introduction to orica - quest events · 2015. 11. 6. · global ammonium nitrate market. the...
TRANSCRIPT
INTRODUCTION TO ORICA
March 2015
• About Orica
• Background to the Orica-Strike partnership
• Supply Options pursued
• Orica-Strike partnership
• Learnings & industry challenges
© Orica Limited Group2
CONTENTS
Orica provides market-leading customer solutions to improve
productivity and resource efficiency in the mining, quarrying,
oil and gas and infrastructure sectors.
As the world’s largest provider of commercial explosives,
Orica is in a unique position to help sustainable growth in the
global resources sector.
Orica is global leader in the provision of ground support in
mining and tunnelling and a leading global supplier of
cyanide for gold extraction.
ABOUT ORICA
© Orica Limited Group4
AT A GLANCE
Chemical energy (explosives) is
25 more efficient than mechanical
energy for breaking rock.
Explosives grade ammonium
nitrate represents 5% of the
global ammonium nitrate market.
The remainder is agriculture grade
ammonium nitrate used in
fertiliser.
1,500Foreign Institutions 49%,
Domestic Institutions 28%, Retail
and other 23%.
ASXTOP50
and supplier of sodium cyanide
used in gold production.
GLOBAL PRODUCERTOP 3
of bulk explosives supplied
annually.
MILLION
TONNES4of commercial explosives.
SUPPLIERGLOBALLY1#
Top quartile safety performer of
companies listed on Australian
Securities Exchange
BLASTS PER DAYon our customers’ sites.
© Orica Limited Group5
GLOBAL REACH
More than
12,500EMPLOYEESrepresenting 79 nationalities
Customers in over
100COUNTRIES
Operations in over
50COUNTRIES
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WE ARE ONE OF THE LARGEST INDUSTRIAL GAS USERS IN EASTERN AUSTRALIA
• Kooragang Island (Newcastle)
– 360k tonne Ammonia plant
– Consumes ~14PJ/a as feedstock
– Critical part of the value chain for the fertiliser, refrigeration and mining / quarrying industries
– ~400 onsite jobs
• Yarwun (Gladstone)
– Sodium cyanide plant
– Consumes ~3PJ/a as feedstock
– One of only two domestic producers
– Critical process chemical for the gold industry
– ~300 onsite jobs
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North America
Europe/CIS
Asia
Africa
Australia
5m tpa capacity
LATAM
96 distribution centres
Orica plant
(including JV)
External Supply
Storage sites
7 Orica plants23 External plants
THE NEWCASTLE AND GLADSTONE PLANTS ARE JUST A SMALL PART OF ORICA’S GLOBAL SUPPLY NETWORK
THE MARKET WAS FORECASTING A SIGNIFICANT RAMP UP IN EAST COAST GAS CONSUMPTION
• Forecast LNG ramp up of
2-3x existing domestic
demand over 2014 to 2018
© Orica Limited Group9
…AT THE VERY TIME ORICA’S GAS SUPPLIES WERE EXPIRING
PJ/ a
Contracted Supply Supply requirements
• Orica had 3 years fully
secured with a further 2
years of partial supply.
• Nothing beyond end of
20160
2
4
6
8
10
12
14
16
18
20
2012 2013 2014 2015 2016 2017 2018 2019 2020
© Orica Limited Group10
…AND OTHER LARGE INDUSTRIAL USERS WERE ALSO LOOKING FOR GAS
• With all new supply directed to LNG
projects, a domestic supply shortfall
was forecast
• At the same time, industrial consumers
supply contracts were expiring
• Thus a “perfect storm” for large
industrial users:
− Gas pricing critical to global
competitiveness
− Price expectations of circa LNG.
− Limited supply sources.
− Multiple consumers all needing
to secure supply at the same
time.
11
…WHILST FOREIGN GAS MARKETS WERE FALLING, AND THE AUD RISING
US Henry Hub Natural Gas spot price
US
D /
MM
BT
U
$0.25
$0.35
$0.45
$0.55
$0.65
$0.75
$0.85
$0.95
$1.05
$1.15
$1.25
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
US
D /
AU
D
AUD spot rate (midpoint average)
$-
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
12
US Henry Hub Natural Gas spot price (AUD Equiv.)
AU
D /
MM
BT
U
…SO COMBINING THE TWO
Orica’s
Australian gas
suppliers’ price
expectations
AN & ammonia
competitors’
cost base
$-
$2
$4
$6
$8
$10
$12
$14
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
13
BACKGROUND - RECAP
• Orica’s Newcastle & Gladstone manufacturing operations are import exposed and heavily dependant on world competitive gas supply.
• LNG export development was forecast to consume most of the available supply.
• Competition for supply - other large industrial users were also looking to re-contract for gas supply.
• Creating a price expectation that would have made Orica’s cost base unsustainable.
• Local jobs were at stake with onsite employment of 700 (plus flow on employment) and the significant community sponsorships by these two operations.
1. Secure a firm off-take from existing industrial suppliers / or from an
existing field
Pursued both short and long term supply
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OPTIONS
2. Partner with a developer to underpin a new field and expand the
domestic gas supply
For this to be viable, we would need some form of “bridging” supply, as managing the field development time to gas flows is critical
3. Potentially switch to import rather than manufacturing.
© Orica Limited Group15
THE SOLUTION REQUIRED A MIX OF THE OPTIONS
PJ/ a
• Secured “baseload” for circa
80% of immediate needs to
allow time to evaluate gas field
development options
• A blend of smaller “niche”
volumes (~20% of
requirements) on an as needs
basis
• Long term partner arrangement
with Strike to underwrite field
development and ensure
continued manufacturing in
Australia.
0
2
4
6
8
10
12
14
16
18
20
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Strike
Supplier D
Supplier C
Supplier B
Esso / BHP
Existing supply
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WHY STRIKE ?
Highly promising acreage
• Technical advice provided by De Golyer & MacNaughton
Well positioned
• Accessible to Kooragang Island and Yarwun
• Close to existing infrastructure (MAPS; Moomba)
• Desert location
Strong management team
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WIN-WIN DEAL STRUCTURE FOR EACH PARTY
• 250PJs of gas
• Pre-payments aligned with development milestones
• Acquisition of Strike shares
• Mix of production cost-based, fixed/indexed and market linked pricing
Rapid development and commercialisation of the project for Strike;
20 years of affordable gas for Orica
• The future of Orica’s AN and cyanide manufacturing in Australia is tied to the global competitiveness of domestic gas (import exposed).
• LNG export potential will likely result in higher domestic prices.
• A conventional gas supply agreement would likely have rendered Orica’s KooragangIsland and Yarwun manufacturing plants uncompetitive – 700 onsite jobs were at stake.
• In this case, a win-win solution was achieved between a field developer (Strike) and large industrial user (Orica).
• However, Australia’s east coast gas prices are largely uncompetitive (and becoming more so) for energy exposed import / export industries.
© Orica Limited Group18
TAKE AWAY