THE benefits of an NT government proposal to shore up the Rio Tinto group's Gove alumina refinery with a gas supply deal, in a bid to save the outback town of Nhulunbuy, might not flow soon enough for the resources giant.
The NT government's offer to provide gas for the Gove refinery will probably not be enough for Rio Tinto to keep the refinery open, WA state manager of Patersons Securities, Lewis Fellowes, says.
Mr Fellowes says it will take two years before a pipeline is built and another three years before the gas conversion pays for itself, factors that will weigh on the miner's decision.
"With the outlook for the sector and the losses that continue to accumulate each month from the plant's operations, what it really just comes down to is, is Rio prepared to wear that level of losses for the next two years for a potential long-term benefit?"
"My view is they are not," Mr Fellowes said.
On Monday the Northern Territory government offered to give Rio access to 10 years' worth of natural gas to keep running the Gove refinery.
The move was conditional on the miner keeping the refinery open and could lead to gas shortages in the NT if no new supplies are found.
Analysts have estimated the Gove alumina refinery, located on the eastern tip of Arnhem Land, has been losing about $30 million each month.
This was because of the combined impact of the high cost of running the diesel-fed plant, the strong Australian dollar and low alumina prices.
A report from the Rio subsidiary that runs the plant recommended mothballing the facility, but the company indicated it would keep the plant open if it could be converted to gas.
The government is keen for the refinery to stay open because it contributes about $500 million to the NT's Gross Regional Product each year, and thousands of people in and around the outback town of Nhulunbuy rely on the plant.
Independent gas analyst Peter Strachan said the deal the Northern Territory government offered Rio Tinto on Monday was something the miner should jump at.
He said the 30 petajoules of power Rio needed annually to run its Gove refinery would be costly given diesel fuel costs about $50 per gigajoule.
Converting the plant to gas would save at least $300 million annually, Mr Strachan said.
"I think it is an attractive option for Rio Tinto to extend the life of this project and to improve the value of that asset should they choose to exit.
"If they (Rio Tinto) can get this through, they have an asset potentially worth $3 billion," Mr Strachan said.
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