Incitec Pivot halts Moranbah project, shores up books

Incitec Pivot has cancelled the ­expansion of its Moranbah explosives facility in the face of tumbling coal prices.

Incitec Pivot chief executive Jeanne Johns Picture: AAP

Incitec Pivot has cancelled the ­expansion of its Moranbah explosives facility in Queensland in the face of tumbling coal prices, as the company hit the market for a $675m raising and cancelled its interim dividend payout.

Despite reporting that the coronavirus crisis was having only a minimal impact on its business, Incitec chief executive Jeanne Johns said the raising had been conducted as a “prudent measure” to shore up the company’s balance sheet in an uncertain market.

“If you’re about to cross a desert and you don’t know how wide it is, how much water do you take with you? That’s kind of how I see the times we’re in. We don’t know what’s ahead of us,” she said.

“That’s why one of the mitigations to that, along with all the mitigations we’re taking inside the business, is a strong balance sheet. It would be a shame to get halfway across the desert and ­realise you’d run out of water.”

Incitec announced a $65m half-year net profit on Monday, up 22 per cent from the first half of its last financial year, on earnings before interest and tax of $159m, up 34 per cent from the previous corresponding period.

But despite the improved financial result, Incitec elected not to pay a dividend for the period, after paying 1.3c a share this time last year.

Ms Johns said the primary purpose for raising additional cash was to shore up Incitec’s balance sheet, with the move reducing its net debt to $1.3bn, from $1.9bn, and debt-to-earnings ratio to 1.9, from 2.8.

But she confirmed Incitec could also use the cash to snap up bolt-on acquisitions if it saw value in the troubles of smaller competitors in the markets in which the company operated.

At the same time Incitec is raising cash, it has also pulled back $60m in cost savings and planned capital spending, including work on a potential expansion of its explosives plant at Moranbah, in Queensland’s Bowen coal basin.

Coal prices have been hit hard by the coronavirus crisis and tumbling natural gas prices in Asia, with thermal coal prices off more than 25 per cent since February and benchmark metallurgical coal off about 30 per cent in the same period.

Incitec had previously indicated that an expansion at Moranbah could deliver about 15 per cent more product into the coal market by 2022, but Ms Johns said on Monday the coronavirus crisis and falling coal prices had helped prompt a rethink.

“When we announced it, we said it was going to be demand-led. We certainly didn’t want to be part of putting more supply out there if the market doesn’t need it. We still see Australia as being net-long on ammonium nitrate for the next three to five years, ­assuming no impact from COVID-19,” she said.

“And any weakening of pricing of basic commodities will make that ammonium nitrate overhang last longer.

“That overhang is mostly in WA, in fairness, but nonetheless the environment does not seem compelling enough to go ahead with investing in expansion at this point — we will keep it on the shelf because we do still think it’s a compelling capacity add at the right time, but now is not the right time.”

Ms Johns joined calls from Rio Tinto chief executive Jean-­Sebastien Jacques and Orica boss Alberto Calderon for the government to reconsider east coast energy policy, and measures to reduce local gas prices, as part of its coronavirus recovery strategy.

“Elevated energy prices are a tax on everybody. We’re looking for world competitive gas in order to be able to compete in these value-added projects,” she said.

“I do think energy is a key advantage that Australia should tap into and appropriate energy policy will really strengthen the economy and provide a great foundation for the kinds of businesses we’re in, but acting quite broadly across the economy.”

Incitec shares closed at $2.19.