Nov 15, 2019

Sale option advances as Incitec Pivot fertiliser arm reports loss

Sale option advances as Incitec Pivot fertiliser arm reports loss

Incitec Pivot’s fertiliser business made a loss of almost $80 million in the year to September 30 after taking a massive hit from the North-West Queensland rail outage caused by monsoonal flooding early this year.

In its full-year results presentation this week Incitec also included an update on the ongoing strategic review of its fertiliser business, announced two months ago.

Managing director and CEO Jeanne Johns.

Options under assessment included a potential sale of the business, a demerger or retaining the business and investing for growth, managing director and chief executive officer Jeanne Johns said.

She said the company was undertaking a formal process to explore potential market interest in the business.

The Financial Review has reported that the company has financial services firm UBS sending a seven point pitch to potential buyers in a sale process expected to ramp up in coming weeks.

Tough times for Phosphate Hill

The Phosphate Hill mine and ammonium phosphate fertiliser manufacturing operation, 150km south of Mount Isa, is a cornerstone asset in the fertilser business and has suffered a string of setbacks this year.

The rail outage between Mount Isa and Townsville early this year cost $115 million and a reactor failure at the site cost further $20 million.

Incitec’s annual report said the $115 million figure for the rail outage represented lost opportunity for sales of manufactured ammonium phosphates, and to a lesser extent damaged stocks and plant inefficiencies.

Regarding the manufacturing outage as a result of the phosphoric acid reactor integrity failure in the first half of 2019, it said all known issues with rubber linings in the plant had now been addressed.

Incitec estimated a $43 million increase in costs across its fertliser business due to rising Australian East Coast gas costs and also noted the impact of drought conditions on demand.

Ammonium phosphates production from Phosphate Hill was down 21 per cent to 675,000 tonnes for the year, mainly due to the impact of plant downtime resulting from the Queensland rail outage and the phosphoric acid reactor failure.

But the company noted that it expected improved Phosphate Hill output and lower gas costs to deliver an earnings uplift this year.

“The Phosphate Hill plant is expected to deliver improved production of approximately 975k mt of ammonium phosphates in FY20, with no planned turnarounds in the year and all known material production issues now resolved,” it stated.

The operation is expected to benefit from a full year of lower cost Northern Territory gas supply this financial year, reducing costs by about $8 million compared to FY19.

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