Meanwhile, Gandhi says he can buy gas for $4 a gigajoule in America. The discretion is already shaping Orica’s future capital allocation decisions.
“Why would I invest a single cent in Australia?” he asks.
Orica is a little unusual in that gas is not an energy Source but the key ingredient in making the explosive products used across the mining, quarry and civil construction sectors.
Gandhi says he’s worried about fractures he sees in Australia’s current manufacturing supply base, including the recent collapse of plastics and chemical manufacturer Qenos; the ecosystem here is so small that most other players are either a customer of Orica, or a supplier.
While he welcomes indications that Resources Minister Madeleine King’s new Future Gas Strategy will contain initiatives to boost gas extraction, including so-called “use it or lose it” provisions to stop companies sitting on untapped reserves, he says these will take time to bear fruit .
New gas developments can take a decade to come into production, Gandhi says, and he has sympathy for gas producers, who he says haven’t exactly been given encouragement to invest in recent years.
So while he’s keen to see more detail on the government’s proposals. Gandi says action is needed now to bring prices down.
“I don’t ask for subsidies. I just ask that if you say $12 is the gas price, I can secure gas at that price on a long-term basis.”
That will allow him to keep producing what he describes as “precious” products for Australian industry, and keep funding the investment in the decarbonization of his own operations.
“I need that transition fuel.”
The strength of Orica’s results across its operations – every geography in its core blasting business increased earnings, as did its burgeoning digital solutions business – will be welcomed by investors, who’ve pushed the stock up almost 27 per cent since the global equity rally started last November.
Group earnings before interest and tax rose 10 per cent to $353.7 million. RBC Capital Markets analyst Owen Birrell says this was 10 per cent ahead of his forecasts, and about 7 per cent ahead of consensus.
In a good sign for those worried about the resilience of the global economy, Gandhi says demand from his customers remains strong.
“We have seen a clear weakness in lithium and nickel in some parts of the world, including Australia. On the other hand you’ve seen very, very strong demand for copper and gold. If you have those resources you want them out in the markets today.”
Gandhi also says five years of supply chain disruptions – from the pandemic to the war in Ukraine, to the dramas in the Red Sea – have battle-hardened Orica’s own supply network, such that it is able to change a premium for being the only supplier in the global market that can keep explosives moving around the world at all times.
Orica’s recent acquisitions of geotechnical measurement monitoring solutions business Terra Insights, and specialty chemicals business Cyanco remain on track.
The group’s suite of digital solutions now gives it the ability to help customers figure out what’s in their orebodies, blast their orebodies more efficiently and monitor them more effectively, but Gandhi sees plenty of room for growth. Terra Insights, for example, takes Orica deep into civil applications, as the business’s technology is used to monitor infrastructure such as dams and nuclear power plants.
“We are playing in the right spots. You can always do more,” Gandhi says.
