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Incitec down on Roy Hill contract loss

 

Incitec Pivot shares have sunk after the company warned that its profits will take an $81 million hit from the end of a contract to supply explosives and services to Gina Rinehart's Roy Hill Iron Ore mine.

The company announced, after Thursday's market close, that it will cease to be the Western Australian mine's contracted supplier when its current contract expires on February 9.

Incitec expects the contract loss will result in one-off hits of about $5 million in FY2018, $16 million in FY2019, $22 million in FY2020, $18 million in FY2021 and $20 million in FY2022.

It also forecast minimal impact beyond FY2022 and said some of the losses may be mitigated by new commercial arrangements.

The decision to end the contract with Roy Hill, majority-owned by Gina Rinehart's Hancock Prospecting, comes less than a month after BHP Billiton confirmed it would not renew Incitec's contract to supply it with ammonium nitrate prill for its mines' blasting operations.

Incitec at the time said there would be no financial impact in this financial year or the next, as the contract was not due to expire until November 2019.

But, the fertiliser and explosives maker said, it would incur a hit of $10 million on its net profit in FY20 and $25 million in FY21 because of contractual commitments to a third-party supplier in WA.

Shares in Incitec ended Friday down 16 cents, or 4.2 per cent, at $3.70.

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