Orica To Restrict Explosives Supply To Mines In Next Week Or Two

Orica Ltd. (ORI.AU) will start restricting supplies of explosives to miners in one of the world's largest coal export basins as soon as next week, due to a shutdown at a troubled plant in the port city of Newcastle, a spokeswoman said Tuesday.

The company was working to set up contingency plans, but a global shortage of ammonium nitrate explosives means rationing may be needed to deal with the shortfall, she added.

"There will be restrictions on supply within the next week or two," she said. "We are looking quite far afield but most global supply is already committed."

Ammonium nitrate explosives are essential for blasting operations at open-cut mines in Australia, the world's largest coal exporter.

Newcastle is the world's largest coal export harbor by volume, accounting for more than 100 million tons of exports last year--around one in eight tons of coal traded globally by sea.

A spokesman for Xstrata PLC (XTA.LN), the world's largest coal exporter, said the company was now reviewing all its coal mines in New South Wales state to work out how to deal with any prolonged shutdown.

"With this level of uncertainty, it has broad implications for every open cut operation and so we've got to conduct a business review right now and consider, if it goes on, where do we source that explosive material?" he said.

Other miners in the Hunter Valley were also likely to be affected by the shutdown, he said: "The whole industry's looking around to see whose needs need to be met. It is a significant issue."

Parts of Orica's Kooragang Island explosives plant in Newcastle were shut down Aug. 8 after a leak of toxic hexavalent chromium drifted across a residential suburb of the city.

A second leak of ammonia gas earlier this month, which led to the hospitalisation of two workers, led to a full shutdown Nov. 9 while the New South Wales state government reviews the safety of the site.

Orica said it had no word yet on when this review would allow a restart.

The Kooragang plant is one of the world's largest producers of ammonium nitrate. Its current capacity of 430,000 metric tons per year is being upgraded to 750,000 tons, with full production due in late 2014.

In a client note last week, JP Morgan said that Orica would be able to ship supplies from Queensland state and Europe but that supplies in eastern Australia could be running critically low by mid-2012.

By David Fickling, Dow Jones Newswires; +61 2 8272 4689; david.fickling@dowjones.com

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