Orica to write off $191m as Burup ammonium nitrate plant woes rise

Orica’s woes on the Burrup Peninsula keep getting worse, with the company set to take a $191m writedown.

Orica’s woes on the Burrup Peninsula keep getting worse, with the company confirming its production load would be worse than the 20 per cent flagged late last year as Orica prepares to take a $155 million writedown on “defective” equipment at the plant.

Orica will also take a $36m pre-tax impairment related to the overhaul of its IT systems, taking the total impairments to $191m.

The ammonium nitrate plant, a joint venture between Orica and Norway’s Yara, was officially opened in late 2016, flagged as Orica’s competitive edge into the massive explosives market in Western Australia’s iron ore sector, producing 330,000 tonnes of ammonium nitrate a year.

It allowed Orica to snatch explosives contracts for BHP’s Pilbara mines and Gina Rinehart’s Roy Hill iron ore operation from chief rival Incitec Pivot early last year, but the plant has been plagued with operating issues relating to poorly designed and installed equipment.

Last March, Orica flagged problems with the plant’s heat exchangers, saying they were showing “premature cracking” — only a year after the facility was handed over by the construction contractor.

Orica said yesterday it expected new components to be installed and commissioned by the second half of the year, with the facility “essentially loaded” in 2020.

“The accounting recognition of the defective components does not affect Orica’s view of the long-term commercial and strategic value of the Burrup TAN plant,” Orica said in a statement yesterday.

“The plant remains an important element of Orica’s domestic supply strategy being a 30-plus-year asset positioned in the heart of the Pilbara.

Following the securing of several substantial contracts over the past 18 months and the contract profile, it is expected that the plant will be essentially loaded in 2020.”

Orica’s partner, Yara, wrote down its own books over the ongoing problems in February.

Despite the lower-than-expected load at the Burrup, Orica kept its earnings guidance for the year unchanged.

Orica shares closed down 19c at $18.81 yesterday, but have recovered from lows around $16.50 earlier this year