Boral considering sale or joint venture for its US fly ash business

Boral is looking at a potential joint venture or sale of its US fly ash business, with a decision to be made by August.

Boral CEO Zlatko Todorcevski. Picture: Jane Dempster

Boral says it will make a decision on the sale of its US fly ash business, in fresh signs the company is accelerating its exit from the US market.

The construction materials group said on Thursday its review of fly ash business will look at options for a “potential joint venture, strategic alliance, divestment to a third-party or continued ownership”, with the company to decide on the fate of the division by its August full-year results announcement.

The move extends Boral’s shift away from the US expansion championed by former boss Mike Kane, given Boral chief executive Zlatko Todorcevski, who took charge of the company nine months ago, already overseeing the potential sale of Boral’s building products operations in the US.

This month Boral also closed the sale of its half-share in its US plasterboard business to Gebr Knauf for $US1.015bn ($1.33bn), announcing it would use the proceeds to pay down debt and run a buyback of up to 10 per cent of the shares it currently has on issue.

A by-product of coal-fired electricity generation, fly-ash is used to strengthen concrete and make it easier to pump.

Boral dominates the US market in the product, but its supply of raw material has been hit by plunging power use caused by the pandemic, and the trend towards renewable generation reducing coal-fired power use in the US.

The construction materials major has long-flagged attempts to find alternative sources of supply to bolster its US business, and managing director Zlatko Todorcevski said the company was still working on those options.

“New opportunities for supply exist from harvesting landfills, imports and natural pozzolans, which we expect will more than offset the decline in fresh fly ash supply as the US transitions away from coal fired power generation,” he said.

“As we continue to build our alternative supply strategy, strategic alliances and opportunities for partnership will be considered in parallel with divestment options or continued ownership.”

Boral will look for partners amid growing expectations the massive US stimulus package pushed by President Joe Biden will boost demand for fly ash, with Morgan Stanley analysts last month saying they expected demand for the product to outstrip growth in concrete demand in the US if there is an “infrastructure led boom”.

Boral’s fly ash sells for about $US40 to $US60 a tonne in the US currently, Morgan Stanley analyst said, and prices could rise to $US130 to $US140 a tonne by 2028 if infrastructure plans go ahead.

“Recently, Boral and other industry participants have suffered from a lack of saleable ash as a result of dramatic reductions in coal-fired power generation. The path to increased volumes comes from alternate sources such as reclamation, storage, and imports,” Morgan Stanley said.

“However, all of these avenues bring additional costs, which either make increasing supply difficult or threaten to erode margins. A super cycle could be the key to lifting prices and ensuring that Boral can both lift volumes and deliver attractive returns for its fly ash business.”

Boral shares closed up 3c, or 0.5 per cent, on Thursday at $6.01. Its shares hit a 2.5-year high of $6.02 last week as Kerry Stokes crept up the register.