Rio suspends Gove production, cuts 1000 jobs and cripples town
Australia's struggling manufacturing sector has taken another hit with Rio Tinto deciding to mothball alumina production at its loss-making Gove site in Arnhem Land with the expected loss of about 1000 jobs.
The long-expected decision deals a severe blow to the fragile economy of the region around the remote town of Nhulunbuy, which is reliant on the bauxite and alumina operation at Gove for its existence.
The strong Australian dollar, low alumina prices and high energy costs have crippled the plant, with losses estimated at $1 billion for Rio since 2007, a period when the miner also invested $700 million at the site.
"It's an accumulation of issues that is exacerbated by the particular remoteness of that site," said Tony Wood, energy program director at the Grattan Institute. "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 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 said it was a commercial decision for Rio.
Still, Australian Workers' Union national secretary Paul Howes attacked the government response, saying "cosy, conciliatory pats on the back" were "just unacceptable."
"We are talking about an entire town being destroyed here, $500 million wiped from the economy, and some of the most effective indigenous employment and training programs in the country wiped out," Mr Howes said.
Rio 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 said it would focus on its bauxite mining operation at Gove. But it still needs to work through modified arrangements with the NT government that would allow it to shut the alumina plant while continuing mining the raw material.
About 1400 employees and contractors are employed at Gove, including 380 in bauxite mining and the rest at the alumina plant, where production will start to be suspended early next year.
The decision sent the NT and federal governments into rescue mode.
Mr Giles said Rio 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 will continue with Prime Minister Tony Abbott pledging to work alongside the NT government and Rio to complement their efforts.
Both Rio and the government are lobbying airlines to continue flights to Gove, while Mr Macfarlane said assistance packages would be put together for indigenous communities and small businesses.