Incitec Pivot to sell Louisiana ammonia facility for $2.5 billion

As Incitec Pivot (ASX: IPL) continues working towards a demerger of its fertiliser and explosives businesses, the Melbourne-headquartered company has reached a deal to sell an ammonia manufacturing facility in Louisiana, USA to CF Industries - one of the world's largest fertiliser companies - for US$1.675 billion ($2.5 billion).

Incitec Pivot has been undertaking a strategic review of the facility, located in the outer New Orleans community of Waggaman, since mid-November when the group noted it had received a number of unsolicited approaches to acquire the site.

But at the time chairman Brian Kruger explained the long-term strategy for Incitec's Dyno Nobel business was to be a leader in explosives technology, underpinned by ammonium nitrate manufacturing back to gas, meaning any transaction could only take place if supply of this critical input could be secured.

Today's announcement addresses that need as the sale comes with a 25-year ammonia supply agreement with CF for up to 200,000 short tonnes of ammonia per annum to support the Dyno Nobel Americas (DNA) explosives business.

This supply deal is at producer cost with US$425 million ($634 million) allocated to buy ammonia from the incoming facility owner. After taxes and the outlay estimated for ammonia supply, Incitec expects to receive net cash proceeds of US$837 million ($1.25 billion) from the deal.

“Our announcement today represents a pivotal step in the execution of our strategy to enhance the focus of our businesses on the high value technical and service needs of our explosives customers," says Incitec's CEO and managing director Jeanne Johns, who had almost three decades of experience at oil and gas multinational BP before joining the company in 2017.

"We are also delighted to be partnering with CF Industries, a world-class producer of ammonia with an excellent manufacturing and safety track record. We are looking forward to this journey as we seek to deliver long-term sustainable value creation for our shareholders and stakeholders."

According to Incitec Pivot's website, the plant cost US$850 million to build for Dyno Nobel and was completed in September 2016. 

For its financial year ending 30 September 2022, Incitec Pivot reported a record net profit after tax of more than $1 billion. With almost 6,000 staff worldwide, the group sold 1.4 million tonnes of ammonia nitrate and 2.5 million tonnes of fertiliser.

"We are continuing to grow recurring earnings in our explosives business, underpinned by our leading premium technology. Dyno Nobel has significant opportunities to further leverage our footprint, technology and customer relationships across existing and new markets as we look to deliver mid to high single digit earnings growth in the medium term," Johns said in November.

"Our Incitec Pivot Fertilisers business has an unrivalled distribution platform and manufacturing footprint providing customers security of supply. With the acceleration and expansion of our soil health strategy across bio fertilisers and enhanced efficiency fertilisers, liquid fertilisers and Nutrient Advantage, the business is well set up for distribution earnings growth."