Explosives manufacturer Orica lifts profit but cuts dividend to preserve cash

Explosives manufacturer Orica’s boss Alberto Calderon is confident the mining industry will help fuel the economic recovery post-COVID-19, as major economies pump money into infrastructure projects.
Mr. Calderon said important stimulus spending on infrastructure was likely to be revealed in the September quarter, as nations battered by the pandemic get on top of the disease and look to reignite economic activity.
“Mining, We’re at the beginning of everything, the car industry…steel, infrastructure, tunneling. We expect to see greater infrastructure spending in the US and Europe, more tunneling in Norway and all that; it has to do with explosives,” he told The Age and the Herald.
“As long as governments can keep the curves under control…I think they would then switch to the economy,” he explained.
The $6.6 Billion ASX-listed company is a major supplier of explosives to mining giants like BHP and Rio Tinto, and Mr. Calderon’s remarks on Friday came as it introduced a significant jump in net earnings for the first half to $165.2 million but reduced its interim dividend to preserve cash.
Orica announced a dividend of 16.5 cents per share, to be paid on July 8. However, the profit is down 25 percent over the corresponding prior period.
The dividend cut arises after a range of major companies were also forced to ditch or delay dividend payments, or defer a decision on dividends for possibly months.
Orica’s $165.2 million statutory profit result compares to a $33 million net profit in the corresponding prior period, but the company’s first-half 2019 results were weighed down by a significant writedown.
Net profit for the first half of 2020 was 1 percent down on the first half of 2019, before significant items.
Before significant items, net profit for the first half of the financial year 2020 was 1 percent down on the first half of 2019.
The company also warned that strict government restrictions on mining in some countries would curb mining activity in some places this half. Strict mandates had affected mining in Europe, Asia, Mexico, and Africa, it said.
Based on current levels of mining activity, Orica forecasts that its second half ammonium nitrate sales volumes would be 10-15 percent below its pre-COVID-19 expectations. Ammonium nitrate is the major ingredient in explosives.
“Orica delivered a solid effect, amidst challenging recent impacts from NSW bushfires and COVID-19 related mine disturbance,” UBS analyst Nathan Reilly stated in a note to clients.
The company’s shares ended the session 3 percent weaker at $16.28