Yara takes control of Burrup ammonia plant

Yara International ASA (OSE: YAR) has gained a controlling stake in Burrup Holdings Limited after acquiring a further 16% chunk for 143 million USD today on top of its prior 35% holding. American oil and gas firm Apache Corporation (NYSE: APA) has gotten hold of the remaining 49% of shares. The two companies have signed a new shareholders’ agreement.

Apache paid 439 million for its 49% holding, so the per share price that the companies agreed to pay to Australia & New Zealand banking group ((ASX: ANZ) was the same. Apache had agreed to acquire that entire 65% stake that was up for sale last December but Yara had the right to match the bid. AZN thus recoups what it was owned when Burrup Fertilizers went into its receivership last year.

Burrup is the largest ammonia producer in Australia. Its Burrup Peninsula plant in Western Austrilia has an annual capacity of 850,000 metric tons which makes it one of the largest ammonia facilities in the world.

Apache has been supplying natural gas to Burrup since 2005. It has been mired in court disputes with Burrup’s founder Indian tycoon Pankaj Oswal. AZN still has claims against the Oswal family. The rationale for Apache is to have Burrup stay viable and thus secure its natural gas producing operations in Australia as the company entered into a revised long-term supply contract with Burrup last November.

Oswal family is blaming Yara from refusal to support price increases, as Yara also had (and has going forward) a long term off-take agreement for Burrup’s production, and on other issues related to corporate restructuring. They also accuse Apache on attempting to renege on a long-term gas-supply deal entered into nearly 10 years ago at prices far below current market price. They say that the plant is unviable without that cheap energy source. Reaching a cheap long-term gas agreement was certainly vital for Yara going forward.

The companies will also proceed with an investment of a explosives-grade TAN plant with a planned annual capacity of 330,000 metric tons in close proximity of the current ammonia plant. This had been in Burrup pipeline for a while. The project will go forward with 75.5% Yara ownership and 24.5% Apache ownership. Since the site is in the vicinity of Pilbara mining industry and naturally the adjacent ammonia supply, it should have a distinct advantage on other ammonium nitrate suppliers.

Burrup activities will be renamed as Yara Pilbara. Yara says it is happy to now be able to put a difficult period for what it sees as a world-class asset behind. Oswal has been blamed for mixing up company funds with personal interests without proper disclosure. Yara says it will move swiftly to establish Yara’s standards of corporate governance into the enterprise. Yara’s fourth quarter earnings are due next Tuesday.