Aug 2 (Reuters) - Incitec Pivot has tapped Indonesia's Pupuk Kaltim as the preferred buyer of its Australian fertiliser business in a deal that could be worth about A$1.5 billion ($989 million), the Australian Financial Review (AFR) reported on Wednesday.

The company has arranged site trips and due diligence for Pupuk Kaltim in recent days, the newspaper reported, citing sources familiar with the matter.

Incitec Pivot said in mid-July that it had received several approaches for the fertiliser business, and that an assessment of a potential sale was being considered.

Shares of Australia's biggest fertiliser producer rose as much as 2.6% to A$3.110 per dollar by 0415 GMT, hitting their highest since May 16.

Investors have pushed back in recent past against its plan to demerge its explosives manufacturing business Dyno Nobel through a separate listing to accelerate growth in the explosives and fertiliser segment.

Pupuk Kaltim is an Indonesian state-owned enterprise, which specialises in urea and ammonia production.

Both Incitec Pivot and Pupuk Kaltim did not immediately respond to Reuters' requests for comment.

($1 = 1.5165 Australian dollars) (Reporting by Archishma Iyer in Bengaluru; Editing by Dhanya Ann Thoppil)