Orica Limited (ORI) News

Submitted by Jim Thesiger on 14 May, 2008 - 14:05

Orica Limited (ORI) has an Outperform recommendation on the stock with a 12-month price target of $33.50 from Australian stockmarket analyst Macquarie Research Equities.

Orica (ORI): Orica – Leveraging off Iron Ore Demand

Soft commodities have experienced strong price growth in recent months, as high demand, particularly from Asia, has placed pressure on falling reserves. One company in particular that stands to benefit from rising food prices, and rising fertiliser prices is Orica (ORI). Orica not only benefits from chemical manufacturing for agri-businesses it also leverages off the Iron Ore industry by providing a range of blasting products, services and technology for key Iron Ore companies. Recent developments, as discussed by Macquarie Research Equities (MRE), could certainly provide further upside in this space.

Recent Announcements

Global Fertiliser company Yara and Burrup Holdings joined forces to develop a 350kt ammonium nitrate plant called Burrup Nitrates. Comments from Yara indicate that they set to provide the fast growing iron mining operations in the Pilbara region.

Implications

With the demand for Ammonia Nitrate by key Australian miners likely to increase over the next decade, Orica appears well place to benefit from this trend. It’s is also important to note that Yara currently supplies Orica with Ammonia Nitrate in both Europe and Latin America and this could transpire in Western Australia or Indonesia as well. And whilst Yara is not recognised as a fully integrated explosives supplier, economic benefits will be established via Orica and even Dyno Nobel (DXL) in terms of “downstream emulsion, Initiating Systems, and Packaged Products and Services”. Thus the developments between Yara and Burrup Holdings are likely to manifest key benefits domestically and globally for ORI.

Recommendation

MRE retain their Outperform recommendation on the stock with a 12-month price target of $33.50. The impetus behind this recommendation is ORI’s ability to leverage off improving domestic Amonia Nitrate volume and price fundamentals.

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