All Posts from June 16, 2023

Bunge to Purchase Viterra for $8.2 Billion

Featured, News, The Netherlands, Western Cornbelt

Missouri-based agribusiness Bunge Ltd. has agreed to buy Glencore PLC-backed Viterra for $8.2 billion in stock and cash, according to a June 13 statement by both companies. The combined business will create an agribusiness trading giant large enough to compete with Minneapolis-based Cargill Inc. and Chicago’s Archer-Daniels-Midland Co.

Under the terms of the agreement, which was unanimously approved by the Boards of Directors of Bunge and Viterra, Viterra shareholders would receive approximately 65.6 million shares of Bunge stock, with an aggregate value of approximately $6.2 billion, and approximately $2.0 billion in cash, representing a consideration mix of approximately 75% Bunge stock and 25% cash. As part of the transaction, Bunge will assume $9.8 billion of Viterra debt.

In addition, Bunge plans to repurchase $2.0 billion of Bunge’s stock to enhance accretion to adjusted EPS. Viterra shareholders would own 30% of the combined company on a fully diluted basis upon the close of the transaction, and approximately 33% after completion of the repurchase plan.

The companies said the combination is expected to generate approximately $250 million of annual gross pre-tax operational synergies within three years of completion. Additionally, significant incremental network synergies are expected through joint commercial opportunities, vertical integration efficiencies, and improved logistics and trading options from a larger network.

The transaction, coupled with the associated $2.0 billion share buyback, is expected to be accretive to Bunge’s Adjusted EPS in the first full year post closing and continue to improve with the realization of synergies.

“The combination of Bunge and Viterra significantly accelerates Bunge’s strategy, building on our fundamental purpose to connect farmers to consumers to deliver essential food, feed, and fuel to the world,” said Greg Heckman, Bunge’s CEO. “Our highly complementary asset footprints will create a network that connects the world’s largest production regions to areas of fastest growing consumption, enhancing the geographical balance and adaptability of our global value chains and benefitting farmers and end-customers.”

The two companies highlighted several strategic and financial benefits of the merger, including an enhanced global network to better serve farmers and customers; increased diversification across geographies, seasonal cycles, and crops to better manage risk; greater operational flexibility across oilseed and grain supply chains and processing; and greater resources and combined employee talent.

“Viterra and Bunge are two leading agriculture businesses,” said Viterra CEO David Mattiske. “In combining our highly complementary origination, processing, and distribution networks, we are better positioned to meet the increasing demand for the food, feed, and fuel products we offer. Together, we will play a leading role in the future of the agriculture industry, developing fully traceable, sustainable supply chains and moving towards carbon-neutral operations, while creating a strong growth platform for our combined business.”

Bloomberg News first reported the talks about a potential combination last month (GM May 26, p. 30). Glencore has flirted with the idea of a deal with Bunge on and off for years. In 2017, it approached Bunge about a friendly takeover, but was publicly rebuffed. Since then, Bunge has replaced its CEO and other senior executives.

The merger is expected to close in mid-2024, subject to regulatory approvals and approval by Bunge shareholders. The combined company will operate as Bunge, with operational headquarters in St. Louis, Mo., and will be led by Heckman and John Neppl, Bunge’s Chief Financial Officer. Mattiske will join the Bunge leadership as Co-CEO.

The Bunge Board of Directors is expected comprise eight Bunge nominated representatives and four representatives nominated by Viterra shareholders after the completion of the transaction. Viterra’s current headquarters in Rotterdam will remain as an important commercial location for the company.

The deal has the support of two of Canada’s biggest pension funds (GM June 2, p. 1), which have a combined stake of 49.98% stake in Viterra, Bloomberg reported. The Canada Pension Plan Investment Board will receive an equity stake of about 12% in the combined company and about $800 million in cash, it said in a statement.

The transaction is fully funded with a financing commitment of $7 billion provided by Sumitomo Mitsui Banking Corp.

“We have great respect for the team at Viterra, which shares our commitment to excellence, and believe this combination will offer great opportunities for employees of both companies,” Heckman added. “Together, we will be positioned to increase our operational efficiency while innovating to address the pressing needs of food security, efficiency for end-customers, market access for farmers, and sustainable food, feed, and renewable fuel production.”

CVR Energy to Keep Fertilizer Business

Featured, News, Nitrogen, Texas

CVR Energy Inc. announced on June 13 that its board of directors has decided to retain its interest in the company’s nitrogen fertilizer business, which is indirectly owned by CVR Energy through the general and limited partner interests it holds in CVR Partners LP, a publicly traded limited partnership.

CVR in November (GM Nov. 22, 2022) said it was exploring a potential spin-off of the nitrogen fertilizer business to create a new public company that was separate from CVR’s refining and renewables businesses. The fertilizer facilities owned and operated by CVR Partners are located at Coffeyville, Kan., and East Dubuque, Ill., and produce ammonia, urea, and UAN.

CVR said the decision to keep the fertilizer business was made following a thorough review by the board of the potential transaction and current market conditions, and in consideration of the best interests of CVR Energy and its stockholders.

“Included within our exploration of a potential spin-off was how to create pure-play refining and fertilizer entities while still retaining the operational efficiencies both CVR Energy and CVR Partners enjoy from our current model,” said Dave Lamp, President and CEO of CVR Energy. “Following thoughtful and careful analysis, the board concluded that the complexity of a transaction that could accomplish both goals may not deliver the appropriate value under current conditions.”

CVR Partners reported first-quarter net income of $101.9 million on net sales of $226.3 million, up from the year-ago $93.7 million and $222.9 million, respectively (GM May 5, p. 26). CVR noted record production and improved reliability at both fertilizer facilities, with the combined ammonia utilization rate climbing to 105% from last year’s 88%.

“We will continue to explore ways to capitalize on the unique assets of each of CVR Energy and CVR Partners, particularly within the Coffeyville complex, including their proximity to the farm belt, excess hydrogen capacity, and existing CO2 sequestration capabilities,” Lamp said on June 13.

He noted as well that the new feed pre-treatment unit at CVR Energy’s Wynnewood, Okla., refinery remains on track for mechanical completion in late third quarter 2023, which the company expects “to enhance the renewables capture rate and profitability.” The unit is expected to be capable of producing 7,500 barrels/day of treated feedstock for the refinery’s Renewable Diesel Unit from vegetable oils and other renewable feeds.

House Bill Introduced to Add Potash, Phosphates to DOI Critical Minerals List

Featured, News, Phosphate, Potash, U.S.

A bill to include phosphate and potash on the Department of the Interior’s (DOI) final list of critical minerals for national security was introduced in the US House on June 13 by Reps. Kat Cammack (R-Fla.), Barry Moore (R-Ala.), Elissa Slotkin (D-Mich.), and Jimmy Panetta (D-Calif.). Sen. Thom Tillis (R-N.C.) is the lead sponsor of the legislation in the US Senate.

The sponsors said the bill seeks to spur domestic production of these minerals in an effort to reduce dependence on foreign sources, particularly as the ongoing war in Ukraine disrupts global supply chains and inflated fertilizer prices. Cammack, Moore, and Slotkin all serve on the House Agriculture Committee, while Panetta serves on the Ways and Means Subcommittee on Trade.

“A nation that cannot feed itself is not secure. Without the necessary inputs to feed, clothe, and fuel our nation, we’re leaving our food and national security up to our adversaries,” Cammack said. “Adding these vital resources to the Critical Minerals List will encourage increased domestic production and deliver much-needed relief to the Florida producers who rely on these inputs for their crops. We have the resources here at home; it’s time we tap into them.”

“America’s producers are the only customers who buy their inputs at retail cost and sell their outputs at wholesale price. Farmers, ranchers, and foresters in Alabama have been dealing with profit margins too thin to take care of their families,” said Moore. “Designating phosphate and potash as critical minerals is the first step in tapping our capacity for domestic production of our producers’ input costs, namely affordable fertilizer products.”

“Our food security is our national security, so when we’re dependent on Russian and Chinese minerals for the fertilizer that grows our crops, we are putting ourselves at risk,” said Slotkin.“Adding potash and phosphate to the Department of Interior’s Critical Minerals List will accurately reflect their strategic importance, encouraging increased domestic production, lowering fertilizer costs for our farmers, and keeping our food supply secure. And as one of the only states to hold its own supply of potash, Michigan is well-equipped to fuel a resurgence in production.”

The bill follows a DOI decision in 2021 to remove potash from the Critical Minerals List because its supply risk score fell just below the quantitative threshold (GM Nov. 24, 2021), even though potash had been added to the list in 2018 in response to Executive Order 13817, a federal strategy to ensure secure and reliable supplies of critical minerals.

A Federal Register notice on Nov. 9, 2021, said the production of potash – along with rhenium and strontium, two other minerals that did not make the list – was “either not highly concentrated or was concentrated in countries considered to be reliable trade partners,” despite acknowledging that the US was “highly net import reliant” for all three commodities. “Any changes in the supply chain dynamics of these commodities will be closely monitored, but none of the three is recommended for inclusion on the 2021 draft list of critical minerals,” the notice added.

Phosphates did not make it on the 2018 or 2021 lists. DOI said in 2021 that while it may be an essential mineral, the supply chain vulnerability for phosphates is mitigated by domestic production, lack of import dependence, and diverse, secure sources of supply.

“American producers are feeling the high prices for fertilizer due to the war in Ukraine and its disruption of the supply chains for needed minerals,” added Panetta. “We want to help our farmers with this bipartisan legislation that would allow the federal government to readily tap into our domestic potash and phosphate resources. Despite the devastation and destruction in Ukraine, we are acting in Congress to protect American agriculture and preserve global food security.”

Back in 2021, seven Republican Senators sent a letter to U.S. Geological Survey Acting Director Dave Applegate urging him not to remove potash from the Critical Minerals List and to add phosphates to the list, citing “a serious supply shortage” and a “doubling” of prices for both products (GM Dec. 17, 2021). Those senators included Roger Marshall (Kan.), John Boozman (Ark.), Chuck Grassley (Iowa), John Hoeven (N.D.), Mike Braun (Ind.), John Thune (S.D.), and Tommy Tuberville (Ala.).

At that time, phosphate, potash, and other fertilizer prices were rising rapidly amid supply chain disruptions, reaching a peak in spring 2022 following Russia’s invasion of Ukraine. Since then, however, fertilizer prices have been under steady pressure, with current NOLA DAP prices down nearly 43% and NOLA potash more than 48% below year-ago levels.

Yara, Cepsa Sign Green Ammonia/Hydrogen Deal

Featured, Green Ammonia, Green Hydrogen, Hydrogen, News, Norway, Spain

Yara Clean Ammonia (YCA) and Cepsa, a Madrid-based oil and gas company, have signed a deal to start a green hydrogen, ammonia corridor between the Spanish port of Algeciras and Rotterdam, the companies announced on June 14.

Under the agreement, YCA will supply Cepsa with green ammonia, which Cepsa will supply to its industrial and maritime customers in Rotterdam and central Europe using Yara’s supply network. The green ammonia will then be converted back into hydrogen for distribution at the Port of Rotterdam, where a terminal is being built to channel the clean hydrogen via pipelines to Germany, Belgium, Denmark, or the Netherlands.

“Yara Clean Ammonia and Cepsa have forged a pioneering partnership to establish a credible and robust supply chain for clean energy transformation in Europe,” said YCA President Magnus Krogh Ankarstrand. “This partnership will lay a solid foundation for industrial efforts to secure clean ammonia and hydrogen for several downstream applications in Europe while securing the clean transformation goals. We are delighted to be a part of this collaborative initiative.”

Cespa also signed a deal with Dutch gas network operator Gasunie to access its green hydrogen transport network in the country. In addition, Cepsa plans to invest $1 billion to build a 750,000 mt/y green ammonia plant at its energy park in San Rogue, Cadiz, near the port of Algeciras, with completion slated for 2027. Cespa is a partner in the Andalusian Green Hydrogen Valley, the largest green hydrogen project in Europe.

“Today’s agreements are a crucial step towards the long-term viability of the Andalusian Green Hydrogen Valley and the implementation of the first maritime corridor of sustainable fuels that will link the South with the North of Europe,” said Maarten Wetselaar, CEO of Cepsa. “Green hydrogen and its derivatives are the fastest, most viable, and competitive solution to accelerate the energy transition in heavy transport and ensure energy independence in Europe.”

The companies said their commitment to sustainable fuels is in line with the European Commission’s (EC) Fit for 55 Package, a legislative initiative to stimulate demand for alternative fuels in maritime transport to reduce greenhouse gas emissions by 2% in 2025, 6% in 2030, and 75% in 2050 compared to 2020 levels.

The development and use of sustainable fuels also contributes to several of the EC’s 2030 Agenda’s Sustainable Development Goals, the companies said, including SDG 7 (Affordable and clean energy), SDG 8 (Decent work and economic growth), SDG 12 (Responsible consumption and production), and SDG 13 (Climate action).

“The agreements announced today give our project crucial access to markets, customers, and distribution infrastructure, three key elements to unlock the potential of our Hydrogen valley,” Wetselaar added. “This is major news for the decarbonization of European shipping and industry and for the planet.”

Japanese Shipping Company Invests in Louisiana Blue Ammonia Project

Blue Ammonia, Featured, Japan, Louisiana, News, Texas

MOL Clean Energy US LLC (MCE), a subsidiary of Japanese shipping company Mitsui O.S.K. Lines Ltd. (MOL), has made a strategic investment in Ascension Clean Energy (ACE), a proposed global-scale clean hydrogen-ammonia production and export facility in Ascension Parish, Louisiana, according to a June 14 announcement.

As a result of the investment, MOL has become a joint venture shareholder in the project, along with project development startup Clean Hydrogen Works LLC (CHW), Grand Prairie, Texas; carbon solutions provider Denbury Carbon Solutions, a subsidiary of Denbury Inc., Plano, Texas, and the largest CO2 pipeline operator in the US; and Singapore-based Hafnia, a major oil product and chemical tanker company.

“Clean hydrogen-ammonia is critical to decarbonizing the global energy market,” said Tomoaki Ichida, CEO of MCE. “With this innovative project, MOL is investing not only for our future growth, but also helping promote the development and adoption of clean hydrogen-ammonia within our fleet and customer base.”

First announced by CHW in November last year (GM Nov. 4, 2022), the $7.5 billion ACE project plans to include two world-scale ammonia blocks with estimated ammonia production totaling 7.2 million mt/y. The two ammonia blocks are currently projected to start up in a staged approach, with Block 1 production anticipated to commence in 2027.

The facilities are to be constructed on a 1,700-acre RiverPlex MegaPark site on the West Bank of the Mississippi River in Donaldsonville, La., with ready access for exports. A final investment decision on the project is anticipated in 2024. Approximately 75% of the planned ammonia production volume is supported by letters of intent for offtake agreements with high-quality purchasers, the partners announced in November.

ACE is expected to generate approximately 1,500 construction jobs over five years, 350 permanent, full-time jobs once fully operational, and an additional 626 jobs in Ascension Parish, along with nearly $2.2 billion in new sales in firms across Louisiana, CHW said.

“With the rapidly evolving macro-environment, the world’s net zero goals must be increasingly coupled with affordability and security of energy supply,” said Mitch Silver, CHW Senior Vice President and Chief Operating Officer. “MOL’s practical yet visionary approach to decarbonization will add critical capabilities and insights to support ACE in delivering on its mission to provide customers with affordable and large-scale clean energy solutions.”

As reported last November, Denbury has a 12-year contract, with extension options, to transport and sequester CO2 captured from the project, which is anticipated to be built less than two miles from Denbury’s existing CO2 pipeline network. Captured CO2 volumes are estimated to be approximately 12 million mt/y. Hafnia plans to export the ammonia to emerging energy markets overseas.

As of last November, Denbury had invested $10 million into the ACE project through an investment in CHW and had committed to invest another $10 million when certain project milestones are achieved.

Incitec Pivot Ltd. – Management Brief

Australia, Management Briefs

Melbourne-based fertilizers and explosives company Incitec Pivot Ltd. (IPL) announced on June 13 that Christine Corbett has resigned from her role as Incitec Pivot Fertilisers (IPF) CEO designate. Corbett will leave the company at the end of June.

IPL said Corbett’s decision was due to the company’s deferral of the proposed demerger of its fertilizers and explosives business. This follows the IPL Board’s decision to sell the Waggaman, La., ammonia plant ahead of the proposed demerger. The company inked a definitive agreement with CF Industries Holdings Inc. on March 20 for the sale of the plant (GM March 24, p. 1).

Corbett was appointed as CEO designate of the proposed standalone IPF in October last year (GM Oct. 28, 2022) and took up the role on Jan. 9, 2023. Corbett’s resignation follows IPL Managing Director and CEO Jeanne Johns’decision to step down from the role, announced a week ago (GM June 9, p. 26). Mike Carroll continues as IPF Chairman designate, and IPF’s current CFO, Chris Opperman, will be appointed IPF Interim President, effective June 13.

Corbett’s departure could be another sign that IPL’s proposed split into separate fertilizer and explosives arms could be off. But in its statement on June 13, IPL said the proposed separation of the IPF business remains “a key strategic priority” even though it has been delayed.

K+S Cuts EBITDA Guidance on Lower Potash Prices

Earnings, Germany, News

K+S Group, Kassel, Germany, on June 14 cut its EBITDA guidance for full-year 2023 due to depressed potash prices, but noted that it expects prices to recover in the second half of the year.

K+S said the “decisive factor” for the K+S earnings situation is what price level subsequently emerges worldwide following the settlement of the new China potash supply contract price at $307/mt CFR, “how quickly a recovery from this price floor occurs,” and “what volumes are demanded at the respective prices.”

Canpotex on June 6 confirmed that it had reached a potash supply contract with Chinese buyers at $307/mt CFR for shipments through Dec. 31, 2023 (GM June 9, p. 15). The price marked a 48% decline from the $590/mt CFR agreement that Canpotex concluded last year with China, and is also well below the $422/mt CFR contract inked with India in April (GM April 7, p. 14).

“A greater clarity regarding the annual results EBITDA will only arise after the movement of significant volumes in the important overseas market of Brazil,” K+S said. “In case that the Chinese potassium chloride price radiates accordingly into other markets and there is no price recovery in these markets from the levels then reached until the end of 2023, this would result in total EBITDA of about €0.8 billion (approximately $0.87 billion at current exchange rates) for K+S in 2023.”

K+S cut its full-year EBITDA guidance in May after reporting first-quarter earnings of €1.15-€1.35 billion (GM May 12, p. 27), down from the previous €1.3-€1.5 billion guidance issued in March (GM March 17, p. 24). FY2022 EBITDA came in at €2.4 billion.

The company said in its June 14 disclosure that this would also have a negative impact on adjusted free cash flow, “but to a lesser extent than for EBITDA.” K+S expects prices to recover in the second half of the year, however, which it said should result in EBITDA exceeding €0.8 billion.

The company said in the second quarter that the conclusion of the China contract and lower prices in Brazil, as well as lower sales volumes due to a wait-and-see attitude from customers, would have a negative impact on EBITDA. It reported an EBITDA for the first quarter of €453.8 million, down 13% from the same prior-year quarter.

K+S shares fell as much as 9.7% immediately following the latest EBITDA guidance cut, their lowest since November 2021. However, shares were boosted as much as 2.5% in Frankfurt on June 15 after Scotiabank raised the producer to “sector perform” from “sector underperform,” saying that the potash market has bottomed and its outlook has improved, according to Bloomberg.

Togo Phos Rock Production, Sales Increase

Africa, Earnings, News, Phosphate Rock

Togo’s phosphate rock production increased by 6% in 2022, reaching 1.54 million mt, while sales rose by 14% to 1.58 million mt, up from 1.39 million mt, according to a report by Togo First, citing figures released by the Central Bank of West African States (BCEAO).

According to the report, the volume sold last year was the highest since 1999. The growth was spurred by several initiatives launched by Togo’s government to revive its phosphate mining industry, as well as increased global phosphate prices.

The government also wants to bolster the phosphate value chain by processing ores locally, an ambition launched in 2015. In line with this goal, the country’s Agriculture Ministry in late May signed a Memorandum of Understanding (MOU) with OCP Africa SA, a wholly-owned subsidiary of OCP Group SA, under which the Moroccan company will launch a feasibility study for developing a phosphate-based fertilizer plant in Togo (GM June 9, p. 28).

Initial plans by Lomé to establish a 1.3 million mt/y DAP/MAP/TSP plant in 2015 were never realized (GM Sept. 14, 2015). That project involved a privately-held holding company owned by Israeli businessman Jacob Engel, as well as China’s Wengfu as strategic partners.

Similarly, an agreement reached between Togo and Nigeria’s Dangote Industries in late 2019 also failed to progress. That plan called for Dangote to invest $2 billion in a project to mine an estimated 2 billion mt of phosphate rock for processing into as much as 1 million mt/y of fertilizer at a new complex in Lagos (GM Nov. 8, 2019).

However, an NPK fertilizer blending plant, Togo’s first such facility, is scheduled to start production soon. That plant, located in the Adétikopé Industrial Platform in the northern suburbs of the Togolese capital, belongs to Singapore-based manufacturer and farm inputs supplier Nutrisource Pte. Ltd. and is projected to reach a capacity of 200,000 mt/y (GM March 3, p. 28).

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