Rio Tinto said in a statement that it has started a consultation process with employees on the operating future of the aluminium smelter in Tomago, 130km north of Sydney in the state of New South Wales (NSW).

Tomago Aluminium, which is 51.5% owned by Rio Tinto, produces up to 590,000 tonnes of aluminium every year, equating to almost 40% of Australia’s annual national production.

Rio Tinto said that a comprehensive market-sounding process that began in 2022 has yet to identify a pathway that supports commercially sustainable operations for the smelter after its current electricity supply contract expires in 2028.

It said that electricity accounts for over 40% of current operating costs and that proposals indicate the cost of both coal-fired and renewable energy options from January 2029 would increase significantly, leaving the smelter unviable.

“As a result, Tomago Aluminium has reached a point where it must contemplate ceasing operations at the end of its current electricity supply contract,” it said.

Employees and trade union representatives have been given until Nov 21 to share feedback with the company before a final decision is made.

Responding to the announcement, Australia’s Minister for Industry and Innovation Tim Ayres said that the federal government would exhaust every opportunity to secure the future of the smelter.