Dyno Nobel Limited (DNL) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining the call today. I'm joined this morning by Chairman, Brian Kruger; Managing Director and Chief Executive Officer, Jeanne Johns; and Acting Chief Financial Officer, Chris Opperman. As you will have seen from the announcements on the ASX this morning, we have announced an intention to separate IPL into 2 market-leading companies. During today's call, we will run through the rationale for our separation announcement and some of the details around how the separation will work and what it will mean for shareholders in addition to our usual presentation on our half year results. The materials we'll cover today have been lodged with the Australian Securities Exchange and can be found on the ASX and Incitec Pivot Limited's websites. An audio recording of this presentation will also be available on the company's website after we complete today. I draw your attention to the notice on forward-looking statements available in the presentation pack. I'd like to start with an acknowledgment of the country. I'd like to acknowledge the traditional custodians of the land we are coming to you from today. The Bunurong/Boon Wurrung and Wurundjeri Woi Wurrung peoples and the Eastern Kulin Nation. I pay my respects to elders past, present and emerging. Looking at today's agenda, our Chairman, Brian Kruger, will start by talking through the strategic logic of the proposed separation. Then Jeanne will provide some more background about the strategy and opportunity. Chris will then provide details on cost, capital structure and implementation steps. We'll then have a question-and-answer session before Jeanne and Chris will run through our half year results presentation which will also be followed by a further Q&A. We will aim to wrap everything up by about 11:30. I'd like to hand over to our Chairman, Brian Kruger.

Thanks, Geoff, and welcome to everyone on the call. It's a real pleasure to be here today talking about a very significant milestone in corporate strategy for Incitec Pivot and one that we believe will unlock significant value for our shareholders. As you all know, we commenced a strategic review of the fertilizers business in September 2019. And in early 2020, we made the assessment that retaining the fertilizer business was the best outcome for shareholders. That decision was the right one at that time. Since the conclusion of that process, the Board has spent a lot of time working with management and thinking about the best way to unlock value from both of our high-quality explosives and fertilizer businesses, including the option of maintaining the status quo. Over the last 2 years, Jeanne and her team have made very good progress improving our businesses as well as executing on the strategy to drive growth and leverage technology to deliver more value to our 2 high-quality customer bases. We've made substantial investments to improve manufacturing reliability with our regional manufacturing focus, providing increased self-reliance and internal capability for each business. You'll see from Jeanne's presentation that momentum is really building on our precision agriculture offerings across liquid fertilizers and soil health, and there are more upside opportunities and partnerships, including in Australian Bio Fert and the potential Perdaman offtake arrangement. In Explosives, we continue to grow through leveraging our technology in high-quality markets and mining sectors, with the recent acquisition of Dyno Nobel, providing access to attractive future-facing minerals markets in Europe and Africa. With the increasing importance of food security and mining extraction for the world's future as well as the rapid acceleration towards decarbonization and electrification, there is clearly an opportunity for us to accelerate our growth through the development of technology and customer solutions to capture the significant potential in the mining and agricultural sectors. Following detailed consideration, the Board has formed a view that creating 2 separate companies with dedicated Boards, leadership teams and corporate and capital structures will best position both businesses to unlock the significant growth potential. The progress that Jeanne and her team have made across strategy and growth investments, coupled with our overall balance sheet strength, mean that we are now able to pursue a separation from a position of strength. Jeanne will speak to this in more detail later, but it's important to reaffirm that the Board is committed to ensuring both companies are well capitalized according to their different earnings profiles and have the capacity to invest in the compelling growth opportunities both businesses have in front of them. I'd also like to reassure you that addressing climate change and decarbonization will be a core focus for each business and a key accountability for their respective management teams. Our announcement today continues the journey we've gone on for some time. This is about building the future of these 2 great businesses. To get to this point of announcing our intention to separate our explosives and fertilizer businesses, we've undertaken a comprehensive review process and a significant amount of detailed planning, so that we're well prepared and now ready to progress to the execution phase. I'd now like to hand over to our Managing Director and CEO, Jeanne Johns, to talk through the separation rationale and plans in more detail. Over to you, Jeanne.

Thanks, Brian. I'm very excited to be with you today to talk about the opportunity for these 2 high-quality businesses to accelerate their growth ambitions as stand-alone organizations, an explosives company named Dyno Nobel, and a separate fertilizer company named Incitec Pivot Fertilisers. We have 2 category-leading businesses, Dyno Nobel and Incitec Pivot that serve high-quality customers across very attractive and distinct end markets. Importantly, the geographic profile and market characteristics and technical customer requirements for each business are very different. The requirements of our customers reflect advancing mega trends across minerals, agriculture and decarbonization and our businesses are evolving to address these changing needs which are happening at pace. As a result, our businesses have minimal overlap today. And the synergy of the ammonia manufacturing core is decreasing and will continue to do so as our customers increasingly look for specialized and differentiated solutions underpinned by leading technology. There's a long pipeline of growing demand to sustainably and efficiently extract resources critical to the decarbonized future and to drive improved yield and reduce environmental impact in our food supply. Our focus is on accelerating our technological expertise to extend our category leadership. And as Brian said, we believe that creating 2 separate market-leading companies that are well capitalized with strong technology, clear strategies for growth and a commitment to decarbonization will unlock significant value for shareholders. Turning to Slide 10 and an overview of the separation process that will be undertaken by way of a demerger of the Incitec Pivot Fertilisers and implemented via a scheme of arrangement, subject to a shareholder approval. As Brian said, the announcement today follows a comprehensive review process and a significant amount of detailed planning. We are well prepared and are now ready to progress to the execution phase. The businesses are currently run as business units, which will ease the complexity of the separation. The asset perimeter is largely expected to be per the current reported segments with future business options to be decided during the course of the year. We will provide a transaction update at our Investor Day later this year, and our scheme booklet will provide comprehensive detail on the strategy, opportunities for growth, asset perimeter and the capital and leadership structure for both businesses. As you can see from this slide, the attractive and structural trends are contributing to significant growth expectations across our industries over the coming years. Our explosives technology is ideally suited to minerals needed in the energy transition, including iron, copper, cobalt, nickel and met coal. And our technology on the ground today is helping our customers extract increasingly more difficult ore bodies with improved productivity and better safety and environmental performance. In the chart on the right, you can see the growth in Australian agriculture farm production. Farmers are modernizing their practices to drive more yield and our fertilizer business is ideally placed to help them. through our enhanced liquid and biofertilizer soil health offerings. This demand will increase as we continue to help our customers through new technology innovation as well as more infield technical support. And pace will be important. The faster we move, the more we will be able to capitalize on these trends to support our customers. Turning to Slide 12. We, we are well placed to drive value from the previously mentioned mega trends with our category-leading positions in highly attractive markets. Dyno Nobel has leading positions in 2 of the largest and highest quality mining markets in the world, the U.S. and Australia. And through Titanobel, we will be able to serve select high-quality future-facing minerals markets and customers in Europe and Africa. Dyno has a proven track record of technology commercialization and customer take-up with a leading offering on the ground today as well as a pipeline of technology innovation. As we look to the future, there are many near-term opportunities for capital-light growth. Australian agriculture is a large and attractive sector, and we have a well-established and unrivaled distribution footprint on the East Coast, a globally important food-bowl. Our Distribution business has a track record of stable earnings and is now well placed to grow as our precision agriculture strategy gains momentum. Our Manufacturing business makes strong returns through the cycle. And as you can see in our first half result, has captured significant earnings from the upswing in our commodity markets. We have invested to improve reliability and sustainability into the future with the current ongoing turnaround at Phosphate Hill and our Australian Bio Fert joint venture. Our technology and explosives and fertilizers positions both businesses to attract quality customers and grow margins by delivering genuine solutions and value to customers. Here, you can see an overview of our strong technology offering and opportunity, which as we just outlined, is expected to accelerate and benefit from increased focus and streamlined resource allocation. Dyno Nobel's technical solutions on the ground today are market-leading and helping clients improve the performance of their [indiscernible]. We see significant upside from leveraging our technology into new markets and customers as well as the ongoing innovation to drive more value for our customers across their sites. The adoption of technology and innovation in agriculture is rapidly gaining pace and our liquid fertilizer offering, organic biofertilizer investment and soil health services provide significant potential for growth. We are also actively exploring potential partnering opportunities to expand our market footprint through our Perdaman offtake agreement of advantaged domestic supply as well as our green ammonia ambitions. Our technology platform and pipeline and solutions orientation will drive value for our customers as well as value for our shareholders through customer retention and growth, margin expansion, earnings resilience and improved returns through the cycle. I would now like to talk about sustainability. As Brian said in his introduction, sustainability will be a clear area of focus and accountability for both leadership teams and companies. Since we accelerated our short-term greenhouse gas reduction targets and committed to a new medium-term target last year, the team has done a lot of work on specifying key projects and milestones, and we have set them the challenge to be more ambitious about our delivery. While we're not yet ready to speak to specifics, our ambition is to create options that would enable us to increase our emissions targets to achieve Paris alignment by 2030. Pleasingly, our Moranbah nitrous oxide tertiary abatement project has now been approved and is moving into the execution phase. And we continue to progress our other projects and work streams and we'll provide an update during the year. Turning to the next slide. Separation will bring a range of benefits. Each business will benefit from having focused senior management capability and Board oversight with dedicated corporate and strategic functions as well as tailored capital structures. We believe that the additional resources, unencumbered investment choices and a sharpened and dedicated focus on accelerating customer solutions will generate significant value and more than justify the investment involved. Investors will also have increased choice, with the market better able to ascribe value to each company. I will now hand over to Chris, who will cover the cost analysis, how we're thinking about the capital structure and the demerger implementation steps. Over to you, Chris.

Thank you, Jeanne. We've done a lot of work assessing both the one-off cost of the separation as well as the ongoing increasing costs associated with standing up the 2 separate businesses. As always, we will be very disciplined as we move to implementation, and where there's an opportunity to minimize costs without disruption to the business, we will do so. However, a key objective is to make the most of the current environment and continue to deliver some of the strongest results in the company's history. Accordingly, we are focused on minimizing operational discretion throughout the separation process. While a lot of detailed work has gone into the cost estimates, there are estimates influenced by a number of variable factors, which is why we provided you with a range. We will aim to bring that range in over the course of the transaction as we get more clarity. The $80 million to $105 million of one-off costs will be absorbed under our current company structure, with the most significant portion to be expensed in the 2023 financial year, which is determined by the completion timing of the transaction. [indiscernible] the ongoing cost estimate range of $25 million to $35 million. We carefully consider the requirements of each business and we ensure to be allowed for the right people with the right tools to deliver the value potential from both these businesses. The ongoing costs will be allocated between the 2 separated businesses. And as Jeanne has made clear, we see significant upside from having 2 separately run businesses with their own leadership teams, balance sheets and corporate structures to drive accelerated growth from the separation. Moving to Slide 17. And as Brian has said in his introduction, one of our key priorities is to ensure that both companies are set up for success are stand-alone entries. And the strength of our current balance sheet allows us to do so. The Dyno Nobel business with its strong track record of earnings resilience, growth and profitability will be a high credit quality business and is expected to retain all of the group's outstanding bank facilities and bonds and separation. The business will have conservative leverage, and we anticipate the current investment-grade credit rating will be retained. We also set up the fertilizers business for success with a very strong balance sheet. This will be appropriate for the company through the cycle considering annual seasonality and working capital requirements. While there's clearly more work to be done to determine the final capital allocations as well as the dividend policy, we wanted to make sure our intentions are clear about how we are thinking about our capital structure. Turning to the next slide on separation process and time line. Our separation activities have been kicked off and specialist teams are being set up. We are targeting a practical separation of the 2 businesses late in the calendar year, ahead of the shareholder vote in the first quarter of calendar 2023 and formal separation shortly after. We are planning to hold an Investor Day late in the year, and we look forward to providing with a transaction update then. I will now hand back to Jeanne. Thanks, Jeanne.

Thanks, Chris. In conclusion, there's a clear and compelling logic for our Dyno Nobel and Incitec Pivot Fertilisers to thrive as 2 independent companies. Both have market-leading positions in very attractive industries, supported by global mega trends, with clear opportunities for growth through leveraging technology. We have 2 strong businesses, strategic momentum across key growth initiatives as well as the balance sheet strength to set both of these companies up for success to generate more value for customers and shareholders. We will now open up for questions about the separation before going through our results presentation. Operator, we're ready for questions.

[Operator Instructions] I show our first question comes from the line of Andrew Scott from Morgan Stanley.

Maybe a question for Brian. Jeanne, please feel free to jump in. Struggling to sort of get to the 1 plus 1 equals 2. And I guess I wanted to talk about the risk profile for the fertilizers business, I mean the manufacturing business, which is, I guess, the jewel in the crown, it's going to be 90% of profit in the result, just gone, has lost money into the last 3 years, you're going to layer in another $25 million to $30 million of corporate costs in that business. I'd put it to you that business is much better with the stability of earnings that the Dyno Nobel business provides it in the balance sheet flexibility that it also brings.

Yes, Andrew, thanks for the question. There's a few things there. I think the, just one thing for clarity, the $20 million to $25 million will be spread across both businesses. And obviously, as we get further into the process, we'll be able to tell you about exactly how much of that will stay within the explosives business and what the increase cost will be in the fertilizers business. But look, the other thing I'd say is that Jeanne and her team have done a lot of work improving the resilience of the fertilizers business over the last few years. So that's both in terms of working on things like manufacturing the liability, but also looking at opportunities, I guess, to increase the stable earnings base of that business. And things like the investment in Australia Bio Fert, and obviously, whilst it's not a provision yet, things like the offtake arrangement that we've got with the potential Perdaman project, will significantly increase, I guess, the stable earnings base of the fertilizers business. So I think there's been a lot of time to address the risk you're talking about. Chris did touch on the proposed capital structures for both businesses, but -- and so clearly, the issue you're raising around volatility in earnings in the fertilizers business is on our minds, and that's why we're intending to set it up with a very conservative or strong balance sheet to enable it to deal with any volatility in its earnings. So Jeanne, did you want to add anything to any of that?

I think you covered that well, Brian. I think clearly, we have invested in the resilience of the business over the last 2 years, including the current ongoing Phosphate Hill turnaround, which is the largest of its kind and setting that up for a solid, high reliable run. And so both the business are being set up for success, but the question was specifically about fertilizer. And indeed, as you said, we've structured the capital structure to take into account that volatility and seasonality.

Okay. And just one more similar topic. Phos Hill again is the core of what will be the fertilizer business earnings, it's still very much reliant on that sulfur arrangement, and that's something that's out of your control. Is this business going to be continue living on a sort of a 3-year rolling extension basis and be close to -- I'd imagine would be loss-making if you didn't have that. Is there any way to get any certainty or a longer term? Or is it just going to be a perpetual 3-year rolling, hoping for extension on for that business?

Jeanne, I might let you deal with that one?

Okay. Yes. So clearly, you're referring to the Glencore smelter. Part of our sulfur comes from the Glencore smelter today, and that is an important part of the Phosphate Hill asset. This obviously -- Glencore is not in a position to say indefinitely, but we believe the smelter is a critical asset to both Queensland and the Mount Isa communities. And as a result of that, its continued operation has been underpinned in the past, and we have every reason to expect that to continue. The smelter does contribute significantly to government revenues. And I think that shows the importance of this to the community and to the local community. Currently, the smelter has excellent short-term market conditions. And therefore, we expect that we have every expectation that, that smelter will continue to be able to be operating into the future. I mean we did look at downside scenarios just in case. And we did satisfy ourselves that the business was still robust in the downside case, but that is not what we expect.

I show next question comes from the line of Grant Saligari from Credit Suisse.

I guess I've similar questions around Phosphate Hill. Given that, that is one of the main assets that will be underlying the fertilizers business, can you just talk to some of the parameters around Phosphate Hill, like duration of the gas contract that you currently have? We've just discussed sulfur, but it'd be good to understand I guess, what sustains the cost position of that key asset in the fertilizer business.

Yes. Yes. I think it's a fully integrated asset, which I think, in this era of security of supply, is particularly important. Almost all of its major inputs come from Australia. The gas comes from northern territories. And obviously, it mines its own phosphate rock. And the sulfur as we discussed mostly comes from Australia, whether it's coast or from the Glencore smelter. So some of its strategic advantages are obviously in this environment, the cost of gas from the northern territories is quite competitive with buying ammonia, which is currently being priced in higher-priced gas due to the European situation. And that full integration value is part of its advantage. So we position it. We aim to get at the 50% on the cost curve, which is a good place competitively for it to be because that allows it to pretty much break even at bottom of cycle but in times like this, to make significant profit.

Okay. And Gibson Island, I assume that, that is -- there's no statement otherwise that it wouldn't be closing at the end of this calendar year. Is there any feasibility at all that, that could remain at least an option for the new business? Or is that 100% determined to close? What might change that, please?

Yes. I think our plans for Gibson Island are well advanced. We made the difficult decision last year when we were unable to obtain competitive gas supply for it, and those plans for closure are well advanced. We don't see anything on the table today that would change that. We are pursuing green ammonia options for that facility, as you know. And that facility will remain important. It's a major dispatch point for the fertilizer business, but we don't see it change.

You have a quick water, Jeanne. Just maybe I'll just add that. Obviously, the knowledge about the closure and the potential for the green ammonia projects we have factored into our thinking about optimum capital structures for both businesses. So again, it's the beauty of that having the [indiscernible] means we can take that into account with our planning.

I show our next question comes from the line of Richard Johnson from Jefferies.

Can I just go back to the first question that Andrew asked. I mean when we think about it, you try to sell the fertilizer business right at the bottom of the cycle a couple of years ago. Now you're trying to spin it out when, I think it's pretty clear we're at the top of the cycle. I was just wondering what message that actually gives us around what you think about the fertilizer business.

Yes. Richard, I'll take that while Jeanne is still recovering from the cough. So look, just I think the separation rationale has been very good. I mean that was why we looked at the potential sale of the business a few years ago. I don't think anything has changed there. What has changed from our perspective in terms of the timing, there's probably 2 key issues. One is all the work that I said that Jeanne and the team have done about improving the fertilizer business. And that's, as I said earlier, it's about manufacturing reliability, in particular, Phos Hill, and also some of the other initiatives which we've been progressing, the Australian Bio Fert, all the work we're doing around and hence, efficiency, fertilizers and those sorts of opportunities. So in terms of the business strength irrespective of where we are in the cycle, we think that's a better -- that's sort of one of the key drivers of the timing. The other thing that I'd say is that -- we touched on this a bit already, but we are conscious of the challenges for seasonality and [indiscernible] business. And we do think it's critical that it is set up a balance sheet that enables us to be successful irrespective of where we are in the cycle. And we are now in a position that we weren't in a few years ago, where we have the balance sheet strength to be able to do that with a demerger. So they're probably the 2 key issues that I would reference in terms of timing. It's really got nothing to do with where we are, in particular, in the commodity cycle.

That's helpful, Brian. Just while you're on, I mean, on the timing issue, perhaps you could expand that a little bit given you've made the announcement today about the emerging business, but it's very, very light on detail on critical things around management, capital structure and the like, which are obviously essential to form a proper view on what it's going to look like.

Yes. So look, Chris has touched on the capital structure to try and give you a few ideas there, and he might want to just come back to that in a second. In terms of sort of Boards and management teams, we're very well progressed with Board candidates for the fertilizer business. So hopefully, in the near term, we can be talking to you about exactly what that looks like. And obviously, those new directors will be involved in some of the key executive appointments in the business. I'll just take this opportunity, though, to praise, I guess, the existing executives within the fertilizer business have done a wonderful job getting us to this point. But to say, clearly, the new Board will want a level of involvement in making those key executive appointments. The other thing I'd say is that we are planning an Investor Day. I'm just looking at Chris, I think, late August, early September time frame. And by then, we will have done a lot more work to address a number of the detailed questions that will help you, I guess, firm up your views about where things are at.

That's helpful. And just a couple for Jeanne if she's got her voice back.

Yes, I do.

Okay. I hope you're okay. When I think about the ongoing Dyno business and when I think about the work you've been doing on sort of implicit valuation while you've been going through this process, I was just curious to know what assumption you've made in the Dyno business as to what proportion of that business will effectively be exposed to ag?

It's actually a fairly small portion in the Dyno Nobel Americas business. We have, obviously, our Cheyenne facility is a swing facility between explosives and ag. And that actually provides us flexibility, which is quite helpful to balance out our ammonium nitrate flows. And so it's a pretty small percentage of the remaining business that would be -- have any exposure to ag and it's strictly limited to the U.S. business.

No, no, I'm aware of that. But if I think about a vast proportion of ammonia effectively -- ends up in an ag and ag customer plus you've got St. Helens, which is obviously making a huge one. Effectively, what I'm asking is what price assumptions have you assumed when you've been doing your valuation exercises for the agricultural inputs that the Dyno business will be exposed to on an ongoing basis because it will still be relatively cyclical when you compare it to other explosives businesses.

I think the major one is, as you say, is Waggaman, but that one we did build to underpin inflows into Cheyenne and LoMo and to make ammonium nitrate. So it will have a bit more cyclicality but I think it's -- it will be much reduced from the IPL today.

Okay. So just to confirm that you did not assume current pricing in your valuation exercise.

No. I mean the -- no, we did not assume current pricing. I think the separation benefits are not based on a commodity price cycle. They're based on the strategic, logic and the ability to pursue the individual strategic goals.

Okay. Got it. And then just on, again, on valuation, I mean, what does Dyno Australia look like post the step-up in gas costs at Moranbah?

Well, we're still -- it's a number of years out. I mean, to be honest, it doesn't have much to do with the separation. That exists regardless of it's part of IPL or in the separation, but we have gas supply for a number of years. I think it's out to '25, '26, and we're pursuing the options for that renewal when that takes place. And so we're not in a position yet to say what that looks like, but we're well progressed in those conversations.

Right, and then just final for me...

Sorry, Richard, can I interrupt you up there for 1 second.

Yes. Of course.

Because it's interesting, I've just been reflecting on the questions you're asking it. It actually goes through another key benefit from the demerger that we see, which is that one of the things that will happen here is investors will be able to make their own choices about all those key inputs that you're talking about and form their own views on value and make a decision about which of the companies they want to invest in. So it's those particular specific forecasts, in my mind, aren't particularly relevant to whether or not the demerger is a good idea. It's actually the fact that investors can form their own views on those things is relevant.

I completely agree with you, Brian. I was just trying to get a sense of where, as a Board, you, what angle you were coming out from, but that's fine. The last question I've got is probably for Chris. Can you just confirm that any remediation liabilities that sit in fertilizer, particularly thinking about Gibson Island just move on with the new fertilizer company as on stay with Dyno.

Yes, yes, that will be the case, Richard. They very well understood and nothing much has changed from what we've said before in our financial statements reflect that clearly.

Again, Richard, it will be factored in and has been factored into our thinking about the capital structures for both businesses, those sorts of costs.

Yes. Got it. Thanks. Just trying to clarify that. So that's very helpful.

No problems. Appreciate the questions.

And just noticing the time, we'll have time for one more question, and then we'll go on to results. And we'll have another question-and-answer session at the end of the results.

Okay. I show our last question in the queue comes from the line of Daniel Kang from CLSA.

Just probably a question for Brian. In the process of making the decision to demerge, did you look through the potential of a trade sale? Or is this still a possibility?

Yes. Thanks, Daniel. We -- obviously, we did. I think one of the, there's a few benefits, I think, from a demerger that meant that, that is the path we've decided to pursue. One of them is around certainty. I mean, obviously, we've got to go through some approval processes and all the rest of it. But going through a demerger process does give us the certainty that we can achieve the separation and the benefits that come from the separation. And the other one, it's interesting when we were going through the initial process in 2019, we were getting, and I was getting very different views from shareholders about the value of the fertilizer business at that point. And again, one of the other benefits of the merger to go is that shareholders can make up their own minds about where they see the value of this business and can make their choices based on that. And that's not something that we're able to provide if we go down the trade sale part. Now having said that, and I don't want to sort of sway things, but we are definitely heading down the demerger basket clearly. If there's trade sale opportunity or an offer that comes along, we will have to consider that. And if we believe it's in the best interest of shareholders, we pursue that trade sale. But just to reiterate, at the moment, our path is very much on the demerger part.

Got it, Brian. So just to confirm, the trade sale path was explored in more detail back in 2019, not in the current period.

No, no. We've absolutely revisited again when we looked at the options here, First of all, exploring whether or not we thought a separation was in the best interest of shareholders. And clearly, our conclusion to that was yes. But we obviously then revisited what's the best way to make that separation happen. And I'll just talk you through why we think a demerger is a better option at this point than a trade sale. But the door is open, and we'll consider it all the way up until the demerger takes place.

Got it. Makes sense. Okay. And just finally, just in terms of the fertilizer business on a stand-alone business going forward, the major CapEx is likely to be the green ammonia development. Any further progress on the likely CapEx requirement for that development?

I might let Jeanne have a first crack at that one? Jeanne, you might be on mute, I think. Sorry, you started coming through. It's just a delay.

Okay. So yes. Yes. So, we're making good progress on exploring the green opportunities. And really, the amount of capital is very much dependent on the commercial arrangements and the structure that's put into play. So there's quite a few different options and whether that's actually capital from us or the fertilizer business is yet to be determined. But like I said, we're sort of at the, we're looking to get to the end of feed by the -- sort of about the end of the year per plan, and we'll have a better idea at that point.

Daniel, I might add to that. So looking at the asset as it is today, so we -- as we said before, we're about to -- already in the middle of subduing our turnaround at Phosphate Hill. So that cost has already been good, and that sets up the plan for the next 4 years. So the asset, as you know, it, and the capital profile of that remains unchanged. Okay. Look, just before we hand back to, I'll hand over to Jeanne and Chris to run through the half year presentation. I just want to, again, thank everybody for your time and your questions. It's always really helpful for us to get the questions and understand your points of view and what's on your mind. I would say that both the Board and the executive team are really excited about today. There is a lot of work that's gone into getting us to this very important milestone in IPL's history. But we do think it's a decision that will be extremely positive for shareholders, the customers and our employees, and we're all very much looking forward to getting on with the execution phase of the project. So thank you all again. With that, I'll hand back to Geoff.

Thanks, Brian, and thanks, everyone, for your questions so far. We'll now move on to our half year results presentation. After which, Jeanne and Chris will be available for another Q&A session. I would like to thank our Chairman, Brian Kruger, for joining the call this morning. And now hand over to Jeanne for the -- to run through the results.

Well, thanks, Geoff, and turning now to our half year results. As we always do, we'll start with Zero Harm, our #1 priority across everything we do. We've stepped up our focus on safety following the challenges associated with COVID. And we're starting to see this reflected in our metrics, which, while not yet down on a downward trend yet, have stabilized. Our leaders are back on-site and more visible as COVID-restriction travels are easing, and we've rolled out a refreshed company-wide behavioral safety program, Safe Teams. We're also introducing additional targeted global programs such as [ Safe Hands ] to address the most common injury type. Looking at our overall Zero Harm scorecard, our total recordable injury frequency rate is disappointingly above our target. And we're stepping up our efforts to get this down in the second half. We're really pleased with our performance on environmental incidents which follows our continued work on environmental compliance across our business. More broadly, we've continued to see strong reporting discipline, which helps us improve our hazard identification and safety awareness. Turning now to an overview of our first half result, a record result for the IPL business, with earnings of $568 million, net profit after tax of $384 million, a strong uplift in return on invested capital and a significantly stronger balance sheet position at period end. Our strong cash generation is expected to pull through in the second half and continues to position the business for growth and pay attractive dividends. In addition to capturing the upside from the very strong commodity price environment, we made excellent progress on a number of strategic initiatives, which position our business well for future growth. The strong performance of our underlying businesses reflects a sharp focus on execution in the high demand but also a disrupted market as well as the quality of our 2 category-leading businesses with attractive end markets. This enabled us to capture the positive commodity price and foreign exchange tailwinds as well as managing inflationary pressures and supply chain complexity. Dyno Nobel delivered solid volume growth with margins continuing to reflect our high-value technology. And our fertilizer business performed very well in the first half and is well positioned for the second. We also progressed some important strategic initiatives with the Titanobel acquisition, enabling us to serve select high-quality markets, initially in Europe, and then in Africa, with a great opportunity to marry our technology with customers in future-facing minerals. In fertilizers, we continue to strengthen our base business for performance through the cycle. We made good progress on our soil health strategy with our Australian Bio Fert joint venture progressing well and Perdaman moving closer to a final investment decision. It's also been a busy year progressing our sustainability strategy. We are redoubling our efforts to investigate options that would allow us to achieve Paris alignment by 2030, and we have green ammonia partnerships with world-class partners Fortescue Future Industries, Temasek and Keppel Infrastructure, with all advancing the work plans according to their time lines. Turning to the next slide. We've also made good progress with our Manufacturing Excellence strategy. The transition to our regional model is functioning well with the responsibility for our manufacturing performance now sitting with the heads of our fertilizer and explosives businesses. Waggaman has returned to full production in line with the time line outlined in our most recent market update. And the turnaround at Phosphate Hill is on track with planning for Cheyenne to around later in the year well progressed. The $40 million to $50 million benefit in FY '23 onwards from our improved plant reliability is now firmly in sight with the current turnaround schedule due to be largely complete by the beginning of FY '23. Our manufacturing strategy is not just about our plans running well, it's also about being able to offer our customer security of supply, which has never been more important to our customers than it is right now. Turning to look at technology, which, as I mentioned earlier, will be an important growth driver across both businesses into the future. In our Explosives business, customers continue to adopt our premium technologies to improve their outcomes across productivity, safety and environmental footprint. Coupled with security of supply, technology will increasingly be a differentiator as customers encounter more challenging ore bodies. Sales of our electronic initiating systems have grown by 21% on CAGR since 2018, with premium emulsions up 15% over the same period. Overall emulsion volumes were marginally down in this first half due to timing and seasonality issues, but we expect this to recover strongly in the second half. On the back of a successful CyberDet I rollout, we're excited to be progressing with the next step in surface automation in CyberDet II. Field trials in this next generation of wireless technology are scheduled for later in FY '22. While wireless is still a niche application, it's an important part of our broader offer to our customers. As demand for ore and rock continues to grow, more sophisticated blasting solutions are required, and this continues to be reflected in increased interest in Delta-E emulsions. We're expanding our Delta-E fleet to meet this demand with 126 vehicles now in service. In our fertilizer business, as you can see from the graph here, our precision agriculture strategy is gaining momentum. Sales of liquid fertilizers are up 25% on the previous corresponding period. And farmers looking to invest in their soil health are increasingly turning to our Nutrient Advantage services. Our last soil test helped farmers ensure a healthy nutritious soil that optimizes crop yields without wasting nutrients, leading to sustainability improvement. I will now hand over to Chris to run through an overview of our group financial performance. Over to you, Chris.

Thank you, Jeanne. Our first half results for 2022 is the strongest first half earnings for the group on record with group revenue up 48% and earnings before interest and tax increasing fivefold compared to the prior corresponding period. The group was well placed to capture the upside from the commodity upswing and favorable currency movements through our manufacturing capability. We also continue to grow customers and margins from our strong technology offering in explosives, and we are also seeing signs of recovery from COVID-related slowdowns in our international businesses. Our fertilizer distribution result was again solid despite extreme commodity price volatility and heavy rains along the East Coast of Australia, delaying fertilizer application for the winter crop. Like most companies, we are seeing inflation and supply chain cost pressures, especially in North America. But in the second half, we expect the inflationary impact will be broadly mitigated by price increases and energy surcharges being on charge to our customers with many of our contracts allowing for this, albeit with a lag. Our strong result was further supported by reduced borrowing costs, which were delivered through the repurchase of bonds last year and our lower average net debt balance. Tax expense was up primarily driven by our higher earnings, which was also the reason for the higher effective tax rate. IPL will pay a fully franked interim dividend of $0.10 per share payable in July. Our dividend reflects a payout ratio at the upper end of our policy at 51% and we are very pleased to be able to return $194 million of capital in a tax-effective manner to our shareholders. The strong group financial performance has supported the significant increase in one of our key performance indicators, return on invested capital, which now sits at 10.1%, up from 3.2% in the prior corresponding period. Turning now to cash flows. Our group cash flow performance this half reflects a significant increase in underlying earnings, with earnings before interest, tax, depreciation and amortization up $465 million to the highest ever first half EBITDA of $751 million. We invested in our seasonal fertilizer stock book that peaks in March each year, noting that it was exacerbated this year by decade-high commodity prices. The result was an operating cash outflow of $79 million, an improvement of $24 million compared to the prior corresponding period. We're expecting second half earnings to be strong and cash flows to also be aligned with that. It is worth noting that we already sold through most of the fertilizer inventories that were held at 31 March, and soon realized an excess of $60 million of earnings from unsold manufactured ammonium phosphates on-hand at the half year. We invested $36 million during the half in growth initiatives to support new business wins and plant efficiencies. This investment in technology and explosives mobile delivery units will continue to support strong margins in the future. The lower sustenance capital spend reflects the timing of our major turnarounds at Phosphate Hill and Cheyenne in the second half of this financial year. We expect that our sustenance capital spend for the financial year will be unchanged from our previous outlook at $370 million. The timing of land sales of $50 million is now more likely to settle in financial year 2023. Our closing net debt balance increased by $382 million during the period for the reasons covered earlier. However, we expect that strong second half cash flows will significantly reduce our net debt position at year-end. Now turning to the balance sheet. We have made good progress continuing to strengthen and simplify our balance sheet over the last 6 months and we will continue to maintain a strong balance sheet through to the proposed separation in 2023. We made a significant improvement in our leverage and interest cover ratios compared to the prior corresponding period. with net debt to EBITDA down to 1x. We now have significant headroom in our key credit metrics. Importantly, there was continued reduction in our financial indebtedness which includes working capital facilities, and our expectations are for an ongoing reduction as we capture significant value from the commodity cycle. As I mentioned before, our trade working capital balance increased compared to the prior corresponding period, which I would like to explain in a bit more detail now. Approximately $350 million of the total $457 million increase in working capital was primarily the function of higher commodity prices on the value of inventory and accounts receivables balances, most notably in the fertilizer business. Noting that the volume of fertilizers stock finance was down as we are managing our purchasing in a prudent manner during these times of high price volatility. While not significant in value, we have incrementally increased strategic stock balances in our explosives businesses for long lead items to ensure that we can continue to supply our customers. We also reduced our usage of working capital facilities by $92 million compared to the prior corresponding period in line with previously communicated plans to reduce our reliance on these facilities. Pleasingly, our underlying trade working capital as a percentage of revenue decreased from the prior corresponding period. This highlights our continued focus on working capital efficiency despite global supply chain challenges. Our liquidity position is strong with undrawn facilities of $756 million with the first debt maturity in 2024. Our average tenor of debt was 4.6 years at 31 March. As mentioned earlier, we expect to achieve practical separation by late this calendar year. We will continue our strict cash discipline and allocation principles as we proceed to set up Dyno Nobel and Incitec Pivot Fertilisers for long-term success. I will now hand back to Jeanne to run through the business performances of our category-leading businesses, Dyno Nobel and Incitec Pivot Fertilisers. Thanks, Jeanne.

Thanks, Chris. And I'd now like to move on to the segment, operating performance. We saw strong underlying market conditions, technology-driven volume increases and new customer wins across our Dyno Nobel Americas business. The improved financial performance at Waggaman and in Ag & IC reflect both higher volumes and very strong commodity pricing. Incitec Pivot Fertilisers benefited from solid production campaigns and very strong realized commodity pricing. Technology-driven growth was strong across both Dyno Nobel and Incitec Pivot Fertilisers with our premium product portfolio continuing to drive share and good momentum in technology innovation. I will now speak to the performances of the individual business units. Dyno Nobel demonstrated its leadership in the U.S. market with volume growth across all sectors with growth of 20% in earnings in constant currency. Our Quarry & Construction business delivered a standout performance as customers continue to value our premium product suite, which is well suited to the unique dynamics of the sector. Our margins expanded 100 basis points, supported by continued growth in technology and improved ammonium nitrate manufacturing reliability at our Cheyenne and Louisiana, Missouri plant as well as a strong focus on cost discipline. All these factors more than offset the impacts of inflation in this first half. As Chris mentioned, in the second half, we will see increased pass-through of inflationary pressures through our price increases and price reset. In terms of the underlying market momentum, we expect strong market conditions to continue in the second half, underpinned by infrastructure spending in the Quarry & Construction sector, gold and copper production driving growth in Base & Precious Metals and elevated natural gas pricing supporting demand for coal. We're very well placed to continue enhancing our market position through volume and technology growth and security of supply for our customers in the large and attractive Americas market. Turning now to Waggaman and Ag & IC The improved performance at Waggaman reflects a significant improvement in the ammonia price, which was partially offset by a higher realized gas cost as well as higher production and sales volume in the first half of last year when the plant was off for 14.5 weeks. We were very disappointed with our February incident, which resulted in 8 weeks of lost production. However, Waggaman has been operating efficiently at nameplate since the restart. We are well progressed on the insurance claim under our property insurance policy. The cooler at Waggaman has been performing very well, which allows the delay of its replacement out of FY '22 and coordinated the boiler installation for steam independence in FY '23. Our Ag & IC performance also increased on the back of favorable urea pricing and improved reliability at St. Helens following its turnaround last year. Moving now to our Asia Pacific business, which also performed very well, with volume growth captured across all markets and a 13% increase in EBIT. Our performance in Asia Pacific was supported by new customer wins, strong technology growth, a recovering Indonesian market and the positive unwind of previously disclosed contract pricing in Western Australia. We have strong momentum going into the second half and we'll continue to mitigate inflationary pressures with pass-through to customers. We are continuing to make strong inroads in the Australian market with our premium product suite and technology partnerships with the world's leading mining companies. Our customers are valuing our range of technical solutions with trials progressing of our CyberDet wireless system in Australia. The outlook for our key markets is positive, with demand for met coal out of India, Europe and South America supporting Moranbah’s sold-out position. Iron ore production is expected to steadily increase over the coming years with continued growth in technology take-up, and we expect to see a continued recovery in international markets following the COVID downturns. And we're very excited to be welcoming Titanobel into the Dyno Nobel family with Titanobel beginning to contribute to our financial performance for May of 2022. We're very encouraged by the early-stage leads for our technology that we are seeing from our European customers in both current and future facing minerals markets. Now turning to our fertilizer business, which reported earnings of $275 million in the half. Favorable commodity prices enabled us to capture significant EBIT upside in manufacturing with further benefits to flow through in the second half, and we delivered a solid result in our distribution business. While market conditions were strong, there was some delay in application rates following the rain in New South Wales and Queensland and farmers delaying purchasing due to high prices. Margins on distributed products were slightly impacted by this timing initiative and our ongoing investment in the network. At this point in our cycle, we are managing our distribution business prudently, balancing volume opportunity with pricing risk. Gibson Island has played an important role in supporting Australian transportation industry in recent months, and we will continue to work with the government on AdBlue supply arrangement until we wind down our operations with our closure plans by December 2022 well underway. In fertilizer, we have a solid base distribution business, which is well placed to grow in the future through our Precision Ag strategy, which is gaining momentum as well as a manufacturing business that generates strong profits through the cycle. The outlook for the Australian fertilizer application conditions remained strong. Turning now to the outlook. We have 2 strong high-quality businesses positioned and strengthened for sustainable growth. The growth in our explosives business which is underpinned by our leading technology and supported by our ability to supply our customers is more than offsetting inflationary and supply chain pressures. And the nature of our conversations with customers has really shifted. Just last week, I was speaking to one of our major customers and their focus was all about security of supply. In the Americas we are well placed to drive continued earnings growth across all sectors in the second half. And in Asia Pacific, technology will continue to underpin our growth. In fertilizers, we're well positioned to capture the commodity upcycle and favorable farming conditions in the second half, leveraging our quality distribution footprint on the East Coast of Australia. Our Precision Ag strategy is gaining momentum and will underpin future growth and improve performance of fertilizers through the cycle. Across the business, we are well placed to deliver strong manufacturing volumes to capture the commodity upcycle in the second half. So in summary, the work we've undertaken over the last 4 years to drive technology growth and differentiation, improve manufacturing reliability, progress our sustainability agenda and pursue low capital, high return growth, positions both Dyno Nobel and Incitec Pivot Fertilisers for success as stand-alone companies. Both businesses are well placed to capture value from the current commodities upcycle as well as to participate in the mega trends driving growth in the minerals and agricultural sectors. Our focus in the second half will be to continue to drive our strategy across growth, technology, manufacturing excellence and sustainability, while staying razor sharp on execution to deliver the upcycle earnings opportunity. We will do this while progressing our plans for the separation to unlock significant value for shareholders from these 2 high-quality businesses. We look forward to providing an update at our Strategy Day later this year. And now I'll open it up for questions. Operator, over to you.

[Operator Instructions] I show our first question comes from the line of John Purtell from Macquarie Group.

Just had a few [indiscernible] Chris. I just had a few brief questions. Jeanne, just in relation to WALA firstly, are there any learnings or actions out of the recent issue in February that reduce the risk of this happening in the future?

Yes. I think on the February incident, as disappointing as it was, was a one-off. It was due to poor initial installation of a particularly tricky piece of piping. And we underwent quite a lot of due diligence to check other potential areas where this could be of concern, and didn't find any. So there's nothing that, that we're aware of that would make us expect anything but a good run at nameplate for Waggaman going forward.

Just a second one in relation to Dyno Americas. Just looking at the end markets there, obviously, Q&C and coal were the strongest, base metals was up 2%. Any reason that metals demand is not stronger there because that market, obviously, commodity prices are fairly buoyant and that market does look to be recovering from COVID?

Yes. I think, John, I think we've said in the past that for us, the Base & Precious Metals growth will be above-market over the long term. But any given year, they may be higher or lower. And that's just based on the individual mines that we service. So we are seeing robust demand across Base & Precious Metals. We do expect it to continue to grow, and slightly lower growth in this half followed last year where we had an extraordinarily high growth rates, but it was just related to a single mine that did less production due to a single mine issue.

Got it. And last question for Chris. The increase you saw in working capital there in the first half. Do you expect all of that to reverse in the second half? I mean that's typically what we've seen or pretty close to it historically. So should this year be any different?

John, yes, there shouldn't be any different to what you've seen in the past. And as I mentioned when I spoke earlier, we've already seen a significant proportion of stocks that we had on hand sold through in the last couple of months. So we expect that certainly all of our stock position and our profit and stock at the half year will reverse in the second half, and that will be the driver of our very strong cash flows, which will flow through into our balance sheet and by the year-end.

I show our next question comes from the line of Brook Campbell from Barrenjoey.

Just firstly, on the cost per tonne at Phosphate Hill. If you can step through perhaps what the moving parts we should be thinking about in the second half of FY '22 there? And if you can provide an indication or a figure of what the cost per tonne should be sort of before and after the turnaround?

Brook, I'll take that. I'll give you some of the high-level points rather than through every single moving part. Geoff can do that afterwards. But I think it's worth going at the most significant driver in that step-up of cost is sulfur and sulfuric acid, remembering we procure about half of the plant usage, either in the form of sulfur or sulfuric acid. So that alone is in the region of $60 a tonne for the half. You need to keep it in context there. If you can harvest higher sulfur costs, you get significantly higher debt price. So you need to look at both sides of the equation. Also, the plant production was slightly less. We ran at around 85%, 86% for the half. So that's driving some plant inefficiencies. And lastly, there's some tailing dam depreciation that kicked through in the first half. Now as you said or alluded to, you should probably have a bit more inefficiency through the second half with Phosphate Hill because the agri turnaround will obviously impact on the plant efficiencies, cash issues, those types of things. So you should expect -- or expect a slight step-up from where we saw at the half year.

Okay. Great. And moving to explosives in North America. Can you talk through sort of recent recontracting that you've been doing there with your book? Are you seeing a good step-up in margins given the ammonium nitrate price over gas? If you can provide some commentary around that, that would be great.

Yes. I mean I think in North America, we tend to have ongoing contract renewals every -- all the time. And clearly, the new ones are being priced in the new ammonium nitrate world, which is a higher-priced ammonium nitrate. So clearly, those costs can be passed through, and a lot of our existing customers allow pass-through of certain costs as well. But ammonium nitrate is clearly more scarce than it was in the past and the price has gone up, and that's been reflected in new contracts.

Okay. Great. And let me just squeeze one more in. What was the impact to the North America explosives EBIT in the half, if at all, because of the outage at Waggaman, given I presume you would have to procure ammonia at a higher price for the period Waggaman was offline?

Yes. Brook, I speak, it's not for explosives. So as part of Waggaman earnings, we've showed that the impact for the half is lost earnings of USD 96 million. We haven't broken up the detail of the components, but that $96 million includes both repair costs and loss margin and the like. So reminding you this it was out for another 2 weeks in the second half of the year. So all up, the impact was USD 128 million, reminding you that we're currently pursuing an insurance claim and that we're expecting that to be resolved during the second half as well.

So our next question comes from the line of Richard Johnson from Jefferies.

Jeanne, I just wanted to ask you a question about your ROIC given you're coming off record earnings, so the ROIC as just over 10%. And given your announcement on the demerger, it would be very helpful if you could just give us a very broad idea what the ROIC is by operating division.

Yes. We haven't spread that -- separated that out historically. Clearly, a lot of the overall lower ROIC than you might expect is due to the goodwill that was associated with the Dyno Nobel acquisition, and that's largely put into the 2 Dyno -- that is put into the 2 Dyno companies. So I think that gives you some idea of the relative ROICs that you might see.

Okay. And then Chris, I was wondering if you could just talk a little bit about the lag, the ammonia price lag. If I look at the second quarter realized price, and obviously, you were operating for the whole of January. So it was a 1-month lag. It looks like the discount is going to be near 20% than 10%, which I understand is not right. So it suggests to me the lag is a lot longer than 1 month. Is that right?

No, Richard. So the lag was roughly a month. So if you take the last month out, so March, you get around an 8% discount to the lag on a 1-month basis. Obviously, what distorts that discount quite heavily is March where we had to purchase ammonia and most of that was applied into the LoMo plant internally. So it's a bit of a difficult run this time around to try and get your discount exactly right, which is why we've provided that additional disclosure to show you that while we were operating, we got -- managed to achieve about 8% discount.

I show our next question comes from the line of Nathan Reilly from UBS.

Just really back to the proposed separation. I'm just trying to understand how you're thinking about the CapEx intensity of the Dyno and ferts businesses going forward. So would be great if you could comment on how you're seeing that or indeed seeing that changing. And I'd also just like to understand if you can, if you think that, I guess, the current corporate structure is impacting the abilities of both the businesses to defend or indeed even grow their market shares in Explosives and also that ag chem market space?

Yes. Yes. I mean I think that the capital intensity of the business is really more tied to the asset base. Obviously, the manufacturing asset base has a fairly high capital intensity relative to the market-facing parts of the business. So that tends to go with those. I will point out that Phosphate Hill is currently in the middle of its turnaround, and it's a big investment, and that will set us up extraordinarily well for a period of time. And so you'd expect that those benefits will flow through to the fertilizer business are going forward. I think that the benefits from the separation is really about really getting both the businesses focused on their unique value-add and the technologies and the solutions that the customers are looking for. And so I think for a long time, our fertilizer business probably felt as though it wasn't given enough leeway on things to look at. So we've invested in it, but I think this will allow the fertilizer business to pursue broader opportunities as well as actually align to the ag customer mindset. So I think that each company will be able to get the fit-for-purpose processes systems that they need to service their customers as opposed to having to have one-size-fits-all, that we currently have by being together as 1 company.

I show our next question comes from the line of Grant Saligari from Credit Suisse.

I'd like to just come back to Phosphate Hill cost structure. Because it seems like even backing out the increases in sulfur costs we've had over the last couple of years, this is sort of now $500 to $550 a tonne cost business. Can you sort of elaborate on what the drivers of that have been? Because there must have been something else in the last period. And the cost structure has gone up a reasonable amount over the last 2, 3 years, even excluding the sulfur impacts.

Yes, I'll start off with that, Jeanne. So we just need to keep in mind, Grant. So you've got sulfur prices currently at $480 which averaged through the half, I mean, close to $500 compared to last year at low 200s and the year before that, sub-100, and considering that sulfur that we purchased makes up a considerable amount of our cost base of that plant, it does have an impact. So I mean, if you take the amount of tonnes, we probably use close to 150,000 tonnes of the acid and 60,000 tonnes of sulfur that we get into our production system. So over the time, it's probably the major driver in that cost buildup. Also, as I mentioned before, we had some maintenance spend and depreciation. One of the big areas, there was a tailings dam, so we have to continue to remediate your production byproduct? And we had to set up a remediation dam like we do every 6, 7 years, and that cost also applied into the cost per tonne. Just wanted to highlight again, like I mentioned earlier, sulfur is one impact that goes and drives the cost, but you need to see this in the context of the debt price as well. And that also has its linked back to sulfur. So you need to look at the total side of the plant, the costs as well as what you're actually planning. You're making super profits from that plant at the moment that [ promises $30,000. ] I mean there's other small bits and pieces going up and down. I mean, you've got gas inefficiencies. If you plant in its final year running into your turnaround, those other things, which you're following a turnaround, shouldn't be , but by and large, sulfur has got to -- and has had a significant impact over the last couple of years. So has had that in our earnings.

Well, I mean, well -- sorry, I didn't mean to do interrupt, Jeanne.

Yes. I was just going to add, I mean, that's why we talk about aiming for the P50 on the cost curve, because the sulfur price escalation has hit all producers. Everybody buys their sulfur in. And so it's not a negative on ours. The whole P50 price will go up. So it's hard -- so picking dollar per tonne cost isn't the right answer because it really has to be competitive because sulfur price going up does make DAP price go up. And so it's not strategically a disadvantage for us to have higher sulfur pricing.

Could you just remind me what the duration of the gas contract for Phosphate Hill is, please?

It's up until 2028.

I show our next question comes from the line of Daniel Kang from CLSA.

On fertilizers, do you expect the volume loss in the first half from the heavy rains on the East Coast to recover in the second half? Maybe if you can just guide us as to your expected full year volume.

Yes. I mean I think the way I think about it is, I mentioned we were managing prudently. As you know, there's been enormous volatility in commodity pricing. And so we've been balancing volume opportunity with managing that price risk. And so as a result, we expect the second half to be solid. But I think in managing that price volatility, we certainly did not want to overcommit on bringing high price volume in when the demand has been a little muted due to the high pricing. So I would say that, that would be sort of my guidance on that.

And Daniel, I can probably add to that. So even though our volumes for the first half, the local distribution volumes were down, you noted that we kept our distribution earnings flat and that's really a function of our liquids business that we've successfully grown, which is very exciting, and we can see that continuing into the second half. So that helps you with that sort of quality of earnings and in our distribution earnings despite lower volumes.

And just on the broader, I guess, pricing outlook. We've seen spot fertilizer and ammonium nitrate prices ease in recent weeks. Just wondering if you can talk about how you see prices trending in the near and medium term.

Yes. I think it's always difficult to do sort of a short-term sentiment, but clearly, prices have been very, very high. But I would say that we see strong underpinning supply-demand balances into the medium term. So we do still expect to have strong tailwinds in our business, but not at the levels that we saw earlier in the year have eased off, as you mentioned. And I'm not sure that we would predict those to return or not. But clearly, the market is very tight and sentiment moves very quickly, both up and down in the nitrogen markets right now.

That concludes our Q&A session. At this time, I would like to turn the call back to Jeanne Johns for closing remarks. Please go ahead.

Very good. I'd like to thank everybody for joining us today. In closing, I just wanted to say that we're very excited about the potential of our 2 businesses as separate, well-capitalized technology and solutions-driven companies to keep improving the outcomes for our high-quality customers in the mining and agricultural sectors. We're very pleased with the performance in the first half and look forward to continuing to capture the upside from the commodity upcycle in the second. Our priorities are to execute the earnings opportunity while continuing to execute across our strategy and progress our strategy plan. Thanks again for joining us, and take care and stay safe.

This concludes today's conference call. Thank you for participating. You may now disconnect.