Overview: A Major Australian Smelter’s Future in Question
Rio Tinto has disclosed it is weighing the potential cessation of operations at Tomago, Australia’s largest aluminium smelter, following concerns that current electricity costs render continuing operations commercially unviable. The company is currently in a consultation phase with its staff as it assesses options ahead of the expiry of its electricity supply contract.
Why Tomago Faces a Viability Challenge
Tomago Aluminium’s electricity supply contract with AGL Energy is due to expire in December 2028. Despite extensive engagement and market outreach, the mining giant states that all received market proposals to date indicate energy prices will remain economically unsustainable beyond the contract period. CEO Jérôme Dozol highlighted the core issue: future energy prices and the uncertainty surrounding when scalable renewable projects will be available to meet the plant’s needs.
Power Costs as the Central Constraint
High electricity prices are at the heart of Tomago’s discussions. The process of producing aluminium is energy-intensive, and the plant’s economics hinge on stable, affordable power. As market conditions fluctuate and renewable energy projects face deployment challenges, the smelter’s operators must weigh the risk that energy costs could erode competitiveness or force higher product prices, potentially reducing demand and profitability.
What This Means for Employees and the Local Community
With consultation underway, Tomago Aluminium is engaging its workforce to explore the implications of any operational changes. The outcome could affect jobs, regional supply chains, and local economic activity in New South Wales, where the plant has long been a major employer and industrial cornerstone.
Timelines and Next Steps
The critical deadline is the end of the current electricity contract in December 2028. If no commercially viable pathway emerges, Rio Tinto may opt to cease operations at Tomago at that time. The company has stressed that it will continue to explore all viable alternatives, including potential restructurings, partnerships, or phased adjustments, while keeping employees informed throughout the process.
Industry Context: The Australian Aluminium Landscape
Tomago’s situation reflects broader pressures facing energy-intensive manufacturing in Australia, where power pricing, grid reliability, and the pace of renewable capacity rollout shape long-term competitiveness. As the country seeks to balance decarbonization with industrial growth, investors and policymakers are closely watching how major facilities adapt to an evolving energy market.
What Rio Tinto’s Decision Could Signal
Choosing to terminate operations at Tomago would be a significant development for Australia’s metals sector. It would underscore the challenges of maintaining large-scale aluminium production in an environment with volatile electricity pricing and uncertainty around renewable energy infrastructure. Conversely, a viable alternative—such as favorable long-term supply contracts, lower energy costs, or accelerated renewable projects—could keep the smelter operational and preserve jobs and regional economic activity.
Bottom Line
Rio Tinto’s contemplation of closing Tomago highlights the delicate balance between energy economics and industrial viability. As 2028 approaches, the company’s decisions will hinge on whether future energy prices can align with a sustainable business model, or whether economic pressures will necessitate a shift in Australia’s aluminium landscape.
