The market reacted calmly to the surprise news yesterday from explosives and fertiliser group Incitec Pivot (IPL) that it had taken a $23 million hit from operating problems at its ammonia plant in North West Queensland earlier this month.
The company told the ASX yesterday the outage (in the "iso-thermal shift reactor", which sounds like a big kettle) would cost it $23.5 million or thereabouts in lower earnings after tax, or around $30 million before tax.
IPL shares rose 1.5% or 4c to $2.73 yesterday.
They had opened 9c lower at $2.60, after the news was made public to the market.
They dipped to a day’s low of $2.49 before bouncing back to close at $2.73.
IPL YTD – Incitec’s bad news taken well by market
IPL said the Phosphate Hill plant is now expected to return to production next week. The company is the country’s biggest fertiliser manufacturer.
IPL explained in its statement yesterday that, "While undertaking repairs, some additional emergent works have become necessary and it is anticipated the Ammonia Plant will ramp up from mid-next week".
"The outage to the Ammonia Plant will reduce production of Ammonium Phosphate fertilisers. The estimated impact is a reduction in the expected production of Ammonium Phosphates for the second half ending 30 September 2013 to 400,000 tonnes (763,000 tonnes for the full year ending 30 September 2013)."
Mr James Fazzino, Managing Director & CEO, said: “Following the unplanned outage at Mt Isa earlier in this financial year, a detailed analysis was undertaken to identify the root cause which was found to lie in the 2010 scheduled turnaround for Phosphate Hill and Mt Isa Operations.
“From this analysis, we are far advanced with a review of Global Manufacturing and will accelerate its conclusion with details to be announced in the near future.”
Back in May in the company’s interim results and briefings revealed a sharp fall in earnings from the Phosphate Hill plant in the six months to March to $5.2 million from $49.8 million.
Mr Fazzino said in May, "The decline in earnings from Phosphate Hill was firstly driven by an outage at the Mt Isa sulphuric acid plant which took the plant off-line for approximately a month, secondly by lower commodity prices and thirdly the higher Australian dollar.
"Both commodity prices and foreign exchange are out of our control; however, plant efficiency and output are within our control. Through BEx we’re making significant improvements to Phosphate Hill’s plant efficiency and the expectation for the second half is that production at the plant will be 510,000 tonnes."
That means the loss of production will be around 110,000 tonnes and it is quite likely that Phosphate Hill will operate at a loss for 2012-13, if that $30 million drop in earnings turns out to be accurate.
