Fertilizer company CF Industries (CF - Free Report) has cut long-term ammonium nitrate supply deals with Orica International Pte. Ltd. and Nelson Brothers, LLC. Orica is a leading provider of commercial explosives and blasting systems for the mining and infrastructure markets. Nelson Brothers makes mining explosives products.
Under the terms of the deals, CF Industries will supply between 700,000 and 800,000 tons of industrial grade ammonium nitrate and ammonium nitrate solution annually for at least a decade starting Jan 1, 2017.
The volumes to be supplied under the deals will require CF Industries to bump up ammonium nitrate solution loading capacity and industrial grade ammonium nitrate production capacity at its Yazoo City nitrogen complex in Mississippi. Reconfiguration of the plant will start this year at an estimated total cost of $65 million. The agreements are expected to account for around 70% of ammonium nitrate production capacity at the plant.
The agreements will offer CF Industries a steady demand for most of the production capacity from its Yazoo City plant. The deals offer Orica and Nelson Brothers access to long-term supply of industrial grade ammonium nitrate and ammonium nitrate solution.
CF Industries will emerge as the primary supplier of these products for Orica and Nelson Brothers for the U.S. and Canadian markets. Pricing of products under the deals will be tied to the cost of natural gas.
CF Industries, which is one of the leading fertilizer makers along with Potash Corp. (POT - Free Report) , Agrium (AGU - Free Report) and Mosaic (MOS - Free Report) , should benefit from declining natural gas costs in North America and a solid start to the domestic planting season. Its Nitrogen segment is enjoying the benefit of abundant natural gas supply.
CF Industries’ acquisition of Viterra Inc's 34% interest in the Medicine Hat nitrogen facility significantly increased its annual marketable nitrogen volumes. The company is also progressing with its capacity expansion projects in Louisiana and Iowa.
CF Industries, a Zacks Rank #3 (Hold) stock, will report its fourth-quarter 2013 results after the close on Feb 18.