Orica boss says cheap gas makes US growth at better option than Australia

Orica is buying another overseas manufacturing plant, saying cheap gas and power makes North America a far more attractive option than Australia.

Orica's Yarwun manufacturing facility in Queensland includes a sodium cyanide production plant. Picture: Supplied

Orica boss Sanjeev Gandhi says the company’s decision to buy into the US mining chemical market is an indictment on high Australian gas and energy costs, after the company closed a $US640m ($977m) deal to buy US cyanide manufacturer Cyanco.

The deal will double the size of Orica’s chemicals business and buy the company a major foothold in the mining chemical sector in the US, realising a major plank of Mr Gandhi’s growth strategy.

Mr Gandhi said the acquisition of Cyanco’s two US manufacturing plants, in Nevada and Texas, will make Orica the biggest producer of sodium cyanide in the world – a key chemical required by gold miners across the globe.

The company said the purchase price represented an implied multiple of 7.5 times Cyanco’s 2023 earnings before interest, tax, depreciation and amortisation, with the company paying for the deal through existing debt facilities and $465m worth of equity raisings.

Orica's Yarwun manufacturing facility in Queensland. Picture: Supplied

Orica has already launched a $400m institutional placement at $15.84 – a 6 per cent discount to the company’s last trading price of $16.85. It will also allow retail shareholders to top up their positions through a $65m share purchase plan at the same price.

The deal realises a long-held ambition of Mr Gandhi to expand its cyanide production. The company walked away from a bidding war for Chemours cyanide business in 2021, saying it was not prepared to match the price offered by private equity buyers.

Orica already operates a sodium cyanide plant at its Yarwun complex in Queensland, but Mr Gandhi said a key factor in the latest deal is lower US gas prices, which the Orica boss says will allow far better margins than expanding its Australian operations.

“Through the two assets in the US, we have now got access to very, very competitive natural gas – both of those sites are consuming natural gas to make sodium cyanide. This is much more competitive than the natural gas prices we have here in Australia, so that gives us a huge advantage in terms of our cost base,” he said.

In December Orica cut a $C505m ($560m) to expand its technology business into civil infrastructure through the acquisition of Canadian structural monitoring company Terra Insights, and Mr Gandhi said the two acquisitions signalled the company’s strong desire to expand into the North American market.

But Mr Gandhi warned that the decision was also a result of ongoing high energy costs in Australia, saying that investment overseas was a more attractive option for the explosives and mining services giant.

“That tells you how cost competitive those assets can be and the exciting growth potential of the mining industry in North America,” he said

“It also, unfortunately, tells you that manufacturing in Australia gets more and more challenging with the extremely high natural gas prices. We will look more and more for overseas investments if we don’t get our act together in terms of competitive gas pricing in this country.”

Orica boss Sanjeev Gandhi at the World Mining Congress in Brisbane last year. Picture: Ian Waldie/Bloomberg

Mr Gandhi said Orica’s recent acquisition spree was coming to an end, however, with the company now happy with its reshaped portfolio.

“What we said about strategy in 2021 when I came in, was that we will grow the core blasting for mining business, but we also wanted to grow the digital business and the mining chemicals business,” he said.

“I can say today with a lot of pleasure that most of the heavy lifting in terms of M&A is done. Now the focus is on integrating Terra Insights, on integrating Cyanco, and then organically growing the business.”

Orica shares last traded at $16.85.

Originally published as Orica boss says cheap gas makes US growth at better option than Australia