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Orica out, Incitec in at FMG

Incitec Pivot (ASX: IPL) has flagged an increase in profits over the next four financial years after being awarded a major contract by Australian iron ore miner Fortescue Metals Group.

Staff reporter

Mets Investor > Stocks-market-insight

Orica out, Incitec in at FMG

Incitec Pivot (ASX: IPL) has flagged an increase in profits over the next four financial years after being awarded a major contract by Australian iron ore miner Fortescue Metals Group.

Staff reporter

Orica out, Incitec in at FMG

Incitec said its Dyno Nobel business had been awarded an explosives products and services supply contract with FMG from July 2018 to December 2023.

"Dyno Nobel is delighted to be partnering with Fortescue," Incitec managing director and CEO Jeanne Johns said.

"We have shared values of safety and a commitment to practical innovation."

The win comes after Incitec ceased to supply explosives and services to fellow Pilbara iron ore player Roy Hill in February.

The loss of that contract and Incitec's contractual commitments to its third-party ammonium nitrate supplier in Western Australia was expected to heavily impact profits out to FY22.

Incitec flagged a A$5 million impact to net profit after tax for this financial year, which remains unchanged.

However, the new contract should have a positive impact of $6 million for FY19, reducing the adverse impact to $10 million, a positive impact of $15 million in FY20, reducing the impact of the Roy Hill loss to $17 million, a $24 million positive impact in FY21, reducing the adverse impact to $19 million, and a positive impact of $9 million in FY22, reducing the negative impact to $11 million.

Meanwhile, Orica said it would continue to supply explosives products and services to FMG until the end of its existing contract term in December 2019.

"We expect the Burrup plant to be very near to capacity from 2020 onwards and do not expect any material change to our financial outlook in FY18 and FY19," it said.

Deutsche Bank maintained a buy rating for Incitec, with the stock trading at a 23% discount to its valuation of $4.40. It maintained a hold rating for Orica, with the stock trading at a 3% discount to its $18 valuation.

 

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