Rio Tinto in Bailout Talks to Secure Future of Tomago Aluminium Smelter Amid Energy Crisis

Rio Tinto, one of the world’s largest mining and metals companies, is in advanced negotiations with the Australian federal and New South Wales state governments over a multibillion-dollar bailout package for its Tomago aluminium smelter in New South Wales. The future of the facility—Australia’s largest aluminium producer and single biggest electricity user—has been thrown into doubt by surging energy costs and uncertainty over future electricity contracts. The outcome of these talks is set to shape the trajectory of Australia’s aluminium industry as it faces the dual pressures of global trade tensions and the national push for decarbonisation.

Energy Costs and Electricity Contracts at the Heart of Negotiations

The Tomago smelter, located near Newcastle, produces around 590,000 tonnes of aluminium annually and consumes roughly 10–12% of New South Wales’ total electricity supply. Its current power contract expires in 2029, but negotiations are focused on securing favorable terms for the 2026–2029 period—a critical bridge to the sector’s planned transition to renewable energy. With wholesale electricity prices in Australia having doubled over the past five years, Tomago’s operational costs have soared, putting its long-term viability at risk.

The bailout discussions are centered on two main pillars: securing affordable, long-term electricity contracts and accessing federal production tax credits designed to support the industry’s transition to renewable power. The government’s support is expected to be structured as a “sophisticated package” rather than a direct cash subsidy, potentially including tax incentives, underwriting of power purchase agreements, and other financial mechanisms.

Government Green Aluminium Credits and Industry Transition

In January 2025, the Australian government committed A$2 billion (approximately USD 1.3 billion) to a Green Aluminium Production Credit scheme. This fund is designed to help the country’s four main smelters—including Tomago, Bell Bay in Tasmania, Boyne Island in Queensland, and Alcoa’s Portland in Victoria—transition to renewable energy before 2036. Facilities will be eligible for support for every tonne of aluminium produced using renewable electricity over a 10-year period. The government’s aim is to secure the future of domestic aluminium production, preserve regional jobs, and position Australia as a global supplier of low-carbon metals.

Tomago’s owners, including Rio Tinto (majority), CSR Limited, and Hydro Aluminium, have committed to sourcing more than 50% of the smelter’s electricity from renewables by 2030 and to eliminating fossil fuels entirely by 2035. However, the scale of investment required and the volatility of Australia’s energy market have made the transition challenging. The facility’s reliance on coal-fired power has left it particularly exposed to price spikes and policy shifts as the grid decarbonises.

Trade Pressures and Global Market Context

The urgency of securing Tomago’s future is heightened by global trade headwinds. The United States recently doubled tariffs on aluminium imports to 50%, further squeezing margins for Australian producers already contending with falling aluminium prices—down 4% year-to-date. At the same time, Tomago’s clean energy transition lags behind some competitors, such as Rio Tinto’s Boyne smelter in Queensland, raising questions about the facility’s long-term competitiveness.

Industry analysts note that Tomago’s closure would have far-reaching consequences for Australia’s manufacturing sector, regional employment, and supply chain resilience. The smelter employs over 1,000 people directly and supports thousands more in the Hunter region. Its continued operation is seen as strategically vital for Australia’s ambitions to remain a key player in the global energy transition.

Aluminium Market Overview

Aluminium is a cornerstone of modern manufacturing and a critical input for renewable energy, transport, and construction. The global aluminium market has been volatile in 2025, with prices trading between $2,000 and $2,500 per tonne amid shifting demand and trade barriers. Australia is the world’s sixth-largest aluminium producer, and its smelters are increasingly focused on decarbonisation to capture premiums in the growing market for green metals. The government’s new production credits and support for renewable-powered smelting are seen as essential to maintaining the competitiveness of Australian aluminium in a decarbonising global economy.