Australia to Commit A$2.5 Billion to Tomago Aluminum Smelter as Energy Costs Bite

SYDNEY — Australia's federal and state governments are set to provide A$2.5 billion ($1.8 billion) in financial support to the Tomago aluminum smelter, keeping the plant operating as energy costs erode its economics. The announcement is expected Thursday, according to people familiar with the discussions.

Rio Tinto Group, the majority owner, and its partners Gove Aluminium Finance Ltd. and Norsk Hydro ASA operate the Tomago plant. Located in New South Wales, the smelter has produced aluminum for more than 40 years.

The support package follows warnings from Rio Tinto that escalating energy expenses could force the smelter's closure. Its existing power-supply contract expires later this decade. Electricity accounts for more than 40 percent of Tomago's total operating costs.

Prime Minister Anthony Albanese pledged government support during a December visit to the facility, months after Rio Tinto highlighted the threat posed by surging energy costs.

As part of the arrangement, the smelter's owners must commit at least A$1 billion ($706 million) to maintenance and upgrades, a condition previously outlined in a government statement.

High energy prices have hit the power-intensive aluminum industry worldwide, triggering plant closures and production cutbacks globally. Subsidized smelters in China intensify the competitive pressure further.

This is not the first instance of government funding for Rio Tinto's Australian operations. In March, the company secured A$2 billion in combined federal and state funding for its Boyne smelter in Queensland.

Other major industrial players have received similar support. Glencore Plc secured funding for its Mount Isa copper smelter and associated refinery last year. Trafigura Group subsidiary Nyrstar Australia received packages for its Port Pirie lead smelter and Hobart zinc works.

The repeated interventions expose the structural pressures on energy-intensive industries in Australia, where power costs and subsidized foreign competition have made self-sustaining operations increasingly difficult to maintain.