Incitec Pivot Ltd. (IPL), Southbank, Victoria, has confirmed the previously announced 20-year offtake agreement of 2.3 million mt/y of granular urea from Perdaman Chemicals and Fertilisers Pty Ltd.’s Karratha plant on Western Australia’s Burrup Peninsula.
IPL said in an April 21 ASX statement the offtake agreement is “unconditional” now that Perdaman has obtained financing for construction of the new plant, which the junior producer now expects to be commissioned in mid-2027.
The offtake agreement will start from the date the new urea facility is fully commissioned, and firms up on an offtake deal signed between IPL’s wholly owned subsidiary, Incitec Fertilizers Pty Ltd. (IPF), and Perdaman in May 2021, which was subject to certain conditions precedent (GM May 7, 2021). The primary one of those conditions related to Perdaman obtaining financing for the construction of the Karratha plant, and was required to be satisfied within 18 months of the initial agreement.
The news that Perdaman has secured financing for the controversial A$6.4 billion project (approximately US$4.3 billion at current exchange rates) has taken many industry watchers by surprise, and no other details on the financing are immediately available.
IPL said pricing under the offtake agreement is expected to deliver “a competitively priced product, providing an at-scale platform for potential growth in recurring earnings for IPF.”
Once the plant is commissioned, IPL expects the offtake agreement to add an estimated incremental EBIT of approximately A$45 million per annum to the IPF business.
IPL expects up to 50% of the urea to be marketed within Australia, including through IPF’s existing East Coast Australian distribution business, with the remainder marketed to key international export destinations.
IPL was Australia’s sole urea producer, but ceased production at its only urea plant, at Gibson Island, Brisbane, around the end of last year after it was unable to secure “an economically viable” long-term gas supply to its plant beyond its current supply contract. The plant had urea production capacity of 340,000 mt/y, according to Green Markets data.
“The offtake agreement provides IPF with a competitive long-term domestic supply of urea for its Australian customers and to expand sales into growing global markets,” said IPL Managing Director and CEO Jeanne Johns.
“This is all about IPF executing on its strategy. The Perdaman offtake provides a platform to grow the recurring earnings of the fertilizer business, at scale, and is another step to creating two great businesses, ” she said.
IPL in May last year revealed it had revived its plan to separate its Incitec Pivot Fertilisers and Dyno Nobel businesses to create two separate companies, announcing plans to demerge its fertilizer and mining explosives divisions into two separately ASX listed companies (GM May 23, 2022).