Orica: fund managers back the mining technology shift through supply shocks

A US ammonium nitrate supplier disruption and a stronger Australian dollar knocked Orica shares down sharply in early 2026, but several fund managers used the weakness to add to positions in a business they see as transitioning from cyclical explosives toward higher-margin mining technology.

6 Jul 2026 · 6 min read

Fund managers spent early 2026 testing their conviction in Orica Ltd (ASX: ORI) as a US supply-chain disruption and currency headwinds pushed the stock down sharply, before a strong half-year result and a swathe of new position-builders reset the narrative by mid-year. Investors Mutual Limited trimmed its holding in March after Orica dropped 17.4% on guidance that a stronger Australian dollar would weigh on earnings, but said flatly that it "believe[s] its longer-term prospects remain strong." Others went the other way entirely, using the same weakness to build new positions.

A supply shock tests the thesis

The trigger for the de-rating was disruption to Orica's US ammonium nitrate supply chain. Paradice Investment Management described a de-rating during the March quarter "on the back of ammonium nitrate supply issues from its major US supplier," with emerging FX headwinds prompting earnings downgrades from several brokers. Pendal Group put numbers on the disruption, noting Orica would take $52 million of below-the-line costs from the CF Industries/Yazoo City incident, alongside higher procurement costs for replacement ammonium nitrate supply that were expected to pressure cash flow until the plant returned online in December. The stock's de-rating was compounded, Pendal said, by market worries that the Middle East conflict could further tighten the US nitrogen market.

Orica is the epitome of a picks and shovels play on global resources demand. Orica is a company transitioning from a cyclical mining explosives business to a high margin mining technology company with durable returns on invested capital and strong free cash flow generation.

Pengana Capital Group, Monthly Report, February 2026

Buyers step in where others trimmed

Despite the disruption, several managers treated the pullback as an opportunity rather than a warning sign. Pengana Capital Group said in March 2026 it "continued to build on our position in Orica, where the nervousness over disruptions to ammonium nitrate supply chains and customers' mining operations presented an opportunity," and added further to the holding again in April, pointing to the company's transition toward a higher-margin mining technology franchise as continuing to offer durable returns at a reasonable price. Airlie Funds Management established a new position in March, citing the broader market repricing of quality businesses across February and March as throwing up new opportunities. Oracle Advisory Group and Centennial Asset Management also initiated positions during the period, the latter framing Orica as a way to add exposure to digital and resources infrastructure.

A strong result reverses the narrative

By May 2026, the operational story had turned. Yarra Capital Management had already flagged the underlying strength months earlier, noting Orica's 2H25 result showed EBIT up 23% and underlying net profit up 32%, supported by broad-based growth across the blasting, digital, and specialty chemical segments, alongside an expanded share buyback increased from $500 million to $600 million. Pendal Group reported that Orica's 1H26 EBIT grew 5% versus the prior period despite a 4% decline in volumes, beating consensus at the EBITDA, EBIT, NPAT and EPS lines, with management confident it could match or beat its prior cost base on the new US ammonium nitrate supply contract. Investors Mutual Limited, having trimmed in March, reported the stock rising 19.5% in the June quarter on a record half-year result, with underlying NPAT up 8% driven by growing adoption of Orica's premium blasting products and digital technology offerings.

Global mining explosives company Orica performed strongly during the quarter, rising +19.5% following a record half-year result in May... reinforcing our conviction in Orica's transition toward higher-quality, technology-led earnings.

Investors Mutual Limited, Quarterly Report, June 2026

A new growth lever in hydrogen

Orica has also begun building a longer-dated growth option beyond its core explosives and digital businesses. Pendal Group reported in July 2026 that Orica reached a final investment decision on a 50MW Hunter Valley Hydrogen Hub, backed by a 10-year, $432 million funding commitment from ARENA's Hydrogen Headstart Program. The project, to be built through 2026-29 with first production expected in 2029, is designed to replace 7.5% of the natural gas feedstock requirement at Orica's KI ammonia plant once at full production. Not every observer is convinced the re-rating has further to run: one media commentator described the stock in June 2026 as trading toward the top of its long-term price range, arguing that its pivot to mining services and software remains a small fraction of overall revenue.

What managers are watching next

With the ammonium nitrate supply disruption resolving through the second half of 2026 and the Hunter Valley hydrogen project now funded and under way, the debate has shifted from whether Orica can absorb a US supply shock to how quickly its digital and technology-led earnings mix can expand relative to its legacy explosives base. Ellerston Capital's own position-sizing through the period, adding in November and December before trimming in February, illustrates how tactically managers have traded the stock even as most retain a broadly constructive medium-term view.