Orica reveals Burrup delay

Explosives manufacturer Orica has revealed technical issues at its half-owned ammonium nitrate plant in the Pilbara 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.

Under the joint venture agreement, Yara operates the plant while Orica is responsible for sale and marketing.

Orica said Yara had been addressing technical issues over the past 12 months.

“While it was previously anticipated that the plant would be operational by the end of the 2018 financial year, the replacement of some key components is expected to delay production until the first half of the 2020 financial year,” the company said in a statement to the ASX.

“All nine new replacement heat exchangers and the absorption tower are currently expected to be installed in the second half of 2019 calendar year.

“It is anticipated that this installation will take around two months.”

The company said the plant would run as much as possible until the repairs were completed, with about 20 per cent utilisation anticipated in FY19.

Yara’s third quarter results also gave some details on the issue.

“The company is still assessing the extent of necessary repairs to be carried out before the plant is able to operate at full capacity and the related financial impact,” Yara said.

“With a limited headroom, any unfavorable new information may reduce the value-in-use of the plant and trigger an impairment charge.”

The news came as Orica posted a 16 per cent fall in underlying profit to $324.2 million for the 12 months to September 30.

Revenue was 7 per cent higher than the previous 12 months at $5.37 billion.

The company declared a final dividend of 31.5 cents per share, up from the 28 cents per share a year earlier.

Total ammonium nitrate volumes were up 5.0 per cent year-on-year, helped by higher demand in Indonesia and Australia.

However, the volume growth was offset by unfavourable contract pricing, the company said, adding that earnings before interest and taxes was further impacted by unplanned maintenance shutdowns at Yarwun and Kooragang Island operations in Australia.

In June, Orica lost a five-year supply contract extension with Fortescue Metals Group, with fellow Melbourne-based outfit Incitec Pivot being awarded the contract, which will begin at the end of 2019.

In March, Orica secured contracts with BHP Billiton and Roy Hill Holdings in the Pilbara.

Shares in Orica finished 6.43 per cent higher at $17.72 each today.