Israel Chemicals to invest $452 mn in Chinese phosphate operations

Israel's second-largest listed company, Israel Chemicals Ltd (ICL), has agreed to invest $452 million in phosphate operations in China as part of its strategy to expand abroad amid mounting domestic taxes on mining companies.

Under the deal, Tel Aviv-based ICL will acquire a15-per cent strategic stake in Yunnan Yuntianhua Co Ltd (Yunnan), one of China's leading chemical companies, with focus on phosphate products and have substantial mineral resources, for about $269 million.

In addition, ICL will also buy a 50-per cent interest in a joint venture with Yunnan that will produce a fully integrated world-scale phosphate production facility in China.

Based in Kunming City in Yunnan province, Yunnan is a 53.8 per cent state-controlled enterprise providing high-quality phosphate products and services across the agriculture and engineered materials industries. The company reported revenues of $9 billion and EBITDA of $570 million in 2013.

The objective of the JV company is to become a leader in phosphate exploration and mining, production and sale of phosphoric acid, phosphate fertilizers and performance phosphate products in China.

The JV will own a rock phosphate mine with a capacity of 2.5 million tonnes of phosphate rock annually for 30 years.

It will also own an integrated world-scale phosphate operation with a capacity of 700,000 tonnes of phosphoric acid, 850,000 tonnes of fertilizers, 65,000 tonnes of specialty phosphates for the food industry and engineered materials markets and approximately 1.85 million tonnes of sulfuric acid.

ICL intends to fund the deal from its internal resources.

The transaction is expected to close in the first of 2016, subject to Chinese government approvals and customary closing conditions.

With its 15-per cent stake, ICL will get two director positions out of eleven in Yunnan's board.

ICL and Yunnan will have two directors each in the four-member board of the JV and one of the directors appointed by ICL will serve as the chairman.

ICL estimates the JV will initially add $500 million to its annual revenue, which will rise to $700 million in four to five years.

The transaction will be accretive to the company's earnings in the first full year of production, ICL said.

ICL's current phosphate mine in Israel is expected to be depleted in about eight years unless the country's government does not extend its mining rights.

According to Israel government's plan, which is yet to be approved by the country's parliament, mining companies will be levied a 25-per cent tax after they reach an annual return on investment of 14 per cent, which will be increased to 42 per cent for a return above 20 per cent.

ICL is in the course of cutting back investment in Israel and expanding abroad. It has shelved a $750-million investment and put another $1 billion under review. It said recently that it would invest $435 million for its expansion of the existing phosphate plant in Spain.