Orica flags $191m Burrup writedown

ASX-listed explosives maker Orica said it expected a $191 million writedown in its first-half results, primarily due to equipment defects and obsolete assets at its half-owned Burrup ammonium nitrate plant near Dampier.

Orica, which posted a $48.1 million full-year loss in 2018, said it would writedown the value of its Burrup plant, by $155 million due to a number of defective assets at the plant that needed to be replaced or repaired.

The impairment will come to $109 million in total after tax is calculated.

The company said it would take an additional $36 million impairment to replace IT assets, which equated to $25 million post-tax.

Its first-half results are due to be released on May 9.

However, Orica said the writedowns would not affect its view of the long-term commercial and strategic value of the Burrup plant.

“The plant remains an important element of Orica’s domestic supply strategy being a 30-plus-year asset positioned in the heart of the Pilbara where the strip ratios are expected to grow at a 3 per cent-plus Compound annual growth rate over the next five years,” the company said.

“Following the securing of several substantial contracts over the past 18 months and the contract profile, it is expected that the plant will be essentially loaded in 2020.”

Orica said the plant’s utilisation in the 2019 financial year would be lower than the previously anticipated 20 per cent, however, the overall outlook for the 2019 financial year remained unchanged from November, with the earnings expected to be weighted approximately 45/55 to the second half.

In November, Orica revealed technical issues at its plant will cause a production delay of more than 12 months.

Melbourne-based Orica holds a 50 per cent stake in the Burrup plant, with Norwegian company Yara International owning the remaining share.

In February, Yara reported a $70.6 million impairment on the plant in its fourth-quarter results.