Rio Tinto is considering shutting down its Tomago Aluminium smelter in New South Wales, Australia's largest aluminium producer, due to unviable operating costs driven by soaring electricity prices.

The potential closure hinges on the expiry of the current electricity supply contract with AGL in December 2028, amid ongoing challenges in securing affordable energy.

Despite efforts to find sustainable energy solutions, market proposals indicate future energy costs will be unsustainable, threatening the plant's viability.

Energy costs account for over 40% of the smelter's operating expenses, and projections show these costs will increase significantly from January 2029, making continued operations difficult.

The company has initiated consultations with over 1,000 employees and trade unions about the possible shutdown, emphasizing the critical financial situation and the need for certainty for workers.

Earlier government support through green production credits was announced in January to help sustain the smelter, but it has not been enough to offset rising energy costs.

Rio Tinto has not yet made a final decision on closure, but ongoing stakeholder engagement and market conditions suggest that a shutdown may be inevitable.

The company remains focused on safe operations and exploring all options, including potential government intervention or financial rescue, but no viable pathway beyond 2028 has been identified.

Although the plant aims to transition to 100% renewable energy by 2029, current market conditions and high energy costs pose significant challenges to achieving this goal.

Industry and Innovation Minister Tim Ayres acknowledged the tough conditions for the aluminium sector and confirmed ongoing discussions with NSW authorities and the smelter’s owners, without predicting the outcome.

Tomago's CEO highlighted that offers for future energy supply, including renewable options from 2029, threaten the plant’s economic viability due to high costs and uncertain timelines for renewable projects.

The potential shutdown would mark the fourth government intervention this year to support struggling Australian metals processors, reflecting the sector's financial struggles.