some gentailers, and probably now going to be under serious pressure to even maintain them at prior years levels... yet they are still priced (near) perfection in my view... MCY for example last year paid out $209m in dividends of its $237m free cash flow (over 89% of its free cash flow was paid out), and even after falling a firth since the heights of the mid 5's, is currently on a 3.7% yield... aka priced to pretty close to perfection... and if Free Cash Flow falls 10% this year, if MCY is to increase its dividend by a few percent, it will be paying out basically all its FCF (which surely is not prudent!). Time for the power sector to get a bit more realistically priced, eg go back to where it was around 2017.

[horus1]

Why are all the generators down so much??

[Cyclical]

Why are all the generators down so much??

Yeah, wondering the same thing myself? Rio?

[macduffy]

Why are all the generators down so much??

Lower commercial and industrial power usage, I would think.

[bull....]

aluminium prices at new lows in free fall at the moment , demand for aluminium in general and from NZ as its used in cars and aircraft is poor must be really weighing on rio mind.

As said peak dividends from power companies has been , maybe even lower dividends to come as demand is down for power usage and probably wont reach back to previous levels for quite some time , if rio stays they will cough up profits to them. they are expensive now on fundamentals against this negative environment.

[trader_jackson]

Why are all the generators down so much??

I reckon they have alot further to fall... MCY (and most of the power sector) is priced near term deposit rates, yet there is far, far more risk (as my post above #230 partly explains) to the yield than your typical term deposit.

[trackers]

Meridian have not even wiped out one year of share price appreciation... They were $3 start of 2019 ($4.20 currently). Were they incredibly undervalued then, or are they overvalued now?

[Cyclical]

Meridian have not even wiped out one year of share price appreciation... They were $3 start of 2019 ($4.20 currently). Were they incredibly undervalued then, or are they overvalued now?

Sure, but at times like these, are the generators not considered safe havens?

[trackers]

Sure, but at times like these, are the generators not considered safe havens?

Safer *relatively* yeah, but the current happenings will result in a measurable reduction in demand for power (people think that people in their homes using heatpumps makes a difference, but it doesn't, industry uses the vast bulk). Also big question mark in the short term on Tiwai

[Poet]

Safer *relatively* yeah, but the current happenings will result in a measurable reduction in demand for power (people think that people in their homes using heatpumps makes a difference, but it doesn't, industry uses the vast bulk). Also big question mark in the short term on Tiwai

Yes, but if I'm not mistaken, the price that retail consumers pay per kwh will be quite a lot higher than the price that industrial and commercial consumers pay, so the overall revenue for the power co might not be so different. In any case, the lock down will only be a month (or two), then back to more normal demand patterns.
Tiwai? anyone's guess, but I expect the govt won't want another thousand jobs gone in the short term so will probably be highly motivated to reach an agreement

[Joshuatree]

Plus the 2,260 jobs created indirectly.
Tiwai uses enough electricity to power 776,000 homes!

[Beagle]

Aluminium on a downtrend since 2018 from $2500 to a low today of $1530


Yeah, pretty sure it was $1,700 when they started the review and they were complaining it had come down from $2000.
$1,530 and falling looks pretty ominous to me.

^^^Posted just 5 days ago. According to CNBC a few minutes ago currently trading at just $1,478.00

[Tomtom]

Plus the 2,260 jobs created indirectly.
Tiwai uses enough electricity to power 776,000 homes! Input prices will likely fall commensurately over time however. Given the prevailing market conditions it's about what market share they want in 5 or 10 years, it's a strategic move.

[Nasi Goreng]

But doesn’t this aluminium stuff get exported? And what’s been happening to the kiwi dollar?

[Joshuatree]

Input prices will likely fall commensurately over time however. Given the prevailing market conditions it's about what market share they want in 5 or 10 years, it's a strategic move.

What strategic move is that Tom?

[Panda-NZ-]

Maybe the power companies can come up with their own subsidy package to help Tiwai out :)

[Simsee]

I wonder when the smelter owners will make the final decision to stay or go. Leaving their workers worrying about it for months is not the sign of a good employer.

[macduffy]

I wonder when the smelter owners will make the final decision to stay or go. Leaving their workers worrying about it for months is not the sign of a good employer.

No, it's not. I would think though that the smelter employees would be used to this regular courting ritual!
:mellow:

[Oliver Mander]

Can't imagine that Covid-19 will help in achieving a "keep open" outcome...

[Joshuatree]

Maybe next few days ,as i said their qrtly last year was on th e 16th april.
Meanwhile a perfect negative storm for Rio with the IRD after them now as well as 5 year low in All prices and their aus smelters also running at a loss

ATO escalates aluminium smelter dispute with Rio Tinto
Peter Ker (https://www.copyright link/by/peter-ker-hveio)Resources reporter
Apr 8, 2020 – 11.04am

The Australian Taxation Office has escalated its transfer pricing probe into Rio Tinto's aluminium division, further complicating talks between the miner and the federal government over a rescue package for Rio's three loss-making Australian smelters.
The Australian Financial Review revealed in February (https://www.copyright link/companies/mining/ato-probes-rio-tinto-aluminium-20200224-p543ux) that a probe was underway into Rio's aluminium division, and Rio confirmed on Wednesday that the probe had escalated to a formal "amended assessment" in March.
The ATO believes Rio's Australian subsidiaries did not charge an appropriate price for the aluminium they sold to Rio's controversial Singapore marketing hub between 2010 and 2016.
The ATO has told Rio it must pay $86.1 million of unpaid taxes over the aluminium matter, which is separate to Rio's long-running $447 million dispute with the ATO over the transfer pricing of Australian iron ore.
Alcoa says Australia's power prices highest 'on the planet' (https://www.copyright link/companies/manufacturing/alcoa-says-australian-power-prices-highest-on-the-planet-20200115-p53rsa)
Rio said on Wednesday it would fight the ATO's aluminium claim, saying the issues in dispute were similar to those in the iron ore transfer pricing case.


''In March 2020, the ATO issued amended assessments to our company for the 2010 through 2016 calendar years in relation to the pricing of the sale of aluminium between Australia and our Singapore commercial centre," said Rio in a statement.
''We intend to object to the ATO assessments, which will give rise to an independent ATO review of the position.
''The amended assessments for both the iron ore and aluminium matters do not relate to any tax avoidance schemes as confirmed by the Australian Taxation Office, and no penalties have been levied by the Australian Taxation Office.
''We are committed to paying the right amount of tax due in all countries in which we operate, and consider the pricing of our iron ore and aluminium transactions to be in accordance with the OECD guidelines and Australian and Singapore domestic tax laws.''

The ATO has also launched a transfer pricing probe into the Australian bauxite, alumina and aluminium assets of US giant Alcoa and its local partner Alumina Limited.
As recently as February that probe had not yet escalated to become a formalised "amended assessment".
The timing of the ATO's probes is particularly inconvenient for the aluminium producers, who have approached state and federal governments over the past year seeking help to keep the loss-making aluminium smelters open.
Rio Tinto's Australasian smelters and refineries collectively lost $US137 million ($232 million) in 2019 (https://www.copyright link/link/follow-20180101-p53kuh), and they appear unlikely to do better this year given aluminium prices have slumped since the coronavirus outbreak.
Rio operates smelters in Tasmania, Queensland, New South Wales and on the south island of New Zealand.
Loss-making smelters plead for exemption from virus shutdowns (https://www.copyright link/companies/manufacturing/loss-making-smelters-plead-for-exemption-from-virus-shutdowns-20200326-p54e8c)
Alcoa and Alumina Limited's Portland smelter in Victoria lost $US36.4 million before interest and tax in 2019, and has lost a total of $US136.9 million over the past three years, despite receiving more than $200 million in government support subsidies.
Rio's continuing fight against the ATO over the iron ore dispute is at odds with the approach taken by BHP, (https://www.copyright link/companies/mining/bhp-to-pay-529m-in-ato-settlement-20181119-h182zf) which settled with the ATO over an almost identical dispute in November 2018.
The aluminium revelations were included in Rio's "taxes paid" report, in which the miner said it paid $US4.24 billion ($6.91 billion) in corporate income tax in Australia in 2019.
Once royalties and payroll taxes were included, Rio said it paid $US6.21 billion ($10.12 billion) to Australian governments in the year.

[Joshuatree]

London April the 8th
"The Report sets out our ambition to reach net zero greenhouse gas emissions by 2050. And our new targets to achieve a 30% reduction in emissions intensity, and a 15% reduction in absolute emissions, by 2030.
To deliver these targets, we will spend approximately $1 billion over five years on climate-related projects, and research and development.
As well as working hard to reduce our own emissions, we are also working in partnership with our customers and others to reduce greenhouse gas emissions throughout the mining and metals value chain, from mine to end- product.
Including ‘hard to abate’ sectors, such as aluminium smelting, steel-making and shipping, where there are currently no commercially viable pathways to decarbonisation."

Rio Tinto plc 2020 Shareholder Conference Call - Speech, Simon Thompsonpdf, 119.18 KB (https://mc-56397411-4872-452d-b48e-428890-cdn-endpoint.azureedge.net/-/media/Content/Documents/Invest/Shareholder-information/AGMs/RT-plc-agm-2020-speech-chair.pdf?rev=4e25085848b5484f9a5e128de1ac01ac)
And in the conference and call recording RIO LOOK to be taking environmental issues very seriously and are reducing their carbon footprint. They are optimistic about Aluminium long term with increasing uses in the car industry for one.They have adopted Climate action 100 plus with carbon reduction goal and new low carbon tech initiatives to become net zero steel and aluminium producers. This makes hydro power based Tiwai a valuable asset going forward ( especially with its high purity) as it will help with the environmental commitment for the company. also mentioning that with the chinese restructure of aluminium production will rebalnce the supply demand situ. Most of the questions were about environmental issues. Makes me more optimistic about Tiwai stayingfor the longer term.
Rio Tinto plc 2020 Shareholder Conference Call - Speech, Simon Thompsonpdf, 119.18 KB (https://mc-56397411-4872-452d-b48e-428890-cdn-endpoint.azureedge.net/-/media/Content/Documents/Invest/Shareholder-information/AGMs/RT-plc-agm-2020-speech-chair.pdf?rev=4e25085848b5484f9a5e128de1ac01ac)