Rio Tinto Begins Restoring N.Z. Aluminum Capacity (Update1)

June 4 (Bloomberg) -- Rio Tinto Group, the world’s third- biggest mining company, is restoring capacity at its New Zealand aluminum smelter seven months after a transformer failed. The 350,000 metric ton-a-year Tiwai Point operation is progressively re-powering more than a quarter of its capacity, which was lost after the transformer failed on Nov. 9, Rio Tinto Alcan said in an e-mailed statement. Output will rise to about 89 percent of capacity initially, with any further increase dependent on market conditions, spokeswoman Diane Collier said. Tiwai Point, 21 percent owned by Japan’s Sumitomo Chemical Co., makes the world’s purest aluminum and supplies metal for almost half the world’s hard drives and capacitors in computers and liquid-crystal displays. It produced a record 352,976 tons in 2007, its last year of full output. “The speed at which we can restore capacity is dependent on a number of factors including careful monitoring of the transformer, cell performance and other equipment,” Collier said today. Rio hasn’t disclosed the expected cost of the shutdown, which coincided with a collapse in aluminum prices to a seven- year low in February. Power Contract The smelter gets its electricity from Meridian Energy Ltd.’s 850 megawatt power station at Lake Manapouri. While the project can use as much as 610 megawatts annually, it must pay for 544 megawatts whether used or not. The company’s initial 89 percent output target for the plant matches that “take-or-pay” obligation, Collier said. New Zealand Aluminium Smelters Ltd., the venture operating Tiwai Point, is seeking force majeure relief from government- owned Meridian’s contract. Force majeure is a legal clause that allows a company to miss deliveries because of circumstances beyond its control. Lost production between Nov. 9 and Dec. 31 incurred about NZ$10 million ($6 million) in power costs under the contract, the company said in an annual report filed to the nation’s Companies Office last week. The report shows the smelter’s power use plunged to 413 megawatts last year from 608 megawatts in 2007 because of the transformer fault and a voluntary five-month, 11 percent output cut started in May because of low supplies in the nation’s hydroelectric dams. The smelter was undergoing a 10-week process of restoring output when the transformer failed.