‘Green’ metals and copper demand offer Orica recession antidote

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And in August, it sealed a $260 million takeover of Western Australia-based Axis Mining Technology, which designs and manufactures specialised geospatial tools and instruments for the mining industry, as part of a bid to enhance Orica’s ability to enable customers to access deeper deposits of “future-facing” minerals in more difficult geographies.

“In the megatrends of electrification and connecting grids, batteries, wind and solar power … all of that needs copper,” says Gandhi, who spent 26 years with German chemical company BASF before joining Orica. “That’s part of our strategy, focusing on what we call future-facing commodities, products that will enable the world to become more sustainable.”

More and more, the world’s biggest mining companies are steering their strategies towards copper, too. Just last week, BHP struck a $9.6 billion deal to take over South Australia-based copper producer Oz Minerals.

Rio Tinto, meanwhile, is pressing ahead with a $US3.3 billion ($4.9 billion) deal to take full control of Toronto-listed Turquoise Hill Resources to lift its exposure to the Oyu Tolgoi copper and gold mine in Mongolia.

As well as expecting strong ongoing demand growth from future-facing metals, Gandhi believes Orica is in an advantageous position to be able to weather global economic headwinds because of its exposure to other counter-cyclical businesses: its number-two commodity is gold, which is widely used as a “safe haven” for investors to store wealth during times of political and economic uncertainty.

After sinking to a net loss of $174 million in 2021, Orica returned to a $60 million profit in the year to September 30. Orica’s underlying earnings of $579 million, underpinned by higher sales of ammonium nitrate and electronic blasting systems, marked an increase of 36 per cent from the prior year, beating analysts’ forecasts. The company has guided investors to expect higher earnings in the 12 months ahead amid solid demand growth from the mining industry and continued “commercial discipline”.

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Still, Gandhi, like chief executives everywhere, is readying for tough times in the global economy persisting. One of his top concerns is the soaring price of gas and electricity, which may flow through to Orica’s customers and dampen demand. Orica itself also heavily depends on gas, as it is the key input in ammonia nitrate. Although the company is not presently in the market for new supply agreements, Gandhi says east-coast spot prices, which have more than doubled to beyond $20 a gigajoule, are wholly unsustainable.

The Albanese government is debating a range of potential interventions in the gas market to tame runaway energy costs, such as introducing price caps on local gas sales and stronger limits on how much gas can be shipped offshore as liquefied natural gas (LNG) overseas.

While gas producers are pushing back against the looming threat of intervention by warning it could imperil investments in future sources of supply, Gandhi says he is grateful for the federal government’s efforts to tame runaway prices, and is hopeful “there might be a solution coming up”.

“I don’t think there is anyone in this country that can afford gas at $20-plus,” he says. “We need to find a way to temper that and make it a bit more reasonable for consumers.”

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