The Australian share market is mimicking last night's muted display from Wall Street, with the S&P/ASX 200 Index (ASX: XJO) down 0.6% to 7,610.5 points at lunchtime. However, one ASX 200 stock is dodging the carnage today, being completely motionless.
Escaping the judgemental glance of investors, Orica Ltd (ASX: ORI) hit the pause button on its shares before the market sprung to life this morning. As a result, shares in the commercial explosives and blasting systems manufacturer are stationary at $16.85 apiece.
The intervening move is not without reason. Orica was granted a trading halt before an announcement relating to a corporate transaction and an associated equity raising, the details of which have now been released.
Image source: Getty Images
What's being acquired?
According to the release, Orica has entered into a binding agreement to acquire 100% of Cyanco Intermediate 4 Corp.
Cyanco makes and distributes sodium cyanide for silver and gold extraction. The United States-based company was founded in 1990 and supplies its extraction products to customers in the mining industry across the US, Canada, Mexico, Latin America, and Africa.
Orica will pay US$640 million — equivalent to A$976.4 million — to Cerberus Capital Management to acquire the company on a cash-free, debt-free enterprise value basis. The purchase price equals an implied multiple of 7.5 times 2023 earnings before interest, taxes, depreciation, and amortisation (EBITDA) before synergies.
To fund the deal, the ASX 200 stock will tap its existing cash and debt facilities for the majority of the required payment. It will raise an additional A$400 million through an underwritten institutional placement (capital raise).
Finally, Orica will offer A$65 million as a non-underwritten share purchase plan for eligible shareholders.
How is it expected to benefit Orica?
Orica is already a substantial producer of sodium cyanide. The acquisition of Cyanco is slated to double the company's production of the mining chemical to around 240,000 tonnes per annum. Moreover, the deal will expand Orica's presence in North America through Cyanco's existing clients.
On this, Orica managing director and CEO Sanjeev Gandhi said:
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.
Gaining access to Cyanco's Nevada and Texas manufacturing plants is also attractive from a cost perspective. The region benefits from low-cost natural gas, allowing the company to be more competitive in price.
Lastly, ongoing cost synergies are anticipated to be US$10 million per annum after three years of ownership.
What's next for the ASX 200 stock?
The next step is for Orica to undertake the capital raising activities, the first of which is the placement.
As per the announcement, the company aims to raise A$400 million through the placement at A$15.84 per share. This would represent a 6% discount to the last traded Orica share price of A$16.85.
Meanwhile, the company expects to send the share purchase plan on 29 February. This will allow shareholders to apply for up to $30,000 worth of new shares as part of the $65 million raising, closing on 18 March 2024.
Finally, FY2024 earnings remain unchanged from those previously shared.
