omnia holdings annual report 2010 omnia holdings annu

54 OMNIA ANNUAL REPORT 2010 SUSTAINABILITY REPORT continued
Omnia’s second nitric acid plant complex will boost local supply security
in mining and agricultural supply chains
Foreseeing the possibility of a significant increase in the demand
for mining and fertilizer products in the future and to ensure
local supply security, Omnia is making a R1,4 billion capital
investment in the construction of a world-class nitric
acid complex.
This demand has been driven by significant growth in South and
southern Africa’s mining sector – an 11% year-on-year increase
in South Africa, in spite of economic downturn constraints,
according to Statistics SA – and 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, representing a milestone 30-year
investment in the development of South African capacity to
produce nitric acid and ammonium nitrate. The initiative will
bring world-class technology to South Africa and guarantee the
local supply of critical raw materials to Omnia’s downstream
mining and agriculture businesses.
The growth in both the agricultural and mining markets has been
driven by international demand and development trends which
are set to continue. The high demand in particular in the mining
industry has placed significant pressure on the sector’s supply
chains and subsequently revealed weaknesses in local
supply security.
The pressure on local product manufacturers has meant that
suppliers had to consider sourcing additional product from
overseas. However, importing ammonium nitrate is not a
sustainable solution for the South African explosives industry, as
it undermines the cost-effectiveness and competitiveness of the
local industry. There is also increased demand for nitrogenrelated
chemicals in agriculture and this industry would also be
negatively impacted by constraints on local availability.
Omnia has felt this pressure by experiencing an increasing
shortage of a critical raw material, ammonium nitrate, a major
component required for the production of fertilizer and
explosives, which prompted us to start assessing the feasibility
of building a second nitric acid plant complex. We have been
building the market for 10 years and this investment will enable
us to meet increased demand in both explosives and fertilizers,
allowing us to leverage supply-side synergies between
these businesses.
Omnia sees the plant as a much-needed investment in the
future of South Africa’s agricultural sector, enabling us to add
greater value for South Africa’s farmers. Since Omnia’s existing
plant is already operating at capacity – which means that the
availability of nitric acid for our fertilizer usage has been
restricted – the growth of our fertilizer business has been based
on alternative raw material solutions, such as using urea and
other nitrogenous products, as well as sourcing nitrate products
from other producers.
The plant is one of our biggest investments to date in South
Africa and demonstrates the Group’s commitment to South
Africa’s mining and agricultural sectors.
This second nitric acid plant complex, developed in Sasolburg
adjacent to our existing plant, will produce 1 000 tons per day,
nearly 50% more than our current plant, and is scheduled to
come on stream in 2012.
The plant is expected to start production on the first day of
operation at 60% to 70% of its full capacity, and is estimated to
generate internal cost savings of about R280 million per annum
at this capacity level.
To implement this project, Omnia is raising R1 billion in capital
from our shareholders, who have given us their full support.
It is significant that we have been able to raise 42,5% of our
market cap in the form of additional shares in the turmoil of
financial markets. And to raise it not as a rescue package –
which many companies are having to do – but for growth shows
the confidence that the management, board and shareholders
have in the long-term future of the Group and its growth
prospects. 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.
The remaining funding requirement for the project will be
covered through a combination of internally generated funds and
long-term project finance.
We are confident that this investment will be highly capital
efficient, as the company 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. In addition, about one-half of the
project value will be sourced locally.
The new facilities will use 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 about 50% of the current
factory’s energy needs, significantly cutting Omnia’s existing
electricity supply requirements. This energy saving is important
in the context of South Africa’s power stresses and could also
form the basis of a bid to secure clean development mechanism
funding for the investment.
The new plant logistics also include investment in rail
infrastructure, via state-of-the-art rail tankers, to comply
with best-practice safety transportation standards.