MEL - Meridian Energy

[Jantar]

....Meridian could then use the cash to buy back the top Twizel lake from Genesis and use the other half of the cash to give a cash return to investors. It is certainly a possibility. Comments please.

Tekapo is Genesis' only South Island asset. In that respect owning that group is worth far more to them portfolio wise than the the simple value of the group.
On the other hand Meridian will always get the water from Tekapo even without owning the two stations, so the value to them of owning Tekapo is far less than the simple value of the group. I can't see a match happening there.

[mouse]

Tekapo is Genesis' only South Island asset. In that respect owning that group is worth far more to them portfolio wise than the the simple value of the group.
On the other hand Meridian will always get the water from Tekapo even without owning the two stations, so the value to them of owning Tekapo is far less than the simple value of the group. I can't see a match happening there.

Well, maybe we should take the whole lot of cash from Tiwai and share it amongst the shareholders. How much do you think its worth? A dollar each share maybe? Or more?

[warthog]

Anybody know who is selling MEL down?

Seems like a huge holder is divesting.

[Joshuatree]

Tiwai point decision coming up creating a little uncertainty i think hence weakness recently(until int rate drop)

Tiwai has the option on july 1st(sorry I've used few diff dates in my posts) to terminate the whole deal.
Another option is to reduce its Meridian contract from 572 MW to 400MW and get the balance from another company maybe Contact.

Here is an excerpt from Stuff 20/4 to refresh;so one can make decision and get their tactics and maybe their cash ready depending on what you believe will happen.

"After negotiation with Meridian in 2013, the smelter got a price cut on 572MW of supply from 2013 to 2016. But to keep the lower price after that the smelter must cut the amount supplied through the contract to 400MW.
It must make that decision by the end of 2015.
It also has an option to decide on July 1 whether to terminate the whole deal, triggering closure in 2017.
Kidd said the closure scenario was unlikely, particularly because it would mean site remediation costs of about $500m.
It was more probable that the smelter would cut its Meridian contract to 400MW and try to get a price deal on the extra 172MW from another power company, possibly Contact Energy.
"There is we think a strong and shared incentive across all suppliers to retain [the smelter] load in full," he said.
Without demand from Tiwai, wholesale electricity prices would were likely to drop significantly and reduce profit margins for the industry, "an outcome that the sector has a strong collective reason to want to avoid", Kidd said.
The smelter has said little about its financial condition in the lead-up to its July decision deadline, a silence Kidd attributed to a gagging clause in its $30m deal with the Government.
According to contract terms disclosed by New Zealand Aluminium Smelters (NZAS), the Rio Tinto/Sumitomo joint venture, it must repay the $30m Government handout in full if it announces a review of the smelter's viability before June 30 this year.
In April NZAS chairman Brian Cooper told Stuff that the smelter was paying some of the highest prices in the world for its electricity.
"No decision had been made about the future of the smelter, and we are doing everything we can to secure a long-term commercially competitive electricity price for the smelter," he said.
Although the smelter itself is a tolling operation, which simply charges Rio Tinto and Sumitomo for production costs and does not make a profit, it is effectively reliant on whether its owners can make a profit on the aluminium it produces.
Kidd said although those companies did report some financial results,"group structures are opaque and it is difficult to gauge where and to what extent transfer prices and margins are captured".
His analysis was based on modelling of the overall business.

[fish]

Joshuatree have you researched current profits the smelter is making?
I would imagine they are large.
Its the highest quality aluminium and sells at a premium.
It seems a no brainer to close down a profitable smelter and pay $500m in remediation costs.
do you believe closure is a real possibility or do you think the market is fearful rather than realistic.
Personally I like buying when the market reaches its peak fear

[bull....]

aluminium prices have fallen sharply of recent esp premiums so I do not think the smelter will be as profitable at the moment as it was last yr

[xafalcon]

aluminium prices have fallen sharply of recent esp premiums so I do not think the smelter will be as profitable at the moment as it was last yr

Aluminium is not alone, many commodities have seen prices fall. Just another pricing cycle that will turn, sometime. Automakers are increasing aluminium usage to decrease fuel usage. So I think there is more up-side potential than down-side risk.

3 new transformers for manapouri was a clear sign of intent. I believe the deal has already been inked

[IAK]

From the Meridian Energy operating report for May 2015 - "Electricity demand 2.3% higher than preceding 12 months".

[Joshuatree]

Joshuatree have you researched current profits the smelter is making?
I would imagine they are large.
Its the highest quality aluminium and sells at a premium.
It seems a no brainer to close down a profitable smelter and pay $500m in remediation costs.
do you believe closure is a real possibility or do you think the market is fearful rather than realistic.
Personally I like buying when the market reaches its peak fear

Fish i replied a while back and my post vaporised and I'm slow at this.Here is another smaller shot.

An earlier post of mine showed the operator of Tiwai point "made $74 mill profit last year a 10% increase on previous year and the result does not include the remaining 21 % of the smelter owned by SUMITOMO Chemical(japan) .

2012 was aloss of $548 mill." Cyclical big time

Tiwai is "one of the most efficient smelters i the world" Tiwai contributes $525 mill to the Southland economy or 10.5 % of its GDP.
I have read bullish longterm forecasts for Aluminium and bearish forecasts ; i don't know .

I think most here think its a "No brainer"(hate that expression)as not many are int in discussion.

"Mkt fearful rather than realistic" seems to be.Maybe Instos have to take the low risk route and sell; sit on the side and buy back on the news as part of their mandate on risk.

Are any share traders here doing that? i haven't looked at the volumes going thru.

The selloff in Gentailers reversed with the Int rate cut. Be int to see what happens to S/P's in the weeks ahead.

Mkt hates uncertainty

Meridian could still be a loser of 172 MW if Tiwai goes to Contact for cheaper price. as it is permitted to do from July 1 (i think).

Is that feasible anyone?. Just a simplecase of another Gentailer simply supping cheaper?I have no idea.


I heard that Rio was once again trying to find a buyer with little success for Tiwai(unsubstantiated).

There are a lot of complexities iand machinations in the power Industry i don't have clue about.
One can't ignore the idea of 572 MW becoming available in 2 years. Maybe it would create a growth boom for nZ and all prosper; maybe not.

[Hoop]

Not sure which currency Rio Tinto would be more happy with.. but the Aluminium price has seen better days...I can understand the worries now as Al is receding back to the prices during the lost making 2012 2013 year

If one looks back on a longer term chart the current Al price doesnt seem to be at extreme lows..so one has to ask the question why the smelther is causing a few financial headaches for Rio Tinto ..has there been a big rise in power price over the longer term?

Below are clickable charts ..26 year (US$) to give a overall more balanced perspective..a 5year showing the continual downtrend (US$) and a 5 year chart in Ozzie $ which shows a nice recovery..

So what does Rio Tinto prefer in its financial set up?.. prices in $US or $A??...I bet I know which chart they will present at the negotiation table..eh.


<div><a href="http://www.infomine.com/investment/metal-prices/aluminum/all/"><img border="0" src="http://charts.infomine.com?365" alt="Historical Aluminum Prices - Aluminum Price History Chart" width="180" height="150" /></a></div>
<div><a href="http://www.infomine.com/investment/metal-prices/aluminum/5-year/"><img border="0" src="http://charts.infomine.com?257" alt="5 Year Aluminum Prices - Aluminum Price Chart" width="180" height="150" /></a></div>
<div><a href="http://www.infomine.com/investment/metal-prices/aluminum/5-year/"><img border="0" src="http://charts.infomine.com?257" alt="5 Year Aluminum Prices - Aluminum Price Chart" width="180" height="150" /></a></div>