Mining and infrastructure solution provider Orica (ASX:ORI) has entered into a binding agreement to acquire Cyanco Intermediate 4 Corp from an affiliate of Cerberus Capital Management for US$640 million on a cash-free, debt-free enterprise value basis.
Cyanco is a US-based manufacturer and distributor of sodium cyanide primarily serving gold mining industries in the US, Canada, Mexico, Latin America, and Africa, and is expected to complement Orica’s establishing Mining Chemicals business.
Goldman Sachs Australia is acting as an exclusive financial adviser, Skadden, Arps, Meagher & Flom are acting as legal adviser on the acquisition, while Gilbert + Tobin is acting as legal adviser to Orica on the equity raising.
Orica, which has a $7.69 billion market capitalisation, says the acquisition will be largely funded from its existing cash and undrawn committed debt facilities, alongside an equity raising comprising a $400 million underwritten institutional placement and a $65 million non-underwritten share purchase plan (SPP).
As of today (22 February 2024), Orica has completed the $400 million placement, with settlement of the new shares expected to occur on 26 February.
The acquisition purchase price of US$640 million on a cash-free, debt-free enterprise value basis, represents an implied multiple of 7.5x CY2023 EBITDA (pre-synergies) and 6.7x CY2023 EBITDA (including expected pro forma net cost synergies of US$10 million).
The acquisition is expected to be completed by the end of FY2024, subject to the expiration of certain regulatory waiting periods and other customary closing conditions
Orica Managing Director and Chief Executive Officer (CEO) Sanjeev Gandhi says he is pleased with the ‘very strong’ support from new and existing institutional investors who recognise the strategic benefits of its acquisition of Cyanco.
Under the SPP, eligible shareholders will have the opportunity to apply for up to $30,000 of new shares free of any brokerage, commission, and transaction costs. The SPP will be priced at the lower of the placement price and a 2% discount to the 5-day VWAP of Orica shares.
The SPP is scheduled to close on 18 March 2024. Orica expects to retain a ‘prudent’ balance sheet post acquisition and placement, with gearing expected to be at the lower end of Orica’s target range of 30% to 40%.
Gandhi says: “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.
By combining these two leading businesses, we expect to improve our ability to serve our customers by enhancing Orica’s global network of transfer stations in key gold mining regions, supporting security of supply to mine sites.
The acquisition is mutually beneficial to both Cyanco and Orica stakeholders, and we look forward to welcoming Cyanco’s employees to Orica.”
Orica also announces the acquisition offers it the opportunity to expand customer relationships and solutions offered across the mining value chain, including the application of its digital and technical expertise in ore monitoring and processing to provide value-added services.
Given the ‘highly complementary’ nature of the two businesses, run-rate net cost synergies of US$10 million are expected by the end of the third year of Orica’s ownership.
According to Orica, sodium cyanide is a water-reactive compound which has been used in the extraction of gold from ore for over a century, and is still considered the most efficient extraction method.
The company adds the global sodium cyanide demand is touted to grow 4% per annum from 2023 to 2028, with North American demand growing 5% per annum in the same period.
Meanwhile, global treated ore is forecast to grow faster than historic rates due to greenfield and brownfield mining projects and decreasing ore grades.
Orica specialises in the production and supply of explosives, blasting systems, mining chemicals, and geotechnical monitoring to our cutting-edge digital solutions and comprehensive range of services to sustainably mobilise the earth’s resources.
The company’s 12,500 plus global workforce supports customers across surface and underground mines, quarry, construction, and oil and gas operations.
Cyanco’s production facilities serve the Nevada gold mining region and seaborne export market, while also supplying Canadian gold mines through rail link.
Write to Adam Drought at Mining.com.au
Images: Orica Ltd
