Rio Tinto shares marching higher amid an 'exciting new chapter' for production

Rio Tinto shares are ending the week in the green. But why?

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Rio Tinto Ltd (ASX: RIO) shares are marching higher today.

Shares in the S&P/ASX 200 Index (ASX: XJO) mining stock closed yesterday trading for $127.66. In morning trade on Friday, shares are swapping hands for $128.41 apiece, up 0.6%.

For some context the ASX 200 is up 0.7% at this same time.

This comes amid news that the miner's low carbon aluminium production in New Zealand has received a multi-decade new lifeline.

Rio Tinto shares in the green on smelter agreement

Rio Tinto shares are in the green after the company reported that New Zealand Aluminium Smelters (NZAS) has signed 20-year electricity arrangements that secure the future of the Tiwai Point aluminium smelter.

The smelter makes up around 13% of New Zealand's total power demand. Back in 2021, Rio Tinto said the facility would be closed this year amid concerns over high energy costs.

Under the new agreement Tiwai Point, owned and operated by NZAS, will continue to produce high-purity, low-carbon metal, backed by a "diversified mix" of renewable electricty.

NZAS has inked contracts with Meridian Energy, Contact Energy and Mercury NZ to set pricing for an aggregate of 572 megawatts (MW) of electricity. That's enough to meet the smelter's full electricity needs.

Rio Tinto expects the agreements to commence in July and run until at least 2044.

Commenting on the deal that could be offering some tailwinds to Rio Tinto shares today, Rio's Aluminium CEO Jérôme Pécresse said:

We are pleased the long-term future of the Tiwai Point smelter has been secured with these agreements, which were reached with a genuinely collaborative spirit between all parties.

They give us confidence that our New Zealand workforce and assets can continue competitively producing the high purity, low-carbon aluminium needed for the global energy transition.

This is an exciting new chapter, and we would like to thank everyone involved.

"This is a fantastic outcome for New Zealand and the Southland region," Meridian Energy CEO Neal Barclay added. "It's further proof that large industrial businesses can utilise New Zealand's renewable energy advantage and create low carbon sustainable products, high value jobs and export dollars for our country."

The agreement stipulates that in the event of future power shortages, NZAS could be asked to cut its electric use by up to 185 megawatts to ensure national energy security.

The agreements remain subject to regulatory approvals and other standard conditions.

In other news

Rio Tinto shares could also be getting a boost from the announcement of a separate transaction.

The ASX 200 miner reported it has entered into an agreement to acquire Sumitomo Chemical Company Limited's 20.64% interest in NZAS for an undisclosed price.

Once that transaction is complete, Rio Tinto will own 100% of NZAS.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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 Scott Phillips.

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