ASX:ORI
Orica Ltd
Investment Summary
The fund managers believe that Orica Ltd is positioned to capitalize on significant growth opportunities and margin recovery. They express increased confidence in margin recovery driven by improved commercial discipline and industry supply constraints. The strategic shift toward electronic and wireless detonators is seen as a medium-to-long term value creator. The recent $465mn acquisition of Cynanco, a supplier of sodium cyanide, is viewed positively as it enhances Orica's market presence and aligns with management's strategy to broaden its mining chemicals footprint. Fund managers support this acquisition strategy; however, they emphasize the necessity of strong management execution due to prior investments in Axis Mining and Terra Insights. They note a preference for growth driven by organic cash flow generation to mitigate dilution risks. Overall, the fund managers see continued potential for risk-adjusted value creation through operational improvements and advancements in technology and digital solutions within the mining industry.
Commentary From The Managers
Cooper Investors
31 Mar 2024
$18.34
- Orica (ORI) undertook a $465mn equity capital raising to fund the acquisition of Cynanco.
- Cynanco is a North American supplier of sodium cyanide to the gold mining industry, enhancing Orica’s mining chemicals footprint.
- This acquisition aligns with management’s stated strategy and is expected to deliver reasonable returns over the medium term.
- It is the third major acquisition since Sanjeev Gandhi became CEO in 2021, part of a total $1.8bn investment.
- The number of shares has increased 17.8% since the end of 2021.
- Cooper Investors supports the management’s capital deployment as strategically aligned to generate attractive returns.
- Concerns remain regarding excellent management execution, especially with the pricing of Axis and Terra Insights.
- Preference is for growth to be supported by organic cash flow, minimizing dilutionary equity raises.
- Looking for evidence of value creation and cash flow generation from acquisitions before considering further large-scale M&A.
- Management updated the market on 2024 performance, indicating supportive operational trends.
- Maintenance turnarounds at major manufacturing facilities are progressing smoothly.
- Cooper Investors sees attractive risk-adjusted value in Orica as management improves core business performance.
- Focus on long-term value creation through technology and digital solutions in the mining industry.
Cooper Investors
31 Mar 2023
$15.39
- Cooper Investors continues to hold due to increased confidence in margin recovery opportunities at Orica (ORI).
- The recovery is driven by improved commercial discipline and industry supply constraints.
- Potential for incremental growth through increased market penetration of electronic and wireless detonators over the medium-to-longer term.
- Improved commercial discipline linked to product manufacturing and commercial outcomes through implementation of SAP enterprise management system.
- Encouraging signs support a nearer-term reversionary opportunity and longer-term value creation potential.
- Industry operating trends remain supportive, though vigilance is required regarding potential price-based competitive pressures.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.