Contact Energy - CEN Chart

[Snoopy]

rumours another pot at tiwai being readied to re-open in september

What is the source of your 'rumour' fish?

At first glance your rumour seems preposterous. After all, Tiwai has announced they are going. They have even given a shut down date. It would seem inconceivable that they would suddenly plan to ramp up production. So I have looked into this a bit more closely.

1/ On July 9th 2020 the closure of Tiwai Point by August 2021 was announced. This isn't the start of when the production facilities are being turned off. It is the end point. So if they need a couple of months to shut down, you would have to think there will be no more production by the end of May 2021. Planning for this would have to start from about now, and at the latest by the beginning of December 2020.

2/ The shut down decision would have been made in the month before July 9th, at the June board meeting of Rio Tinto. Here is a link to the graph of world spot aluminium market prices over that period.

https://markets.businessinsider.com/...aluminum-price

A Covid-19 price slump is very evident. But there has been a sharp recovery since from less than $US1500/tonne to nearly $US1750/tonne, bouncing back to where we were in February 2020. A decision on the fate of Tiwai had been expected about this time, but was seemingly delayed. From this we can deduce that at $US1750/tonne, the closure of Tiwai was not a certainty.

3/ Jacinda Ardern reopened potline number 4 in December 2018. At that time this commodity had built a base price around $US2,000/tonne. Even with the post Covid-19 recovery, we are somewhat short of that.

4/ If the announced closure is actually a 'super hard ball' play by Rio management, and they are hoping for even more power concessions, what signal would opening up another pot line now under current power pricing arrangements give?

My conclusion is that there will be no opening of an additional potline. The price recovery of Aluminium isn't enough. And to do so would destroy Rio's long term negotiating power on electricity prices. Instead the jump in the Contact share price is in anticipation of the Contact results being announced on Monday. A rise in the share price towards 'result announcement day' when a share price has been beaten down in the months before is normal share price behaviour. Shareholders looking for some good news after a rough ride.

SNOOPY