Orica Plans to Build $700-Million Ammonium Nitrate Plant in Pilbara Through JV With Apache

Orica (ASX: ORI) seeks to end Wesfarmers' (ASX: WES) monopoly in the manufacture of explosives in Western Australia by planning to build a $700-million ammonium nitrate plant in Pilbara through a joint venture with U.S. energy firm Apache.

Apache had confirmed on Monday that it plans to purchase a 65 per cent stake in Burrup Holdings, owned by Indian couple Panjak and Radhika Oswal. Apache plans to develop the plant on a land next to an 800,000 tonne per year ammonium project owned by Burrup Fertilisers.

The U.S. firm admitted it is talking with Orica to sell most of its interest in the ammonium nitrate project.

Panjak owns 30 per cent and Radhika holds 35 per cent of Burrup Holdings. Their shares were placed on sale by Australia and New Zealand Bank receivers in a bid to recover $900 million loans of the Oswal couple.

Analysts estimate the deal is worth $600 million, which is lower than the $800 million offer made by Wesfarmers in 2010.

Apache has been the supplier of natural gas to Burrup Fertilisers since the facility started production in 2006. The plant has a yearly production capacity of 760,000 metric tonnes or 6 per cent of the global output of tradeable ammonia.

"After a year of significant turmoil surrounding the Burrup plant ownership, Apache decided to make this investment in order to stabilise the project and secure a long-term economically viable market for our natural gas production in Western Australia," Apache Chairman and Chief Executive Officer G Steven Farms said in a statement.

To meet the growing demand for explosive-grade ammonium nitrate from the WA mining industry, the Wesfarmers board inked a $550-million expansion of its ammonium nitrate facilities at Kwinana, located south of Perth.

With the expansion, Wesfarmers' CSBP production capacity would go up to 780,000 tonnes a year.

Analysts said that Wesfarmers' expansion in Perth would tie up client demand and makes it almost impossible to construct another ammonium nitrate plant in Pilbara. Construction of either the Burrup or Wesfarmers' plant would delay the other by up to five years.