Orica buys Peru explosives maker

Orica will buy Peruvian explosives maker Exsa for $US203m, using funds raised through the issue of new shares.

Orica’s Alberto Calderon. Picture: Bloomberg

Orica has snapped up Peruvian explosives maker Exsa in a bid to expand its presence in the South American mining market, paying $US203m ($303m) for the company and launching a $600m capital raising to fund the purchase.

But the acquisition isn’t simply about buying market share in Peru, where the mining sector is growing, according to Orica boss Alberto Calderon.

The target is Exsa’s new manufacturing facility, which Mr Calderon says can be quickly scaled up to expand Orica’s other South American businesses, and the opportunity to sell other Orica services to Exsa’s existing client base.

“About 75 per cent of the synergies are efficiencies in the manufacturing base,” he said.

“We will be able to produce our existing (blasting) caps there — which are the most expensive part of the detonator. We produce about 120 million a year world-wide, now we will be able to produce 70 million much cheaper than we do today, because the facility is more modern and the scale of it allows to get a saving of $9m a year.”

Orica says the sales price is about 14 times Exsa’s earnings before interest, tax, depreciation and amortisation, but Mr Calderon says that multiple falls to about 7 times EBITDA when the savings for Orica are factored in.

Exsa services about 40 per cent of the Peruvian underground mining market, and the acquisition will also offer an easy introduction for Orica to expand sales of its high-technology offerings — including its growing GroundProbe tailings dam and pit wall monitoring systems, and other high-technology blasting products — according to Mr Calderon.

The ASX-listed mining service company will raise $600m in an equity issue, including $500m through an institutional placement at $21.19 a share and up to another $100m through a share purchase plan to existing holders.

Mr Calderon said the rest of the funds raised would sit on Orica’s balance sheet, easing its gearing ratio from 34 per cent to just under 30 per cent, and giving the company the option to seize other opportunities if they arose.

“It does give us flexibility, if in the future we want to do something. There is nothing right now we are working actively on — we need to digest this transaction,” he said.

“But this gives us options and flexibility.”

Orica shares last traded at $22.31.