Indeed, Exsa was struggling at home, too. In 2019, Orica replaced the Peruvian group as the explosives supplier to the giant Antamina copper-zinc mine, which is owned by mining giants Teck, BHP, Glencore and Mitsubishi Corporation.
Losing the contract for the biggest mine in its home country wouldn’t have done much for Exsa’s share price on the Lima exchange. But it also meant Exsa was using even less of the available capacity at its whiz-bang factory.
And that’s where Calderon’s big opportunity lies.
In ballpark figures, Calderon estimates that the factory is currently running between 15 per cent and 30 per utilisation. His plan is to take that up to 80 per cent, without needing to throw too much capital at the plant.
Take detonating caps, for example, which are the most technologically advanced bit of a detonator. The Lurin factory pumps out 11 million caps a year, but Calderon believes he can take that to 55 million in just six months, without spending any capital. He could then go to 70 million caps by spending $US6 million.
“They had a Ferrari … but they were running it like a small Ford,” Calderon exclaimed on Wednesday after announcing the deal and a $600 million capital raising that will give him a handy war chest for further investments across the empire.
“It’s just a deal made in heaven for Orica.”
Orica has put the annual, recurring synergies from the deal at $US18 million ($27 million) by year three, with the first full year of ownership to be earnings positive.
Calderon will need to spend $US20 million of capital to deliver the synergies, but he emphasises that the estimates are conservative.
The risk here is integration and it’s one Calderon is determined to mitigate. The team that successfully ran the integration of Orica’s December 2017 acquisition of GroundProbe will be reassembled to ensure the deal runs smoothly.
The capital raising has been priced at $21.19 a share, a 5 per cent discount to Orica’s closing price on Tuesday. The deal price represents 13.9 times 2019 earnings before interest, tax, deprecation and amortisation, or seven times once the synergies are included.
Given Orica’s stock has had a 23 per cent rise the last 12 months, Calderon will feel he has investors on side for a deal that he’s clearly supremely confident will deliver.
