Global mining giant Rio Tinto has abandoned hopes of selling its majority stake in the Tiwai Point aluminium smelter in Southland.
The company said it would not try to sell its subsidiary, Pacific Aluminium, which is operating at a loss.
Pacific Aluminium owns 80% of Tiwai Point operator New Zealand Aluminium Smelters. Rio Tinto said two years ago that it could sell Pacific Aluminium, but on Thursday said it had not found a buyer.
The announcement came as Rio Tinto revealed an 18% fall in underlying profit for six months to $US4.2 billion, along with a loss in its aluminium division.
Rio Tinto says withdrawing the plants from sale would achieve synergies with the rest of the company.
But Auckland mining analyst William Curtayne thinks that, in reality, Rio could not find a buyer and cut its losses due to falling aluminium prices and tough competition from China.
The news comes a day after Tiwai Point on Thursday agreed a deal with Meridian Energy securing it cheaper prices for the electricity it must buy.
However, the smelter near Bluff still faces challenges to survive in the long term, since 15 other Rio Tinto aluminium plants have been sold or closed down world-wide.
The move follows a global slump in aluminium prices, as Rio Tinto concentrates on core operations and gets to grip with $US22 billion of debt.
Tiwai Point now has three-and-a-half years to become profitable.
Smelter deal will help, but no guarantee - analyst
A fund manager says Meridian Energy's new contract with Tiwai Point makes the smelter much cheaper to run, which could be its saving grace if the deal ends in 2017.
Craig Stent, an energy analyst at Habour Asset Management, says there's no guarantee that won't happen to Tiwai Point if its owners choose to terminate the deal, especially if aluminium prices don't pick up by then.
However, he says the cheaper electricity contract may give it a stay of execution as it becomes more competitive against other aluminium smelters around the world.
Mr Stent says the deal also gives the industry more time to prepare if the smelter is closed at the end of it.
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