Well, yes and no.
Yes, Iowa Fertilizer Company held a ribbon-cutting ceremony to celebrate its greenfield at Wever. No, Wever is hardly 100% complete: the ammonia plant is operational, but the downstream plants may be months away.
Nonetheless, both the current and (presumed) future governors of Iowa were there to help OCI’s CEO, Nassef Sawiris, announce that the plant was open for business.
“This is one of the best investments we’ve ever made, clearly. There’s no question about it,” said [Iowa state] Gov. Terry Branstad, who spoke at the plant opening with Lt. Gov. Kim Reynolds.
Des Moines Register, Is Iowa’s new $3B fertilizer plant worth $110M in state subsidies? 04/19/2017
It may yet prove to be a good investment for Iowa, although that’s a controversial point (“state and local incentives alone mean the plant’s permanent jobs cost over $550,000 each to recruit to Iowa”). In any case, I find it hard to believe that OCI could view the Wever plant as “one of the best investments we’ve ever made” – the project that was supposed to cost $1.4 billion has ended up costing over $3 billion, and it isn’t finished yet.
A year ago, in May 2016, IFC celebrated finishing the roads around the plant by hosting what it announced as the First of Many Ribbon Cuttings at IFC. At that time, ammonia production was expected to begin in September 2016 and “any more setbacks in construction of the plant would be deemed a disappointment.” It’s now April 2017 and, while ammonia production has just begun, Wever may be months away from producing downstream products, like urea, DEF, or UAN.
Unhelpfully, the OCI press release says “IFCo has commenced production and sales,” implying that the project is all wrapped-up, which it isn’t. Only in Governor Branstad’s press release do we learn the extra detail that “IFCo has commenced production of sellable ammonia and is in the final stage of start-up for downstream products.” Disclosures at the Electronic Municipal Market Access (EMMA) website are more useful, providing information for bondholders in accordance with regulatory requirements.
According to IFC’s Bimonthly Construction Report, published the same day as the ribbon-cutting on April 19, the “downstream plants have been declared mechanically complete and the various downstream production units are preparing for start-up utilizing IFCo-produced ammonia.” It may yet be some months, therefore, before “preparing for start-up” turns into “commenced production,” for urea and UAN.
From the same source, we learn precisely what OCI means when it says Wever has “commenced production and sales.”
“In the second half of December, Iowa Fertilizer pre-sold 27K short tons of ammonia with deliveries commencing in March. As of April 17th, all of the $10.1 million in ammonia sales contracts have been received and 3.4K short tons of purchased ammonia have been shipped out.”
EMMA, IFC Bimonthly Update Report – April 2017, 04/19/2017
So, two days prior to the ribbon-cutting, Wever had shipped a total of 3,400 short tons of product – less than two days’ worth of production. (For an example of announcements that carry greater meaning, CF Industries informed the public of the completion of each unit of its Donaldsonville expansion separately, in the following three announcements: in December 2015, CF said the urea plant had started up in November and had produced 80,000 tons; in late March 2016, CF said the UAN plant had started in early March and already produced 80,000 tons; in October 2016, CF said the ammonia plant had started in September and had produced 50,000 tons.) I wish OCI every success ramping up to meaningful numbers at Wever.
ONGOING ISSUES WITH CONSTRUCTION
As of April 2017, all the downstream production units are mechanically complete, but only small quantities (200 tons) of urea solution had been produced before that unit had to be shut down for repairs. The nitric acid and UAN plants were supposed to be “ready for startup in early April.” That schedule can, presumably, be taken with a pinch of salt but the downstream units should be ready within the next few months.
These delays appear to come from a long and unfinished list of problems that keep being discovered. For example, in the latest Quarterly Engineer Construction Monitoring Report, posted in February 2017, we learn that “an issue with welding (only on the nitric acid plant) was discovered … X-rays have been performed on 15,000 welds and it was found that 800 needed repair.”
In case it needs to be said, a 5% failure rate for welds on a nitric acid plant is almost indescribably unacceptable.
RESOLUTION OF IRS BOND EXAMINATION
In good news, this month’s bond disclosures also include a notice that the IRS examination into the tax-free status of the bonds has closed, “with no change.”
This was expected, but is nonetheless good news for OCI and all its bondholders.
MERGERS AND ACQUISITIONS, TRY AGAIN
And finally, OCI also announced that it has abandoned its proposed buyout of OCI Partners LP, which owns and operates the ammonia-methanol plant at Beaumont, TX (OCI NV owns 79.88% of OCI Partners LP).
The Conflicts Committee, established to manage negotiations between the two publicly-traded entities, which are both essentially majority-owned by Sawiris, “declined to accept OCI’s proposal.” According to the announcement from OCI Partners, the parties “reached an impasse.”
This means that, in the last 12 months, OCI NV has failed to merge with CF Industries and failed to buy out its subsidiary. What’s the next target?
Full details about the greenfield are in my Research Note for Wever, IA.