Burrup dispute rocks explosives race

THE problems besetting the Oswal family’s key Australian interest, Burrup Holdings, have changed the dynamics of a three-way race to meet the next generation of explosives demand as a result of the massive expansion of the Pilbara’s iron ore production.

Burrup was seen as the leading contender to meet this demand ahead of Perth-based Wesfarmers CSBP and Queensland’s Incitec Pivot, which are both pursuing similar projects in Western Australia.

Late last year Incitec Pivot, through its wholly owned subsidiary Dampier Nitrogen Pty Ltd, advertised the start of a public environmental review of its 350,000 tonnes per annum ammonium nitrate project, to be built on the Burrup Peninsula.

In addition, CSBP is in the midst of its own public environmental review, for a planned 260,000tpa expansion of its Kwinana ammonium nitrate plant, lifting total output to 780,000tpa.

Ultimately, the company believes it can boost production via this expansion and de-bottlenecking of existing plant to 936,000tpa, up 416,000tpa from current levels.

All of them recognise the potential for the explosives market in WA to nearly double from current estimated levels of 350,000tpa, just on expected demand from the Pilbara, which is set to jump from estimated 200,000tpa to as much as 500,000tpa over the next five to seven years.

The other great potential leap is in the Mid West, which currently is part of an estimated 50,000tpa market (including Collie coal in the South West), but which could grow to 200,000tpa if development takes off as hoped.

It was this demand curve that prompted the creation of Burrup Nitrates Pty Ltd, a joint venture between Burrup Holdings and Norwegian company Yara International, the third group proposing an ammonium nitrate project in WA.

This project is a $750 million explosives plant to convert ammonia from Burrup Fertilisers into 350,000tpa of ammonium nitrate. Yara, an international fertiliser giant, was to have taken 65 per cent of the project.

Until the falling out between the parties, Burrup Nitrates was seen to be in the box seat to meet this demand. The state government was reportedly poised to give the plant environmental approval – it has the backing of global heavyweight Yara, the key raw ingredient is produced by the JV partners’ nearby plant and it is located close to customers.

However, Burrup Holdings and Yara are mired in managerial and financial disputes, which culminated in the ANZ Bank appointing receivers to Burrup Fertilisers and its parent company Burrup Holdings.

PPB Advisory has been appointed receivers and managers by major lender ANZ and has put Burrup Fertilisers on the market, appointing Melbourne-based Flagstaff Partners to handle the sale. Although Yara, which also has an offtake agreement to take the plant’s ammonia production, is the logical buyer there is understood to be plenty of interest from as many as 20 other parties.

The dispute involving Burrup Holdings has put a big question mark over the Burrup Nitrates joint venture.

The Dampier Nitrogen proposal, originally owned by listed company Plenty River, has been on the drawing boards for more than a decade, although its backer, Incitec, has the financial grunt and market access that was missing under previous management.

Incitec has stepped up work on the Dampier Nitrogen environmental review in recent months in order to meet required project milestones.

In its original form, Dampier Nitrogen was one of several gas processing projects earmarked for the Burrup Peninsula in the early 1990s. Of all those projects, Burrup Fertilisers was the only one to proceed.

Despite its location on the Burrup Peninsula, the Incitec project has drawbacks. Unless it can come to an arrangement with rival Yara, for instance, it would have to import the ammonia it needs.

If either of the Burrup Nitrates or Incitec projects proceeds, it will disrupt a market currently dominated by CSBP, which is effectively the sole supplier of explosive-grade ammonium nitrate in WA.

With the dispute among Burrup Nitrate’s partners blowing up, some view CSBP as being the furthest down the track towards committing to the expansion.

But the fertiliser and explosives division of the group has to compete internally for funding from a cautious group with dozens of other business ideas, including the huge retail engine created by the purchase of Coles.

Also, CSBP wants to expand production at Kwinana, which suggests hundreds of thousands of tonnes of explosives must be moved thousands of kilometres to the mines of the Pilbara, most likely by road.

While it may be the incumbent local player, Wesfarmers lacks non-WA markets and may want concrete sales agreements before proceeding.

Incitec is seen as a suitor to Wesfarmers for its CSBP assets. It has already stitched up an off-take deal with Vikas Rambal’s Perdaman urea plant at Collie, which will threaten CSBP’s market dominance supplied by imported urea.

Despite the costs associated with a Burrup ammonium nitrate plant, Incitec is a big player through its global Dyno Nobel subsidiary and will find other markets in the medium term.

And then there is, beyond the bickering, Yara.

The Norwegian giant has pre-emptive rights to match or better any bid for Burrup Fertilisers. Alternatively, it could buy-out the bank debt and become the secured lender, potentially conducting an IPO of the remainder of the business.

It is thought to want to get into the explosives business to rival its former Norwegian state-owned stablemate Dyno Nobel.

“Nothing is going to happen on this asset that is not what Yara wants, they hold all the cards,” an explosives industry watcher told WA Business News.