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Indonesia’s PKT in talks to buy Incitec Pivot Fertilisers

Emma Alsop, May 16, 2024

PT Pupuk Kalimantan Timur has its head office at Bontang in Indonesia. Photo: PTK

ASX-LISTED fertilisers and explosives company Incitec Pivot Limited has announced that it is in advanced negotiations with Indonesian Government-backed fertiliser company PT Pupuk Kalimantan Timur (PKT) for the potential sale of its fertiliser business.

During its half-year 2024 financial results presentation today, IPL stated that the transaction was imminent.

In July last year, IPL confirmed speculation that it had received approaches from unnamed parties regarding the potential acquisition of the fertilisers business, Incitec Pivot Fertilisers (IPF).

Although IPL refused to confirm the speculation, PKT was named as a potential frontrunner.

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.

Incitec Pivot chief executive officer and managing director Mauros Neves told shareholders that the company was in “advanced negotiations” with PKT.

He said PKT was “well placed to continue and grow IPF’s operations”.

“They are one of the largest urea, ammonia and NPK fertiliser producers in Asia with a strong global footprint and an existing supply chain into Australia,” Mr Neves said.

“The next steps are to complete a binding agreement and then necessary regulatory approvals.

IPL CEO and MD Mauros Neves

“We are working productively with PKT, who intends to continue to supply fertilisers to the Australian market, support the retention of the IPF workforce, and grow the business.

“The process is taking some time and that is due to the complexities of the transaction.

“We understand the shareholders, employees and other stakeholders are keen to see an outcome.

“Our teams are focused on achieving appropriate value for the IPF business and concluding the process as soon as possible.”

Negotiations are continuing alongside the previously announced structural separation of the company’s two segments, IPF and explosives business Dyno Nobel.

IPL reports net loss

Mr Neves announced that IPL has reported a net loss after tax, including individually material items, of $148M for the six months to March 31.

This compares with a $354M profit from HY23.

Earnings before interest and tax excluding IMI saw a reduction of about 55 percent on HY23, coming in at $249M.

The fertilisers business, which includes manufacturing and sale of fertilisers to eastern Australia and export markets, returned EBIT of $10M, down from $108M in HY23.

While the distribution business delivered record earnings in HY24, the closure of the Gibson Island facility in Brisbane, reduced manufacturing at Phosphate Hill in north-west Queensland, and unfavourable commodity prices hit performance in the half.

The distribution business recorded earnings of $27M, $15M higher than HY23, due to an increased demand for fertilisers following above-average rainfall on the east coast.

Domestic sales volumes increased 15pc, while total sales volume of 1.007Mt was 6pc down on the comparable HY23 figure.

Phosphate Hill issues

Key production plant, Phosphate Hill, suffered significant manufacturing issues during HY24.

This resulted in an almost 40pc cut in production of ammonium phosphate, from 427,000t in HY23 to 261,000t in HY24.

Production levels were disrupted during HY24 at the Phosphate HIll mine in Qld. Photo: Incitec Pivot Limited

Mr Neves said impacts to the supply chain following Cyclone Kirrily impacted production levels at the site.

“In the month prior to Cyclone Kirrily floods in February, the (site) achieved record production for a January month.

“Thanks to the business continuing planning by the IPL team, we were well prepared for the flood and able to mitigate and manage the impacts quickly and safely.”

In a statement to the ASX on February 15, IPL said flooding interrupted rail services between Cloncurry and Julia Creek on the Mount Isa to Townsville rail line.

This causes a reduction in supplies of sulphuric acid and, as a result, cut production at Phosphate Hill.

The plant continued to operate at lower levels via road transport until the line was reopened.

Output volumes were also impacted by maintenance activities undertaken in HY24.

Mr Neves said after considering this lower production, the plant’s outlook for FY24 is 730,000-770,000t, down from 780,000-820,000t seen previously.

These issues, alongside a drop in commodity prices and disruptions to gas supply, resulted in a non-cash impairment or loss of $312M, identified as an IMI.

Gibson Island uncertainty

The HY24 results gave no clarity on the future of the partnership with Fortescue Future Industries to move forward with an industrial green ammonia production plant at IPL’s Gibson Island facility, where manufaturing ceased in December 2022.

The facility was touted to produce up to 70,000t of green hydrogen per annum, which would then manufacture 400,000t of green ammonia.

FFI was expected to make a final funding decision on the project in December 2023.

In an announcement in November, the company opted not to fund the facility at that time.

FFI said: “Front End Engineering Design and other workstreams” were still progressing but the project required “further work as Australia struggles to shed its petrostate status and still suffers structurally high green electricity costs”.

As part of the HY24 financial reports, IPL said it and FFI will “continue to work collaboratively with Government to make a final investment decision on the project”.

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