Confession time for Orica ahead of the release of its interim results on May 9 (Thursday week) with news of a big write-down in the value of its interest in a big chemical plant in WA.
Orica said it would take a $191 million write-down of the value of defective equipment at its Burrup operation and confirmed the troubled explosives plant will fall behind its production target.
But the company reassured the market that its earnings outlook remains unchanged for the year – earnings expected to be weighted approximately 45/55 to the second half,” Orica said yesterday.
Burrup, which is jointly owned with Norwegian chemical giant, Yara International, was originally declared commercially operational in 2017, but it has had a string of equipment failures and problems in the following two years.
Orica chief executive Alberto Calerdon told investors in December at the company’s annual meeting that the current remediation work would be finished in the first half of the 2020 financial year.
Orica said the plant’s utilisation would be lower than the 20% forecast at the December shareholder meeting, but said the group’s overall outlook remains unchanged.
“The accounting recognition of the defective components does not affect Orica’s view of the long-term commercial and strategic value of the Burrup Technical Ammonium Nitrate (TAN) plant,” the company said in a statement to the ASX on Monday.
“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%-plus CAGR over the next five years.
“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.
Orica also announced the first-half results would include a $36 million impairment related to its technology assets, taking the total non-cash adjustments to $227 million before tax when the company reports its half-year results on May 9.
The write-down had been expected by analysts and the news had not much impact on Orica shares which dipped 1% to $18.81.
