Orica Limited (ASX: ORI) Expands Horizons with Cyanco Acquisition

In a significant strategic move, Orica Limited (ASX: ORI) has officially entered into a binding agreement to acquire 100% of the common stock of Cyanco Intermediate 4 Corp. from Cerberus Capital Management, L.P. for a substantial US$640 million. This deal, set to be completed by the end of FY2024, holds immense promise for both Orica and Cyanco.

Cyanco Intermediate 4 Corp. stands as a prominent player in the US, specializing in the manufacture and distribution of sodium cyanide. This chemical compound plays a pivotal role in serving the gold mining industries across the US, Canada, Mexico, Latin America, and Africa. Orica's strategic move to acquire Cyanco positions it to tap into these vital markets.

Orica's Mining Chemicals Business Set for Transformation

Orica's acquisition of Cyanco is poised to reshape its Mining Chemicals business. The integration of Cyanco's capabilities into Orica's portfolio is expected to create a robust global manufacturing and distribution network. This move aligns with Orica's vision to enhance its position in the industry and cater to the evolving needs of gold mining.

Funding the Acquisition

To facilitate this significant acquisition, Orica plans to utilize its existing cash reserves and undrawn committed debt facilities. Additionally, an AU$400 million underwritten institutional placement is in the pipeline. The financial structure includes a non-underwritten share purchase plan capped at AU$65 million, allowing retail investor participation. Orica emphasizes maintaining a prudent balance sheet post-acquisition, ensuring gearing stays within the targeted range of 30 to 40 per cent.

Deal Metrics

The purchase price of US$640 million, based on a cash-free, debt-free enterprise value, represents a multiple of 7.5x CY2023A EBITDA (pre-synergies) and 6.7x CY2023A EBITDA (including expected pro forma net cost synergies of ~US$10 million). These metrics underscore the strategic value Orica places on the acquisition and its potential for enhanced profitability.

Deal Rationale

The rationale behind Orica's acquisition of Cyanco is clear—the integration will complement its existing Mining Chemicals business. Not only will it double Orica's sodium cyanide production capacity, but it will also position the company to meet the escalating demands of the lucrative US and Canadian gold mining industries. The deal aligns with long-term industry trends, emphasizing the increasing need for sodium cyanide.

Geographic Expansion

Orica's move goes beyond capacity enhancement; it represents a strategic geographic expansion into the thriving US and Canadian gold mining industries. This diversification aligns with Orica's growth strategy, aiming to capitalize on the sustained demand for sodium cyanide in these regions.

Industry Trends

The acquisition comes at a time when long-term industry trends point to sustained demand for sodium cyanide. Orica's foresight in recognizing the value of Cyanco's expertise positions the company as a major player in catering to the evolving needs of gold mining operations.

Deal Status and Participants

As of the announcement on February 21, 2024, the deal involves Cyanco Intermediate 4 Corp. as the target company, Orica Limited as the acquirer, and Cerberus Capital Management LP as the vendor. The deal, categorized as a 100% acquisition, is currently in the announced stage.

Conclusion

In conclusion, Orica Limited's acquisition of Cyanco Intermediate 4 Corp. marks a transformative step for the company. With an eye on capacity expansion, geographic diversification, and alignment with industry trends, Orica positions itself for sustained growth in the dynamic landscape of gold mining chemicals.