Incitec Pivot (ASX:IPL, Financial), a large Australian manufacturer of mining explosives and fertilizers, was a top contributor to the Fund’s performance for the period. The company benefited in the first quarter from rising fertilizer prices caused by supply concerns, export bans and rising gas costs. While global markets set Incitec’s realized prices, the company’s input costs are more nuanced and benefit from long-term contracts or low-cost positions as in the case of U.S. natural gas. Ammonia (produced at Incitec’s Waggaman plant in Louisiana) and diammonium phosphate (produced at Incitec’s Phosphate Hill plant in Australia) have soared to extremely high levels, providing near-term earnings upside for the company. Although prices will not remain this high forever and our view of normalized earnings is largely unchanged, the additional cash flow further reduces the company’s debt and can be returned to shareholders. Incitec also announced new CFO Paul Victor, who is currently CFO of Sasol and has significant experience spanning oil and gas, gold and coal mining, and chemicals and energy. We believe this new addition will prove beneficial for Incitec.
From David Herro (Trades, Portfolio)'s Oakmark Intl Small Cap (Trades, Portfolio) Fund first-quarter 2022 commentary.
