Johannesburg - The share price of AECI, the chemicals and explosives firm, rose 4,68 percent or 55c to close at R12,30 yesterday on news that the group had concluded a deal with Sasol for the synthetic fuel group to meet its ammonia requirements.
Sasol is to supply ammonia to AECI, estimated at 160 000 tons a year, for 10 years, and AECI is to close two of its ammonia plants. AECI also announced it had sold 50 percent of its Kynoch fertiliser unit to Norways Norsk Hydro, for R140 million.
Michael Blizzard, the head of communications at AECI, said these moves would complete the fertiliser and explosives restructuring of the group. It still planned to exit part of its retail paint business and sell smaller non-core companies.
The group announced a transformation programme in October last year, subsequent to a failed takeover bid by Sasol for the company. AECI already has a business relationship with Sasol in joint venture Polifin. The group has previously bought ammonia from Sasol.
Blizzard said the drive was to secure a reliable source of ammonia, which was becoming increasingly expensive. AECIs plant in Modderfontein cost about R100 million every three years to maintain.
An analyst said the Modderfontein closure was positive because the company was ridding itself of old technology.
AECI said it would immediately mothball the groups ammonia production facility in Milnerton in the Western Cape, and close the ammonia-urea complex at Modderfontein on March 31 next year. The Milnerton closure will lead to a number of employees being redeployed while the Modderfontein closure will result in about 650 job losses. Closure costs are estimated to total R150 million, of which R90 million will be cash and redundancy costs.
The agreement is exclusively for the supply of ammonia, a key raw material in the manufacture of explosives and fertilisers. Sasol and AECI will continue to manufacture and sell their respective explosives and fertiliser products independently; the arrangement excludes the downstream businesses, where they remain in competition.
"This brings to a conclusion the restructuring of our nitrogen business, which is a key component of AECIs transformation strategy announced in October last year," said Lex van Vught, AECIs managing director.
"At the time we stated our intention to exit the manufacture of bulk commodity chemicals. The closure of ammonia and urea manufacturing facilities is a major step in this regard."
The statement also said that the agreement provided Sasol with a secure market for ammonia that would otherwise have to be exported to a depressed international market that was not expected to improve much over the next three to five years.
As a result of the Modderfontein closure, all urea required by South African users will be imported. It is estimated that about 300 000 tons of urea a year will be needed.