Fertiliser producer, Incitec Pivot, has revealed an interest in making a significant move into Indonesia.
If approved, it would represent a major diversification for the company which, since its purchase of Southern Cross Fertilizers just over a year ago, is looking a little constrained by Australia.
Even taking into account the impact of the drought, Incitec (IPL) has performed well and now that there has been widespread rain in parts of NSW, Victoria, Queensland and South Australia in the past four months, things are looking up.
Earnings prospects are up and the share price has followed.
Now itfeels confident enough to start looking offshore. And it has picked a major project to start with.
The company is Australia's biggest fertilizer group and it revealed yesterday that it would examine the feasibility of a project costing $US700 million to $US800 million to boost the output of three fertiliser plants in Indonesia.
IPL would take a share in the plant with partners and it would own and operate the plant.
The company said in a statement to the ASX that the plants were currently producing well below capacity because of a lack of gas feedstock and the project would give the company the opportunity to secure offtake of ammonia and urea in return for investing in a coal gasification plant in Aceh, Indonesia.
That would presumably allow IPL to enter the Indonesian fertilizer market in some form.
If it is built, the coal gasification plant would provide synthesised gas feedstock to support the three fertiliser plants in Aceh.
Incitec managing director, Julian Segal, said examination of the project was still in its early days with a decision on the feasibility probably due in early 2008, an actual investment decision due around the end of next year and an operational date of 2011.
"Most of all, we need to be completely satisfied that any project would meet our strict investment criteria," Mr Segal said in the ASX statement.
"If the project goes ahead, we would fund, build and operate the new gasification plant.
"If the parties agree to proceed, the project would underpin full-scale fertiliser production for all three plants, secure local fertiliser supplies for Indonesia and provide an additional source of ammonia and urea for Incitec for at least 20 years."
Incitec said it would take a direct equity interest in the gasification plant, which would cost $US700-800 million.
The gasification plant would be project financed on a non-recourse basis and secured by offtake agreements.
Incitec will undertake the feasibility study with the Indonesian government-owned fertiliser company, PT Pupuk Iskander Muda (PIM), which owns two of the three ammonia and urea plants in Aceh, and state-owned engineering firm PT Rekayasa Industri.
The third fertiliser plant, owned by PT Asean Aceh Fertiliser, currently does not have enough gas feedstock to operate.
The three fertiliser plants have an annual capacity of 1.7 million tonnes but are currently producing only 300,000 tonnes because of the limited supplies of natural gas.
Incitec produced 2.7 million tonnes of fertiliser in Australia in the 2006 year so the potential benefits of the move into Indonesia look substantial.
IPL says it would look at taking between 700,000 and 800,000 tonnes of urea a year under present plans. That's roughly a quarter of its Australian production.
The fertiliser plants would remain under Indonesian ownership and operation.
The proposed plant will use two million tones of coal a year from mines in South Sumatra.
Incitec would also investigate the possibility of producing electricity and steam at the gasification plant for use in the fertiliser plants.
The feasibility study is expected to be completed by the first quarter of 2008.
Incitec shares jumped $2.62 after the news to a high of $73.68, before easing to finish at $72.60, still up a hefty $1.70.
