Why the Incitec Pivot (ASX:IPL) share price slipped on Monday?

a farmer kneels on one leg and closely examines soil from his farm against a blue sky backdrop.

Shares in industrial supplies and chemicals company Incitec Pivot Ltd (ASX: IPL) lost ground today, finishing the session 0.63% lower at $3.13.

At one point, investors were selling the company’s shares in droves, resulting in an intraday low of $3, roughly 5% in the red from the open.

Incitec Pivot shares edged down today following a company announcement on the company’s Gibson Island operations in Brisbane.

The company will cease operations at its Gibson Island fertiliser plant due to limitations in securing an economically viable gas supply to the site.

Here are the details.

What did Incitec Pivot announce?

The company’s announcement notes that, despite its ongoing efforts, Incitec Pivot has been unsuccessful in securing a long-term gas supply to the site.

As a result, the company is closing down operations from December 2022 when its current natural gas feedstock supply arrangements expire.

The decision to close the plant was no doubt a tough one. It comes after more than 50 years of operation and will have a direct impact on up to 170 employees.

Importantly, Incitec Pivot’s Brisbane fertiliser distributor centre is set to continue despite the closure of its manufacturing plant.

Estimated one-off costs for the plant’s closure include an $83.5 million cash charge to close the facility and a $102.5 million non-cash asset write-down.

There is also a potential land sale of up to $45 million. However, this depends on the final investment decision from the company as it may not intend to actually sell the facility.

Instead, the company has commissioned a feasibility study into the production of industrial-scale green ammonia to repurpose the plant.

Incitec Pivot states it is committed to being “the leading supplier of quality fertilisers and soil health services to the agricultural sector”. According to the company, a move to green ammonia would create new opportunities moving forward.

What impact will this have?

The company expects the plant’s closure will have a meaningful impact on its earnings from January 2023. Most obviously, there will no income from the Gibson Island segment.

However, subsidiary Dyno Nobel Asia Pacific is now expected to source 20,000 tonnes of ammonia per annum from other suppliers. This is expected to lead to a $5 million to $10 million per annum impairment for Incitec.

There is also ‘stranded corporate and insurance costs’ of approximately $10 million per annum embedded into Incitec Pivot’s decision to close the plant.

Speaking on the impacts, Incitec Pivot’s CEO Jeanne Johns said:

It is disappointing for our people and Australian manufacturing that we could not reach a suitable commercial gas supply agreement to continue the operation of the Gibson Island facility from processing natural gas, however we look to create new opportunities aligned to the Company’s forward strategy.

Incitec Pivot share price snapshot

Over the past 12 months, Incitec Pivot shares have climbed more than 50% after rallying 37% this year to date.

Nonetheless, it has outpaced the benchmark S&P/ASX 200 Index (ASX: XJO)’s return of around 20% in the last year.

The post Why the Incitec Pivot (ASX:IPL) share price slipped on Monday? appeared first on The Motley Fool Australia.

Should you invest $1,000 in Incitec Pivot right now?

Before you consider Incitec Pivot, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Incitec Pivot wasn’t one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

More reading

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3CW4ZZW

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s