Rio Tinto logo is seen displayed in this illustration taken April 10, 2023. REUTERS/Dado Ruvic/Illustration

SYDNEY, Dec 12 (Reuters) - Prime Minister Anthony Albanese announced on Friday a rescue effort to keep open Australia's largest aluminium smelter, the struggling Tomago facility majority-owned by Rio TintoAX>, after its current power contract expires in 2028.

The news comes after the company warned in October that Tomago Aluminium, employer of more than 1,000 full-time staff and 200 contractors, might be forced to shut down, after failing to secure new, affordable energy supplies.

Aluminium was "increasingly a vital product", Albanese said, making it important to keep Tomago open.

"If Australia doesn't produce aluminium, then the knock-on effect in other industries is significant," he said at the smelter, located north of Sydney in the state of New South Wales (NSW).

"We are working with the company, we are working with the New South Wales government to make sure there are a long-term energy solutions to go forward beyond 2028."

The deal, which has yet to be finalised, would involve securing a long-term, fixed-price energy supply for the smelter, the government said.

Tomago is the state's biggest power user, and like some other Australian smelters grappling with high energy prices during the transition to renewables, it was built last century to exploit plentiful supplies of cheap coal.

"This progress reflects years of collaborative work between Tomago and its joint venture partners, including Rio Tinto, in addressing one of the most complex energy challenges facing Australian industry," Simon Trott, the chief executive of Rio Tinto, said in a statement welcoming the deal.

Tomago would also contribute at least A$1 billion ($666.6 million) in capital and major maintenance investment over the next decade, including identifying decarbonisation opportunities, the government said.

"We are grateful to both the federal and New South Wales governments," Tomago's chief executive, Jerome Dozol, said in a statement, adding that the company looked forward to working with the government.

The smelter is the latest to win support from the government, which has pledged bailout packages in recent months for Glencore's Mount Isa copper smelter and Townsville refinery, Trafigura's Nyrstar lead and zinc operations and the Whyalla steel plant.

Under the Tomago deal, the government will also provide concessional finance arrangements to accelerate renewable energy generation and storage development.

The government was still working through the total costs of the agreement, Industry Minister Tim Ayres said.

The Australian Workers’ Union backed the deal, calling it a pivotal moment for manufacturing.

"We now look forward to seeing the detail of the rescue package and will continue working with all parties to ensure Tomago has a sustainable long-term future," said Tony Callinan, the union's secretary in the state.

($1=A$1.5002)

(Reporting by Christine Chen in Sydney; Editing by Clarence Fernandez)