The Tasmanian government proceeded with a $20 million loan to the Liberty Bell Bay manganese smelter despite receiving advice that the financial risks were high, according to an internal government document obtained by ABC News.

The loan was approved in August 2025 to help the struggling industrial facility purchase manganese ore and restart production. However, the smelter ultimately failed to resume operations and closed in July 2026, resulting in the loss of more than 200 jobs.

The document, prepared by Tasmania’s coordinator-general in July 2025, warned that the business could run out of available capital by the end of that month. It recommended an urgent loan of up to $20 million, stating that without an immediate injection of funds, the smelter faced a very high risk of being unable to restart.

Officials assessed every category of risk associated with the loan as high. The document specifically raised concerns about whether the security provided would be sufficient to recover the outstanding amount if the business failed.

Manganese is an important industrial mineral used in steel production. The smelter’s financial difficulties were linked to ore-supply problems, international market volatility and broader pressures affecting its former owner, GFG Alliance, led by British businessman Sanjeev Gupta.

Despite the risks, officials concluded that allowing the smelter to close without intervention could have more serious consequences for Tasmania’s economy. The government’s assessment estimated that a permanent closure could affect the state economy by as much as $500 million annually if the facility failed to reopen.

The government therefore chose to provide the loan rather than take no action. A substantial portion of the money was used to purchase a shipment of approximately 23,000 tonnes of manganese ore. The ore arrived at the site, but production did not restart.

By January 2026, the former owner had defaulted on the loan agreement. The Tasmanian government subsequently appointed receivers to protect the ore stockpile and its position as a secured lender. The material remains an important part of efforts to recover public money.

Business, Industry and Resources Minister Felix Ellis defended the decision, saying the government believed the consequences of doing nothing would have been greater. He also said the loan was secured and the money was paid directly to the ore supplier.

The amount the government can ultimately recover depends on the sale value of the ore and the outcome of the recovery process. The full financial loss, if any, has not yet been established.

The closure has broader implications for Australia's manufacturing sector. Liberty Bell Bay was the country's only manganese alloy smelter, making the facility important to domestic steelmaking supply chains. Its shutdown also leaves former employees and the surrounding community facing uncertainty about future employment opportunities.

The case raises questions about how governments should balance the risks of supporting struggling industrial businesses against the economic and social consequences of allowing them to close. While public assistance can provide a lifeline to workers and strategically important industries, it cannot guarantee that a business will survive.

For Tasmania, the immediate challenge is to recover as much of the loan as possible while addressing the consequences of the smelter's closure. The episode is also likely to prompt further scrutiny of how major financial-support decisions are assessed and communicated.