Aluminium giant Alcoa is confident a government-funded rescue package will allow it to continue operating its Port Henry smelter near Geelong until 2014.

The Federal and Victorian governments will pump more than $40 million into the plant, which has been under review since February.

Alcoa blames the high Australian dollar and a low aluminium price for its woes but is hopeful market conditions will change over the next two years.

The smelter currently employs 600 workers but Alcoa wants to shed around 60 jobs through voluntary redundancies as it looks to find ongoing savings.

The Commonwealth is contributing most of the $40 million and the Victorian Government is putting up $4 million to go into a fund to help Alcoa's supply chain.

Alcoa's Australian managing director, Alan Cransberg, says he believes the bailout will be a one-off and he is confident the smelter has a strong future.

Mr Cransberg praised what he called the "resilience and commitment shown by everyone at Point Henry over the last five months".

"We were in a situation where we were running at a level of unsustainable losses," he said.

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"We had to do something, we've still got work to do, it's still urgent but we're in a much better position now due to the tremendous support we've received over the last three months", Mr Cransberg said.

Deal welcomed

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Australian Workers Union federal secretary Paul Howes welcomed the deal and said it guaranteed Australia could continue to produce aluminium.

"These are temporary market conditions, and they will change, but if we don't have these types of strategic interventions now... we lose this sector and we will see massive downstream effects," he said.

"If you don't make aluminium and if you don't make steel you've got no hope of having a manufacturing industry in this country, and the Government is doing the right thing by having this strategic intervention."

While it is only a two-year reprieve for workers, Mr Howes, who negotiated with Alcoa over the carbon tax, denies the tax's impending introduction will force the closure of the smelter when its viability is reviewed in 2014.

"(Climate Change Minister) Greg Combet put it best today when he said, quite rightly, as all economic modelling shows, the carbon price impact on aluminium smelting is the equivalent of a one cent appreciation in the value of the Australian dollar."

Mr Combet says the carbon tax will not affect Alcoa's decisions about the future of its Geelong smelter.

"The commercial difficulties that have been confronting this plant do not have anything to do with the introduction of the carbon price," he said.

"The Government has worked very closely with Alcoa in the design and the implementation of the carbon price arrangements."