Orica announces ammonium nitrate plant

21 May 2012, 4:35 pm   -   Source: AAP

Orica says it will build an explosives plant to supply the iron ore industry, shrugging off concerns the sector has limited growth potential.

Orica is shrugging off doubts about iron ore demand by pressing ahead with the construction of a $US800 million ($A815.87 million) ammonium nitrate plant in Western Australia.

Orica, together with Norwegian chemical company Yara, and oil and gas explorer Apache are building the plant on Western Australia's Burrup Peninsula, an area rich in Aboriginal rock art.

Ammonium nitrate is the main raw material used to produce civil explosives, which are in high demand in the mining sector and needed by iron ore companies wanting to expand their volumes.

However, there has been a question market over demand of late as the iron ore priced slumped to six-month lows in China last week amid slowing economic growth there, and subdued comments about market sentiment by BHP Billiton and Rio Tinto bosses.

Orica chief executive Ian Smith on Monday described the Burrup project as extremely important for the company.

"Together with our partners, we have a clear vision for servicing the fast-growing Pilbara iron ore market, which is being strongly embraced by our customers in the region," he said.

The plant would lift the iron ore industry's contribution to Orica's earnings from about three per cent currently.

Patersons Security analyst George Galanopoulos said the federal government's Bureau of Resources and Energy Economics forecast 10 per cent growth in iron ore volumes for the next five years.

"Although there have been concerns about the iron ore price and a bit of weakness, the Pilbara is at the low-cost curve and, therefore, I think those projects would still go ahead," he told AAP.

"In terms of the returns you get, there may prove to be a delay in terms of them generating their desired investment returns.

"The other point is that from where Burrup is situated, they can export it from there as well ... I think it makes strategic sense."

The plant has received environmental and Aboriginal heritage approvals from the WA and federal governments.

WA Greens MP Robin Chapple said he was concerned about rising levels of industrial emissions in the Burrup Peninsula, including from Woodside's recently commissioned Pluto LNG project, and the impact these emissions may have on ancient indigenous rock art in the area.

"There's an estimated two million petroglyphs (rock carvings) in the archipelago," Mr Chapple told AAP.

Analysts, however, believe the plant is a good strategic move for Orica given it is close to the Pilbara's iron ore mines the Wesfarmers-owned CSBP's plant, which is a competitor.

Mr Galanopoulos said Orica's 45 per cent share of the $US800 million cost was only about $US360 million.

The contract to build the plant with Spanish company Tecnicas Reunidas was under a fixed price, protecting against blowouts, he said.

Yara also has a 45 per cent stake in the plant, and Apache the remaining 10 per cent.

Orica's shares closedup five cents at $25.24.

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