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Incitec Pivot Limited (ASX:IPL), based in Victoria, Australia, is a diversified industrial chemicals company engaged in the manufacturing and distribution of industrial explosives, industrial chemicals and fertilizers. The Company primarily operates in Australia and North America.
Today, on 4 May 2019, the Australian energy infrastructure business, APA Group (ASX: APA) announced it has extended the current gas transportation agreement (GTA) with Incitec by three years. The GTA would allow the continuation of operations of IPLâs Gibson Island manufacturing plant. Subject to certain approvals for the gas supply, the GTA will be effective beginning 1 January 2020 and run through to 1 January 2023.
APAâs Managing Director, Mick McCormack, commented and explained that the GTA would enable Australian manufacturers to continue operating and keep hundreds of Australians employed. Also, the two companies have shared a long-term relationship, and APA is pleased to have been able to help Incitec Pivot through the trying times of tight gas supply on the east coast.
IPL had signed a new GTA with APA Group back in June 2018, to deliver gas through some 3,300 km of pipelines to get gas to the Gibson Island plant until 1 January 2020, to keep the plant doors open whilst IPL investigated other gas supply options.
The extension of the GTA is a piece of welcoming news for the 450 employees and their families as well as the local community.
APAâs GTA news comes after IPL secured gas supply from a new permit release near Chinchilla, Queensland. The Queensland Government awarded the licence to APLNG-Armour Energy Joint Venture on the condition that gas produced must be sold to Australian manufacturing businesses.
At the same time, Incitec Pivot informed the market that it had entered into multiple arrangements to allow seamless operations at its Gibson Island plant through to 31 December 2022. These arrangements are subject to Australia Pacific LNGâs receipt of FIRB approval. Gas supply from Australia Pacific LNG would meet the plantâs requirement from 1 April 2020 till 31 December 2022.
Incitec Pivot has also provided insights about the expected financial impact of the continued operation at the Gibson Island plant-
- IPL Groupâs Earnings Before Interest and Tax (EBIT) in FY20 is estimated to increase by ~$ 5 million over the forecast EBIT in FY19, assuming a urea price of US$ 280 per tonne and a foreign exchange rate of US$ 0.69, which approximate current spot prices. The actual EBIT figures would remain subject to sensitivities resulting from changes in realised urea prices and exchange rates, as published by IPL from time to time.
- In addition, the EBIT expectation for FY20 incorporates the impact of a major turnaround required to be undertaken to enable the operation of the plant to December 2022. The turnaround is scheduled to be executed in early CY20 and is expected to last for around two months and cost ~ $ 60 million (depreciated over three years). Gas supply from Australia Pacific LNG will commence following this turnaround.
Besides, with continuous improvements on a broader set of Health, Safety, and Environmental targets, Incitec Pivot is well placed to deliver FY21 targets, as reported in the H1 FY19 financial results.
Source: Companyâs 1H19 Financial Results Presentation
With a market capitalisation of around AU$ 5.33 billion and ~ 1.61 billion outstanding shares, the IPL stock was trading at AU$ 3.330, up 0.301% by AU$ 0.010 with ~ 1,744,617 shares traded at AEST 03:30 PM on 4 June 2019.
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