Incitec Pivot Ltd. (IPL) on Nov. 15 announced that the US antitrust regulatory review process in relation to the sale of its ammonia manufacturing facility located in Waggaman, La., to CF Industries Holdings Inc. (CF) has now concluded. IPL and CF expect to complete the transaction on Dec. 1, subject to the satisfaction of other customary closing conditions.
The Australian company and CF in March reached an agreement for the sale of the Waggaman 880,000 st/y (800,000 mt/y) ammonia plant to CF (GM March 24, p. 1).
As previously announced, IPL said the gross proceeds from the sale are $1.675 billion, with cash proceeds (before tax, transaction costs, and purchase price adjustments) of $1.25 billion. CF expects to fund this amount from cash on hand.
After accounting for transaction costs, purchase price adjustments, and tax estimated at around $400 million, IPL said the net cash proceeds from the sale are expected to be approximately $850 million. The tax is expected to be paid in January 2025.
After transaction completion, IPL will commence the previously announced 25-year ammonia supply agreement with CF. The offtake agreement secures ammonia at producer cost and provides for the supply of up to 200,000 st/y of ammonia to support IPL’s Dyno Nobel Americas explosives business.
The ammonia will be priced on a gas-backed formula at a level commensurate with the current cost of production at the plant. In its Nov. 13 earnings statement this week, IPL put the value of the offtake agreement for accounting purposes at an estimated A$300 million, based on the current ammonia and gas price outlook.
IPL Interim CEO Paul Victor said the Waggaman sale delivers three key strategic objectives for the company: “achieving security of ammonia supply for Dyno Nobel’s US operations, delivering significant returns to our shareholders, and rebalancing our portfolio towards more reliable, recurring earnings.”
“Further, through securing the long-term supply agreement with CF, our US explosives business is well positioned to continue to deliver the high-value technical and service needs of our customers,” he said.
IPL has noted that the 200,000 st/y offtake is for a continuous supply of ammonia and is not subject to outages at Waggaman, saying that if you look at the economic benefits, they are much greater than the company had before the sale.
CF believes Waggaman will fit seamlessly into its network, as well as the company’s strategic focus on ammonia as a clean energy source, given its proximity and pipeline connection to CF’s Donaldsonville, La., complex, its distribution and logistics flexibility, and its favorable characteristics for the addition of carbon capture and sequestration (CCS) technologies to enable low-carbon ammonia production. IPL had already been advancing the plant toward blue ammonia production with a front-end engineering design (FEED) study for CCS.
Based on the contracts in place, CF estimates that the plant will generate gross margin per ton commensurate with its existing ammonia segment prior to synergies, which the company expects to capture through greater capacity utilization and operational and logistics optimization. Over the last five years, CF said its operational capabilities have resulted in ammonia asset utilization that is approximately 10% higher than the average utilization rate of the company’s North American peers.
Despite CF’s optimism, the Waggaman plant has not had the smoothest run since its 2016 startup. IPL had to deal with an original construction defect, which, along with other problems, caused significant downtime over the years (GM April 22, 2022; Feb. 25, 2022; Feb. 18, 2022; Nov. 19, 2021; Sept. 17, 2021; May 21, 2021; Nov. 15, 2019; April 5, 2019). As of November 2022, however, IPL said the plant had been running flawlessly since a production restart in April 2022 (GM Nov. 18, 2022). In addition, it exceeded nameplate capacity for FY2023.
Ammonia produced at the Waggaman facility today is distributed ratably to three customers – Trammo Inc., Cornerstone Chemical Co., and IPL’s DNA – with approximately 75% used in industrial applications. These medium- to long-term offtake agreements are expected to remain in place. In the meantime, American Plant Food expects to source ammonia from the Waggaman plant for its proposed 420,000 st/y ammonium sulfate plant (GM Oct 27, p. 1).
With the sale now expected to be completed in early December, IPL confirmed that it intends to return up to A$1 billion (approximately $650.8 million at current exchange rates) of the proceeds of the Waggaman sale to shareholders, as per its Nov. 13 announcement.
IPL said the capital returns will be undertaken through a combination of an on-market share buyback of up to A$500 million (in addition to the previously announced A$400 million buyback) and a distribution of up to A$500 million that will be allocated between a pro-rata capital return and a special unfranked dividend.
These additional capital returns will require shareholder approval, which IPL intends to seek at the upcoming 2023 AGM on Dec. 20.
Waggaman posted a 23% decline in EBIT in the fiscal year ended Sept. 30, 2023, to $264 million from the year-ago $343.8 million, IPL reported on Nov. 13. Revenue fell by 27%, to $456.6 million from $628.8 million.
FY2023 saw improved manufacturing reliability at the Waggaman plant, with ammonia production exceeding the 800,000 mt/y nameplate capacity. Production reached 822,500 mt, a 17% increase on the prior year’s 700,600 mt, according to IPL. Ammonia sales amounted to 829,600 mt, 11% more than FY2022’s 745,900 mt.