PERTH (miningweekly.com) – Mining giant Rio Tinto has suspended production at its Gove alumina refinery, in the Northern Territory, as the operation is no longer viable in a low price, high exchange rate environment. Instead, the diversified mining group would shift its focus in the region to its bauxite operations.

“This is a very sad day for everyone associated with Gove. It has been an extremely difficult decision and we recognise it will have a significant impact on our employees, the local community, and the Northern Territory,” said Rio CEO Sam Walsh.

He added, however, that the company had a firm belief in the potential of the bauxite operation, and was working to identify initiatives to create new opportunities for the regional community.

“Establishing a long-term plan for the bauxite operation and its employees will be the key to retaining a sustainable business in the local area,” Walsh added.

The fate of the Gove refinery has long been in doubt, with Rio and the Territory government failing to reach an agreement on the gas supply for the refinery.

In a March agreement, the Territory government agreed to supply the operation with some 300 PJ of gas, over a 12-year period. However, in June, the state’s Chief Minister, Adam Giles, said the gas deal contained unacceptable risk to the territory’s economy and its taxpayers, flagging possible energy shortages in the long run.

The state government instead proposed a 195 PJ gas deal for Gove, in the form of a dual fuel model. Rio’s response was that it would prefer to only deal in gas, as the miner was able to source its own heavy fuel.

However, Walsh said on Friday that the decision to close the refinery was not only related to the gas supply agreement, but also came as a result of the continuing low alumina prices, a high exchange rate and substantial after-tax losses for the refinery despite considerable efforts to improve refinery performance.

“Our aluminium business is facing challenging market conditions and tough decisions are needed, but those decisions are so much harder when our employees and local communities are affected as they are in Nhulunbuy,” Walsh said.

Rio would be consulting the nearly 1 500 employees at the refinery in the coming weeks, to develop detailed plans regarding the timing and phases for ramping down the refinery.

At this stage, it was expected that the process of suspending production would start in the first quarter of 2014, and would be phased during the year.