BHP says it won’t renew a supply deal with explosives manufacturer Incitec Pivot beyond 2019, just as competitor Orica will be ramping up capacity at its ammonium nitrate plant on the Burrup Peninsula.
Incitec Pivot is currently the contracted supplier of ammonium nitrate prill to BHP Iron Ore in Western Australia.
On December 6 Incitec told investors BHP had advised it would not be renewing the contract beyond its current expiry date of November 28, 2019.
While the decision isn’t expected to have any financial impact for Incitec in FY18 or FY19, it will have an estimated net profit after tax impact of $10 million in FY20, and $25 million in FY21.
“These NPAT impacts are estimated on the basis of expected input costs, and may be able to be mitigated to some extent by other commercial arrangements,” the company advised.
Incitec’s share price has dropped from $3.91 on the day of the release to $3.83 a week later.
Meanwhile, competitor Orica’s share price has risen from $17.71 to $18.10 over the same timeframe.
Speculation is rife that BHP could turn to Orica for its explosives, thanks to its 45% share in a new ammonium nitrate plant on the Burrup Peninsula, which is near the iron ore operations of BHP, along with Rio Tinto and Fortescue Metals Group.
Orica owns the Burrup Peninsula plant in a joint venture with Norway’s Yara International.
The plant is set to run at 30%-45% capacity next year, but should be at full capacity by the time Incitec’s deal with BHP winds up. Orica boss Alberto Calderon has, in recent months, named BHP among key iron ore miners targeted by his business.