Orica (ORI) Latest Update

Submitted by Jim Thesiger on 17 June, 2008 - 17:03

Orica (ORI) Update provided by Australian stockmarket analyst Macquarie Research Equities.

AN Prices Set To Explode

ORI has long been a solid performer due to it’s exposure to the current resources super cycle. ORI has traded erratically as has the broader market of late, but looks like it could be priming itself for a potential jump north in the near future….

Source: Weekly
Past performance is not a reliable indicator of future performance.

One of MRE’s catalysts for a jump in ORI has been an announcement on the development of the Bontang Ammonium Nitrate Plant in Indonesia. Today that plant received the go ahead, and once developed has the potential to produce 300kt of ammonium nitrate (AN) per annum.

The plant only got the go ahead after the project met ORI’s strict financial hurdle of 18% return on net assets. ORI currently produces 1mt per annum of AN, and the volume and pricing of AN looks very positive into the future.

High capital costs are restricting new AN production and this combined with strong demand is sending AN prices soaring. We note that a planned AN start up in WA has agreed a floor price of $700/t for AN vs our estimate of $500/t for ORI. MRE believes this shows significant upside AN pricing potential for ORI as they write new contracts or re-negotiate existing contracts. MRE believes this potential upside could reach $195m of EBIT over the next 3 years.