Orica Raises A$650M At $16 A Share For $350M Axis Mining Acquisition
- A$300M balance of capital raising proceeds applied to fund working capital requirements arising from global supply chain dislocations
- A $75M SPP will be offered to retail shareholders at a 2 percent discount to the 5-day VWAP
- Axis is a leading developer and manufacturer of geospatial instruments for the mining industry
- Geospatial instruments can digitally map and locate orebodies, prior to drilling exploration
- Axis positions Orica as an integrated solutions provider, providing a full-service Orebody Intelligence capability
- Rising input costs being passed on to customers for now
- Medium-term earnings growth outlook pegged to commodity growth, particularly gold and copper.
Orica Limited (Orica or the Group) is a world-leading mining and infrastructure solutions provider. The Group manufactures and distributes commercial blasting systems, explosives, mining chemicals and geotechnical monitoring equipment.
The Group has operated for 145 years and today employs 13,000 people globally to support customers across surface and underground mining, quarry, construction, and oil and gas operations.
A$650 million Placement
Orica has raised A$650 million by way of a share placement of 40.6 million New Shares to institutional investors at a price of $16 per New Share. Proceeds will in part be applied to fund the acquisition of Axis Mining Technology. The acquisition purchase price comprises upfront cash consideration of A$260 million and a deferred earn out payment of up to a maximum of A$90 million, contingent upon financial performance conditions being met. The earn out is subject to certain key management personnel remaining employed by Orica during the Earn-Out period, being 31 December 2024. The purchase price implies an acquisition multiple of 11.8 times FY22 EBITDA, based on the A$260 million upfront cash consideration. This multiple excludes pro-forma synergies and is before amortisation of any intangibles. The acquisition is expected to be EPS accretive from the first full year of ownership.
The A$300 million balance of proceeds will be used to fund incremental trade working capital requirements arising from global supply chain dislocations, and to augment balance sheet capacity.
Axis Mining Technology (Axis)
Axis is a leader in the design development and manufacture of specialised geospatial tools and instruments for the mining industry. These geospatial instruments enable miners to digitally map and potentially locate orebodies, prior to the commencement of drilling exploration. Axis is a strategic acquisition in that it provides a full-service Orebody Intelligence business that positions Orica as the industry’s first integrated, end-to-end, mine to mill solutions provider. Axis’ gold and copper exposure also accelerates Orica’s broader commodity mix objectives.
Importantly, Axis’ geospatial technology enhances Orica’s capabilities to support new mineral discoveries required for decarbonisation (copper and nickel) – as new mineral discoveries are increasingly located at greater depths and require more precise geophysics.
Share Purchase Plan
Orica will offer eligible shareholders on Orica’s share register on 2 August 2022, the opportunity to apply for up to $30,000 of New Shares, free of brokerage and transaction costs, under the terms of a Share Purchase Plan (SPP). The SPP will be priced at the lower of the placement price and a 2 percent discount to the 5-day VWAP of Orica shares up to, and including, the closing date of the SPP, which is scheduled for 26 August 2022.
The SPP amount is capped at $75 million and is not underwritten.
The SPP Offer Booklet will be released to the ASX and made available to eligible shareholders on 10 August 2022. The SPP offer will close on 26 August 2022 and New Shares under the SPP will be issued on 2 September 2022.
The Axis purchase price could be considered as fully priced given the relatively high multiple being paid for the business. However, the strategic value of the acquisition is clear in that it is a valuable addition that establishes Orica as a leading Digital solutions platform servicing the mining, quarry and infrastructure sectors.
On 12 May Orica reaffirmed its full year 2022 earnings guidance with volume growth in line with global GDP growth and referred to sustainable overhead cost savings and strategic initiatives driving supply chain efficiencies.
However, today Orica is responding to higher working capital requirements caused by global supply chain dislocations and, curiously, management have also referred to changes in the external operating environment that necessitate a more disciplined approach to capital management. Orica’s gearing ratio currently sits at the higher end of its stated target range of 30-40 percent.
Orica is well managed and does have some product pricing power as exemplified by its ability to pass through rising input costs in response to rising inflation, although its medium-term earnings growth outlook is pegged to commodity growth, particularly gold and copper.