The struggling manufacturing sector took another hit on Friday when Rio Tinto decided to mothball alumina production at its loss-making Gove site in Arnhem Land, at an expected cost of about 1000 jobs.
The long-expected decision dealt a severe blow to the fragile economy of the region around the remote town of Nhulunbuy, which was reliant on the bauxite and alumina operation at Gove for its existence.
The strong Australian dollar, low alumina prices and high energy costs had crippled the plant, with losses estimated at $1 billion for Rio Tinto since 2007, a period when it also invested $700 million at the site.
"It's an accumulation of issues that is exacerbated by the particular remoteness of that site," Grattan Institute energy program director Tony Wood said. "No matter how efficient these guys get, the fundamental underlying economics and the relative costs of energy are stacked against them."
Efforts to save the plant by shoring up gas to allow it to switch from hugely expensive fuel oil came to nought when Rio Tinto rejected the gas option this week.
Northern Territory Chief Minister Adam Giles and federal Industry Minister Ian Macfarlane said they had done all they could to save the plant but it was a commercial decision for Rio Tinto.
Australian Workers Union national secretary Paul Howes attacked the response, saying "cosy, conciliatory pats on the back" were "unacceptable. "We are talking about an entire town being destroyed here, $500 million being wiped from the economy, and some of the most effective indigenous employment and training programs in the country wiped out," Mr Howes said.
Rio Tinto chief executive Sam Walsh said the decision was "extremely difficult".
"Our aluminium business is facing challenging market conditions and tough decisions are needed, but those decisions are so much harder when our employees and local communities are affected as they are in Nhulunbuy," he said.
Rio Tinto said it would focus on its bauxite mining operation at Gove. It needed to work through modified arrangements with the Northern Territory government to allow it to shutter the alumina plant while continuing to mine raw material.
About 1400 people work at Gove, 380 in bauxite mining, the rest at the alumina plant.
Mr Giles said Rio Tinto would continue to provide power, water and sewerage to the town and would not turn anyone out of their company homes. Hospital, school and police services would continue.
Prime Minister Tony Abbott pledged to work with the Northern Territory government and Rio Tinto.
The government and Rio Tinto were lobbying airlines to continue flights to Gove and Mr Macfarlane said assistance packages would be put together for indigenous communities and small businesses.