Yara International ASA (YAR), the largest publicly traded nitrogen fertilizer maker, asked Tecnicas Reunidas SA (TRE) to build a $700 million ammonium nitrate factory to supply the explosives ingredient to mines in Pilbara, Australia.
Yara signed a so-called letter of intent for the plant that will produce 330,000 metric tons a year of “technical ammonium nitrate,” primarily for iron ore mines, the Oslo-based company said in a statement today. The contract is valued at about $500 million, Tecnicas, based in Madrid, said in a separate release.
The contract will be transferred to a planned 50:50 joint venture between Yara and Burrup Holdings Pty and is subject to approval from Burrup, which is 35 percent owned by Yara.
Burrup Fertilisers Pty, a unit of Burrup Holdings that’s in receivership, is the subject of competing takeover interest from Yara and Orica Ltd. (ORI), the world’s largest industrial explosives maker. Orica has applied to buy Burrup Fertilisers assets, while Yara is interested in taking full ownership of the company.
An agreement to build the plant “would increase the ties of Burrup with Yara, possibly making Burrup less attractive for other potential buyers,” Tomas Skeivys, an analyst with Terra Markets AS, wrote in an e-mailed report today.
The factory, adjacent to Burrup Holdings’s ammonia plant, will also pit Yara against Dyno Nobel Ltd., the world’s second- biggest explosives producer, and Wesfarmers Ltd. (WES)’s CSBP unit. Demand for explosives in Western Australia is rising as miners including BHP Billiton Ltd. and Rio Tinto Group seek to meet surging demand for iron ore from China, the biggest consumer.
“Yara will certainly enjoy huge cost savings since most of the competition have to transport in,” said Hans-Erik Jacobsen, an analyst at First Securities based in Oslo.
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