INCITEC Pivot Limited today announced it has ceased negotiations with Indonesian company PT Pupuk Kalimantan Timur (PKT) for the sale of its Incitec Pivot Fertilisers (IPF) division.

In May, IPL confirmed it was in advanced negotiations with PKT for the potential sale of its fertiliser business.

In a release to the ASX, the company said the decision follows careful consideration around how to maximise value for shareholders while balancing the risks of completing the transaction in a reasonable timeframe.

IPL chief executive office and managing director Mauro Neves said during negotiations, the company was “focused on completing a sale transaction in a timely manner” to enable an on-market buyback of up to $900 million.

“We have determined we are unlikely to achieve this outcome with PKT in an acceptable timeframe, and as a result we made the decision to cease negotiations with them,” Mr Neves said in a statement.

“We will continue to assess options for the structural separation of the two businesses; however, in the near-term, our focus will be on progressing the on-market buyback program for the benefit of our shareholders.

“Our IPF business remains focused on value-accretive market-share growth and is in a strong position for the agricultural season ahead.”

Established in 1977, PKT is an Indonesian state-owned enterprise and is one of the largest urea, ammonia and NPK fertiliser producers in Asia.

It operates 13 factories, including five ammonia plants with a capacity of 2.74 million tonnes (Mt) per annum, five urea plants with a capacity of 3.43Mt annually, and three NPK plants with capacity of 300,000t annually.

PKT also has other supporting facilities, such as coal boilers, warehouses, ammonia tanks, and laboratories.

Future sale on cards

During an information session held today, Mr Neves said while negotiations have ceased, the company’s long-term goal was to offload IPF.

“The structural separation of the business and the potential transaction of the fertiliser business is still the strategy.

“The strategy hasn’t changed; we have to find another way to execute it.”

He confirmed the company was “not actively engaged in any negotiations” with any parties regarding a future possible transaction.

“[W]e didn’t want to be in an eternal deal mode; we really wanted to create some clean air.

“It doesn’t mean our business development teams aren’t actively talking to the market or open to conversations.”

Mr Neves said IPL will continue to manage the Dyno Nobel explosives and IPF fertiliser businesses separately.

“IPF will continue to deliver on its strategy of providing value-add fertilisers and soil-health services that increase productivity for agricultural customers.

“Dyno Nobel will focus on delivering its strategy to expand its position as a leading global, premium explosives business that provides its customers with safe and cutting-edge technology, solutions and services.”

The announcement will temporarily allay concerns held by industry groups around issues about the potential sale of IPL to foreign interests.

In August 2023, GrainGrowers chair Rhys Turton said the industry required assurance that the sale was in the national interest, and would allow growers to access consistent supply levels.

“Incitec Pivot is Australia’s largest fertiliser manufacturer and distributor, so the genuine concern is that additional product could be moved offshore, impacting our longer-term food security, reducing supply and increasing costs to producers,” Mr Turton said.

Phosphate Hill update

During the session, Mr Neves provided an update on operations at Phosphate Hill, a key ammonium phosphate production plant located in north-west Queensland.

“Our taskforce at Phosphate Hill is achieving good results; however, the full-year production volume is likely to be around the lower end of the previously indicated range.”

In May’s half-year 2024 briefing, Mr Neves said the FY24 production outlook for Phosphate Hill was 730,000-770,000t.

This output was already a drop from previous figures of 780,000-820,000t.

Phosphate Hill has suffered significant manufacturing issues in recent months due to flooding, rail line and gas supply disruptions, and a drop in commodity prices.

“We will really be working hard to find any opportunity to improve the financial position of the fertilisers business and continue the good work that…the team have been doing.”

He said overall, the distribution side of the business continued to “show improvements in margins and market share”.

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