Orica to expand mining chemicals business with Cyanco acquisition, partly funded by equity raising

21 Feb 2024

Orica has entered into a binding agreement to acquire 100 per cent of the common stock of Cyanco Intermediate 4 Corp. (Cyanco) (the Acquisition) from an affiliate of Cerberus Capital Management, L.P. (Cerberus) for US$640 million on a cash-free, debt-free enterprise value basis.

Not for distribution or release in the United States.

The Acquisition of Cyanco, a US-based leader in the manufacture and distribution of sodium cyanide primarily serving the gold mining industries in the US, Canada, Mexico, Latin America, and Africa, is expected to complement Orica’s established Mining Chemicals business and create an integrated global manufacturing and distribution network.

The Acquisition will be largely funded from Orica’s existing cash and undrawn committed debt facilities, alongside a A$400 million underwritten institutional placement (the Placement).

Transaction Highlights

  • Orica to acquire Cyanco, a US-based leader in the manufacture and distribution of sodium cyanide, for US$640 million1 on a cash-free, debt-free enterprise value basis
  • In line with Orica’s strategy for growth beyond blasting, Orica will establish a Mining Chemicals business vertical and create an integrated global sodium cyanide manufacturing and distribution network
  • More than doubles Orica’s existing sodium cyanide production capacity to approximately 240kTpa via the contribution of Cyanco’s two manufacturing plants in Nevada and Texas
  • Significantly increases Orica’s footprint in the very attractive North American gold mining industry and strategically located to access cost competitive US natural gas-based manufacturing assets
  • The Acquisition purchase price represents an implied multiple of 7.5x CY2023A EBITDA2 (pre-synergies) and 6.7x CY2023A EBITDA2 (including expected pro forma net cost synergies of ~US$10 million)
  • Strong EBITDA margins accretive to Orica’s, with ~90 per cent free cash flow conversion and low capital requirements3
  • The Acquisition will be largely funded from Orica’s existing cash and undrawn committed debt facilities, alongside a A$400 million underwritten institutional placement
  • Orica will additionally undertake a non-underwritten share purchase plan capped at A$65 million (together with the Placement, the Equity Raising) to enable retail investor participation
  • Orica will retain a prudent balance sheet post the Acquisition and Placement, with gearing expected to be at the lower end of Orica’s target range of 30 to 40 per cent4
  • The Acquisition together with the Placement are expected to be mid-single digits earnings per share (EPS) accretive in the first full year of ownership (pre-synergies)5
  • Given the highly complementary nature of the two businesses, run-rate net cost synergies of ~US$10 million are expected by the end of year three of Orica’s ownership
  • RONA contribution from the Acquisition and Placement is expected to be within Orica’s stated current guidance of 12.0 to 14.0 per cent in the medium-term
  • The Acquisition is expected to be completed by the end of FY2024, subject to the expiration of certain regulatory waiting periods and other customary closing conditions

FY2024 Outlook

  • Any EBIT contribution from Cyanco in FY2024 is expected to be largely offset by integration costs depending on the timing of completion; increased net financing costs and incremental amortisation are to be confirmed post transaction completion
  • Orica’s earnings outlook for FY2024 remains as per the ASX announcement released on 15 February 2024

Orica Managing Director and CEO Sanjeev Gandhi said:

“I am delighted to announce the acquisition of Cyanco today, accelerating the delivery of Orica’s Mining Chemicals strategy and creating a leading global mining chemicals business.

 

“Cyanco is a highly complementary business, and by combining it with our established sodium cyanide business, Orica will create a leading integrated global sodium cyanide producer with world-class supply capabilities in mining. The Acquisition will more than double Orica’s existing sodium cyanide production capacity and provide us with the ability to cater to the highly attractive US and Canadian gold mining industries.

“By combining these two leading businesses, we expect to improve our ability to serve our customers by enhancing Orica’s global network of transfer stations in key gold mining regions, supporting security of supply to mine sites.

“The Acquisition is mutually beneficial to both Cyanco and Orica stakeholders, and we look forward to welcoming Cyanco’s employees to Orica. We are excited about the opportunities this will create for Orica, our customers, and our shareholders”.

Transaction Overview

The Acquisition purchase price of US$640 million on a cash-free, debt-free enterprise value basis1, represents an implied multiple of 7.5x CY2023A EBITDA2 (pre-synergies) and 6.7x CY2023A EBITDA2 (including expected pro forma net cost synergies of ~US$10 million).

The Acquisition is expected to be completed by the end of FY2024, subject to the expiration of certain regulatory waiting periods and other customary closing conditions.

The Acquisition will be largely funded from Orica’s existing cash and undrawn committed debt facilities, alongside a A$400 million underwritten institutional placement. Orica will additionally undertake a non-underwritten share purchase plan capped at A$65 million to enable retail investor participation. Orica will retain a prudent balance sheet post the Acquisition and Placement, with gearing expected to be at the lower end of Orica’s target range of 30 to 40 per cent.4

The Equity Raising comprises of a fully underwritten A$400 million Placement and a non-underwritten share purchase plan capped at A$65 million.

About Cyanco

Cyanco is a leading manufacturer and distributor of sodium cyanide, a specialised chemical required for gold processing.

Cyanco’s production facilities are strategically located to serve the Nevada gold mining region and seaborne export market. Cyanco is a leading supplier of sodium cyanide in the US, with a well-established distribution footprint, enabling service to gold mines in Canada through rail link and supply capabilities into international regions through seaborne transportation.

Cyanco has an attractive financial profile and strong cash flow generation. Cyanco also has strong commercial discipline embedded in its business model, including customer contracts with pass-through structures for cost increases and automatic term renewal mechanisms.

Cyanco is committed to producing, delivering and using sodium cyanide safely and responsibly. Orica will incorporate Cyanco’s greenhouse gas emissions profile into its global Scope 1, 2 and 3 inventory and remains committed to delivering on its existing public climate change targets6.

Strategic Rationale

  • Complementary geographic expansion into attractive US and Canada gold mining industries, with long-term industry trends driving demand for sodium cyanide
    • Global sodium cyanide demand growing at ~4 per cent per annum from 2023 to 2028, with North American sodium cyanide demand growing at ~5 per cent per annum in the same period7
    • Global treated ore is forecast to grow faster than historic rates due to greenfield and brownfield mining projects and decreasing ore grades7
    • Sodium cyanide is a specialised chemical required for gold mining, with no commercially viable substitute
    • Sodium cyanide has strong fundamentals as a stable, counter-cyclical business with a complex operating environment for supply
  • Complements Orica’s established sodium cyanide business and creates a global sodium cyanide manufacturer and supply network
    • Complements Orica’s existing sodium cyanide manufacturing operations at Yarwun, Australia
    • More than doubles Orica’s existing sodium cyanide production capacity to approximately 240kTpa via the contribution of Cyanco’s two manufacturing plants in Nevada and Texas
    • Expands Orica’s network to three manufacturing facilities, increasing supply networks and improving security of supply to customers
    • Extensive transfer station network in key gold mining regions, including Asia Pacific, US, Canada, Latin America, and Africa
    • Expansive in-country commercial and technical teams provide extensive support network
  • Further diversifies Orica’s exposure to attractive segments across end markets, commodities, and geography
    • Increases revenue contribution from mining chemicals to >10 per cent (pro forma post Terra Insights and Cyanco acquisitions)8
    • Further commodity diversification, increasing gold exposure to ~25 per cent of revenue (pro forma post Terra Insights and Cyanco acquisitions)8
    • Greater geographic exposure to the North American end markets, increasing to ~25 per cent of revenue (pro forma post Terra Insights and Cyanco acquisitions)8
  • Opportunity to expand customer relationships and solutions offered across the mining value chain
    • Application of Orica’s digital and technical expertise in ore monitoring and processing to provide value-added services
    • Enhanced ability to service mining customers with a broader suite of products and services across the mining value chain
    • Opportunity to deepen customer relationships through expanded solutions and supply

Details of the institutional placement

Orica is undertaking a fully underwritten placement of new fully paid ordinary shares in Orica (New Shares) to eligible institutional investors to raise approximately A$400 million (Placement).

The Placement will be conducted at a fixed price of A$15.84 per New Share (Placement Price), representing a:

  • 6.0 per cent discount to the last traded price of A$16.85 on 20 February 2024; and
  • 5.2 per cent discount to the five-day Volume Weighted Average Price (VWAP) of A$16.70 up to, and including 20 February 2024

The Placement will result in approximately 25.3 million New Shares being issued, representing approximately 5.5 per cent of Orica’s existing issued share capital. New Shares issued under the Placement will rank equally with existing Orica shares from their date of issue and will be entitled to any dividend for the six months ending 31 March 2024.

It is intended that Orica’s eligible institutional shareholders who bid for an amount equal to, or less than, their pro rata share of New Shares under the Placement will be allocated their full bid on a reasonable endeavours basis.9

Details of the share purchase plan

Following the completion of the Placement, Orica will offer eligible shareholders the opportunity to participate in a non-underwritten share purchase plan (SPP), subject to an aggregate cap of A$65 million.

Under the SPP, eligible Orica shareholders, being shareholders who had a registered address in Australia or New Zealand on Orica’s register at 7.00pm (Melbourne time) on Tuesday, 20 February 2024, will have the opportunity to apply for up to A$30,000 of New Shares free of any brokerage, commission, and transaction costs. The SPP will be priced at the lower of the Placement Price and a 2.0 per cent discount to the five-day VWAP of Orica shares up to, and including, the closing date of the SPP, which is currently scheduled for Monday, 18 March 2024.

New Shares issued under the SPP will rank equally with existing Orica shares from their date of issue.

Full details of the SPP will be set out in the SPP Offer Booklet, which will be released to the ASX and sent to eligible shareholders on or around Thursday, 29 February 2024.

1 Enterprise value of US$640m on a cash-free, debt-free basis equivalent to A$985m (on the basis of an exchange rate of AUD/USD = 0.6500), and subject to customary completion adjustments, including for Cyanco’s net working capital, indebtedness and cash balance at completion of the Acquisition.
2 Based on December year end EBITDA figure (pre IFRS-16) and before transaction costs. Refer to “Important Notices”, for risks related to forecasts and estimates of financial information.
3 Average of CY2021-2023A reported figures by Cyanco management.
4 Based on the pro forma balance sheet as at 30 September 2023 including the Terra Insights and Cyanco acquisitions and the Placement; excludes the impact of the Deer Park land sale announced on 15 February 2024.
5 Pre-purchase price allocation (PPA), excluding run-rate net cost synergies and transaction costs.
6 In accordance with the GHG Protocol Corporate Accounting and Reporting Standard (2004), Orica’s target base year emissions will be restated to ensure meaningful and accurate comparison of emissions performance over time.
7 Source: Wood Mackenzie; S&P Global; Metals Focus; Orica analysis.
8 Pro forma FY2023 revenue, based on Orica’s audited consolidated financial statements for the year ended 30 September 2023, and Terra Insights and Cyanco management reported numbers in the same period which are unaudited. Orica’s acquisition of Terra Insights was previously announced on 20 December 2023 and is expected to be completed by the end of March 2024.
9 For this purpose, an eligible institutional shareholder’s ‘pro rata’ share of New Shares issued under the Placement will be estimated by reference to Orica’s latest available beneficial shareholder register prior to launch of the Placement, but without undertaking any reconciliation processes and ignoring New Shares that may be issued under the SPP. Unlike in a rights issue, this may not truly reflect the participating shareholder’s actual ‘pro rata’ share of New Shares issued under the Placement. Nothing in this announcement gives a shareholder a right or entitlement to participate in the Placement and Orica has no obligation to reconcile assumed holdings (e.g. for recent trading or swap positions) when determining a shareholder’s ‘pro rata’ share of New Shares issued under the Placement. Institutional shareholders who do not reside in Australia or other eligible jurisdictions will not be eligible to participate in the Placement – see ‘International Offer Restrictions’ in the investor presentation for the eligible jurisdictions and relevant selling restrictions. Orica and the Lead Manager disclaim any duty or liability (including for negligence) in respect of the determination of a shareholder’s ‘pro rata’ share of New Shares issued under the Placement.

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