Incitec Pivot lays out plan to break up, sell fertiliser assets

Incitec Pivot is pushing ahead with plans to break up its fertilisers business, promising to complete a separation and potential sale within the next 12 months.

Incitec Pivot's ammonia manufacturing facility in Louisiana. Picture: Supplied by Incitec Pivot

Incitec Pivot is pushing ahead with plans to break up its fertilisers business, promising to complete a separation and potential sale within the next 12 months.

The timeframe comes four months after the chemicals giant ended negotiations with Indonesian state-owned group PT Pupuk Kalimantan Timur over a potential sale of the struggling fertiliser unit, which copped another hefty writedown in the company’s latest full-year results on Monday.

As part of a “refreshed strategy” to carve off its fertiliser manufacturing and distribution operations from its more lucrative explosives business, Incitec Pivot confirmed on Monday that it would begin a sales process for its distribution assets and its decommissioned site at Gibson Island early next year, while a strategic review of its Phosphate Hill mine and manufacturing facility will be completed by September next year, with “all options on the table”.

The company will also close its Geelong manufacturing operation – where it employs close to 40 workers – by the end of next year, transitioning to an import model.

When it was previously on the market, parties put in offers for parts of the fertiliser business, hoping to cherry-pick assets such as its up-country blending facilities.

The most appealing part of the operation is considered to be the distribution unit, with the manufacturing business seen as a liability for any suitor.

Incitec Pivot has promised to wrap up the separation and potential sale within the next 6-12 months.

Speaking to The Australian after handing down the company’s full-year results on Monday, managing director Mauro Neves said that while there were no formal talks under way, the company had fielded interest from potential buyers since negotiations with PT Pupuk Kalimantan Timur broke down.

“Some strategics and some corporates have reached out, but now that we have launched formally the program, that will be done through our advisers,” he said.

“If someone showed interest for the whole lot, obviously we would be open to that. But if I think about the sum of the parts, you should think about real estate first, distribution and the balance of manufacturing after that.”

Incitec Pivot blamed gas price uncertainty on the east coast as the main driver behind a $791m after tax impairment of its fertilisers division, which plunged the company into a $311m net loss in the 12 months to September, down from a $560m profit in the previous year.

However underlying EBIT was up 18 per cent to $580m.

The company has an ambition to double earnings generated from its explosives business to around $600m over the next three to four years as part of a transformation program involving the adoption of new technologies, customer re-contracting and expansion in emerging markets including Africa and Latin America.

Mr Neves said it could also become a beneficiary of US president-elect Donald Trump’s tariffs plan given its extensive manufacturing footprint in the country.

The former BHP coal and copper executive who joined Incitec Pivot in January, said the decisive election result had injected certainty and confidence into the US economy.

“If anything, a policy that encourages and incentivises manufacturing in the US, we see with good eyes,” he said.

“If anything, there is thinking about further enabling mining, and further enabling growth in the sectors we support - so we are hearing from our customers a sense of optimism.

“It looks like there is a bit of a tailwind, or a bit of a push into GDP growth and employment and jobs.

“We have a very retail-like business in the US. We are serving small quarries that deal in construction. We sometimes support even small civil construction processes. So for us, when the economy grows, it doesn’t take long for us to see that reverberating in our downstream quarrying and construction business.”

Closer to home, Incitec Pivot has previously flagged a closure of its Phosphate Hill mine and fertiliser plant in north-west Queensland.

Grilled by analysts about the extended timing surrounding the review of the operation, Mr Neves said “all options were on the table” for the “complex” group of assets that required a full and proper review.

“It’s about the geology, the JORC resources of the operation to its current purpose, but potentially as an export,” he said.

“It’s about the reliability of the plant. It’s about how can we improve further the operation. It’s about the cost to do that and the capital associated to that. It’s about the gas uncertainty.

“All those processes and all those uncertainties are things that we want to firm up before we make a decision.”

The Phosphate Hill facility has been plagued by manufacturing issues in recent years due to flooding, rail line and gas supply disruptions, and a drop in commodity prices.

Production at the plant is expected to increase to 790,000-860,000 tonnes in 2024-25, after an improved second half brought full-year production to 740,000 tonnes in 2023-24.

Incitec Pivot will pay an unfranked final dividend of 6.3c, and said the outlook for 2024-25 was “expected to be strong”, with a focus on “price discipline and cost management”.

Fertiliser distribution earnings are expected to fall in the $40m to $60m range in 2024-25, while turnarounds in the Dyno Nobel explosives division are expected to have an earnings impact of $45m to $55m.

Incitec Pivot shares were trading 0.6 per cent higher on Monday at $3.12.

Originally published as Incitec Pivot lays out plan to break up, sell fertiliser assets