Why the Meridian (ASX:MEZ) share price is dropping lower today

The Meridian (ASX: MEZ) share price is down 1.49% today as the company announces a new contract with mining giant Rio Tinto.

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Downward trend

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The Meridian Energy Ltd (ASX: MEZ) share price is slipping lower today on news the company has signed an exit deal with a global mining giant.

Shares in the energy company have dipped 0.95% to $7.29 at the time of writing. This continues its downward trend this week, with the Meridian share price dropping 20% in the last 5 days.

What happened

Meridian advised that miner Rio Tinto Limited (ASX: RIO) has accepted new contract terms for exiting the aluminium smelter at Tiwai Point in southern New Zealand.

Notably, the contract confirms Rio Tinto will continue operations at the smelter until December 2024 when the 4-year contract runs out.

The deal represents a step towards Meridian’s goal of decarbonisation and a greener future.

To this front, Meridian will now reconsider balance sheet flexibility and the timing of the Harapaki wind farm build. Despite gaining council approval in 2019, there is no confirmed construction date.

The company als0 advised today there will be no change to its dividend policy, with half year results announced on February 24.

Management comments

Commenting on the news, Meridian CEO Neal Barclay said:

We have worked hard to provide solutions that we believe were of lasting value to the smelter and acceptable to our shareholders. We’re pleased that Rio Tinto has accepted this offer, which will now provide certainty for the Southland community.

As a company we have planned for the eventual exit of the Tiwai Smelter. We’re excited about the opportunities that we have to accelerate decarbonisation, and we’re actively developing new growth opportunities.

About the Meridian share price

Meridian is New Zealand’s largest electricity provider that generates 100% of its energy from renewable sources. All the electricity supplied to customers comes from the electricity grid, which mixes a power supply from both renewable and non renewable sources.

The Meridian share price enjoyed a solid 2020, returning 42% to investors. In the process it easily outpaced the All Ordinaries Index (ASX: XAO) which returned -4%.

However, it has been a volatile start to 2021 with shares trading between $7.04 and $9.33, a difference of 33%. 

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Motley Fool contributor Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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