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Omnia shows its confidence in the SA economy through R1.4bn investment in World Class Nitric Acid Plant

Omnia today announced a R1.4bn capital investment in the construction of world class Nitric Acid (HNO3) and Ammonium Nitrate (AN) plant and associated facilities in South Africa to meet growing demand in explosives and fertilizer markets. This demand has been driven by significant growth in South and Southern Africa’s mining sector (11% year on year in South Africa, in spite of economic downturn constraints According to Statistics SA figures released in March 2010). It is also fuelled by an increasing demand for fertilizer to help South and Southern Africa provide solutions to the world’s food security challenge, and drive sustainable development across the Continent.

This will be the first Nitric Acid plant of its kind to be built in South Africa since 1984. It represents a milestone 30 year investment in the development of South African capacity to produce Nitric Acid and Ammonium Nitrate - bringing world class technology to local shores, and guaranteeing the supply of critical raw materials to Omnia’s downstream mining and agriculture businesses.

Commenting on the investment, Rod Humphris, Omnia Group Managing Director, said: “We are seeing significant growth in South and Southern Africa’s mining sector, which is driving increased demand for Omnia’s explosives via our BME division, as well as increased appetite for Omnia Fertilizer products in response to the need for solutions to food security, and energy/resource supply constraints. The growth in both agricultural and mining markets has been driven by international demand and development trends which are set to continue. We have been building the market for ten years and this investment will enable Omnia to meet increased demand in both explosives and fertilizers, allowing us to leverage supply side synergies between these businesses and ensure security of raw material supply by building world class capacity at home.”

Nitric Acid and Ammonium Nitrate are crucial inputs for two of Omnia’s key businesses: explosives and fertilizers. Recent growth in the explosives market has meant that BME demands an ever-increasing portion of Omnia’s existing Nitric Acid plant output. The existing plant is already operating at capacity – which means that the availability of Nitric Acid for Omnia Fertilizer usage has been restricted. As a result, the growth of the fertilizer business has been based on alternative raw material solutions: using urea and other nitrogenous products, as well as sourcing nitrate products from other producers.

These demand factors ensure that the new Nitric Acid plant will be materially loaded upfront (at c. 60-70% of full capacity) with the ability to rapidly meet the existing shortfall and provide further growth capacity for Omnia’s fertilizer and explosives businesses. Omnia is sourcing the plant technology and licences as well as engineering design and critical component supplies from Uhde GmbH of Germany, one of the world's leading engineering companies in the design and construction of chemical, refining and other industrial plants. The plant will produce c. 1,000 tons per day, which equates to 140% of the existing plant’s capacity. The plant is estimated to generate internal cost savings of approximately R280 million per annum (operating at 60% capacity level). Ramp up to full capacity will take place in line with growth in the explosives and fertilizer markets.

Commenting on the investment, Mr Humphris added: “Today’s announcement heralds a significant and much needed investment in the future of South Africa’s agricultural sector, enabling us to add greater value for South Africa’s farmers, while benefitting from supply chain efficiencies”.

The new facilities will be developed in Sasolburg adjacent to Omnia’s existing Nitric Acid plant, which will continue to operate. The Group expects to make significant headway with the project over a relatively short period of time (subject to achieving the necessary approvals) and hopes to bring production from the new facilities on line during the course of 2012.

Omnia has set out to raise shareholder capital of R1bn to partially fund the expansion through a fully subscribed rights offer. In this regard, certain existing shareholders have committed to following their rights and to apply for additional shares in the rights offer, which, combined with further institutions supporting the capital raising, has secured R1bn of equity capital upfront for Omnia.

Furthermore, approximately 47% of Omnia’s shareholders have already approved the capital raising process. Further details of the capital raising is set out in Omnia’s SENS announcement published earlier today. The remaining funding requirement for the project will be covered through a combination of internally generated funds and long-term project finance. Omnia has furthermore secured the participation of Industrial Development Corporate (IDC) by IDC committing R250 million to the R1bn equity capital raising and indicating appetite to fund at least R300 million of the envisaged plant project finance that Omnia intends to raise in due course.

Omnia’s shareholders will have the opportunity to follow their rights in the capital raising in order to maintain their shareholdings, although Omnia will seek shareholder approval to secure a minimum IDC investment of R150m.

Commenting on the funding, Mr. Humphris said: “We are thrilled by this vote of confidence from our shareholders and institutional investors. We would not have been happy to commit to this large investment without securing shareholder and institutional support upfront. Raising the major portion of the capex required through equity leaves us with a very strong balance sheet to take up suitable growth opportunities and be well set for any further volatility in world financial markets, thereby significantly reducing the financial risks associated with embarking on a project of this nature. We are also very pleased to have IDC participating in the funding of the project and for IDC to indicate such significant support on both the equity and potentially the debt side of the total project funding requirement.”

“Omnia is confident that this investment will be highly capital efficient. Omnia is set to benefit from the negotiation of favourable construction contracts during the economic downturn and favourable imported equipment prices achieved on the back of a strong Rand.”

The new facilities will utilise best in class technology conforming to the highest standards of sustainable environmental development. Plant emissions will be significantly below legislation requirements. The facilities will have co-generation capacity, and will generate sufficient energy for their own requirements while contributing c. 50% of the current factory’s energy needs, significantly cutting Omnia’s existing electricity supply requirements.

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