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DARWIN, Jan 23 AAP

January 23 2013, 7:05PM

The Northern Territory government is talking tough as it tries to cut a deal to save the Gove alumina refinery and nearby town of Nhulunbuy.

The government has been in negotiations with resources giant Rio Tinto Ltd and others as it seeks to keep the Gove refinery and bauxite mine continuing.

"I think they have found that you have got a government that is looking straight back at them and is not going to yield," NT Chief Minister Terry Mills said on Wednesday.

Rio Tinto Ltd runs Gove via its subsidiary Pacific Aluminium but has indicated it may offload the operation, which is making a loss due to low aluminium prices, the strong Australian dollar and the high cost of powering the diesel-fed plant.

It has given the government until January 31 to come up with a solution to provide the diesel-fed plant with natural gas, to reduce costs.

But the refinery by itself is expected to need almost as much gas used currently by the entire NT and supplying the gas could leave Territorians with a gas shortage.

On Wednesday Mr Mills unveiled a plan to allocate Pacific Aluminium the natural gas it has sought from the Territory's own contracted supplies, to make the plant more profitable.

But the deal would only go ahead if a replacement supply was secured.

"We are not blinking. We are serious about it," Mr Mills said.

He said the replacement gas could come from energy company ENI cutting a deal with Santos Ltd and French energy giant GDF Suez, which control the Petrel gas field in the Timor Sea.

"Sort this out and you will still come out OK and you will cover the contract and service the existing contract," Mr Mills said.

If a deal cannot be reached between the resources companies, Mr Mills warned the NT could legislate for some gas from energy projects in the NT to be reserved for domestic use, as happens in Western Australia.

"I think the industry recognises there is a threat unless they can sort this out," he said.

Any move for the refinery to close could devastate the satellite town of Nhulunbuy and its 4000 residents.

Late on Wednesday Pacific Aluminium released a statement acknowledging the efforts of the NT government.

But the Pacific Aluminium chief executive Sandeep Biswas said it needed a "clear and unconditional commitment" from the government to supply gas to the Gove refinery.

"Pacific Aluminium will complete the strategic review at the end of the month and a decision about the future of Gove Refinery Operations will be made shortly afterwards," Mr Biswas.

By Xavier La Canna