Australia | May 12 2026
This story features ORICA LIMITED.
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The company is included in ASX100, ASX200, ASX300 and ALL-ORDS
Flat first half earnings growth for Orica’s core explosives business was better than feared, while other divisions offer solid growth.
- Orica’s first half result beat consensus across all business units
- Flat, rather than lower, growth for Blasting is welcomed
- New sources of ammonium nitrate being sought
- Acquisitions provide diversity
By Greg Peel
Orica ((ORI)) is a major products and services supplier to the mining industry in particular, and also to civil construction.
The company operates under three main segments of Blasting Solutions (ie explosives), Digital Solutions (integrates digital workflows) and Specialty Mining Chemicals (for minerals processing).
Orica provided a trading update in March which disappointed the market, largely because Blasting Solutions, which up until FY25 represented some 60% of group earnings, was guided to produce “slightly lower” earnings in the first half (September year-end).
Management said at the time underlying demand for its premium blasting products and technology remained strong, but the strength of the Aussie dollar and lower coal production quotas in Indonesia would drag on that division.
The market looked past Digital Solutions guidance of 15% year on year growth and Specialty Mining Chemicals of 20%. The stock fell around -24% through March before finding a bottom and rallying 16% into May.
Last week Orica delivered its first half FY26 result.
It’s A Beat
The interim result beat consensus estimates across all business units.
Cashflow was much stronger than feared and the balance sheet is in strong shape, Morgans notes. Consequently, the board rewarded shareholders with a step-up in the dividend to 28.5cps (unfranked), up from 25cps in the first half FY25.
Underlying earnings and profit increased 5% and 8% year on year. In Morgans’ view, modest growth at a group level is a reasonable outcome given last year included a $15m one-off carbon credit benefit and the first half FY26 was impacted by a higher AUD (-$10m earnings hit) and lower Indonesian coal production.
At a divisional level, Blasting Solutions earnings were flat, compared to March trading update guidance of “slightly lower”.
Digital Solutions increased earnings by 25% (strong leverage to improved exploration activity) and Specialty Mining Chemicals earnings were up 20% (strong demand for sodium cyanide given high gold prices and improved manufacturing performance).
Pleasingly for brokers, Global Support costs fell -12.6% due to the initial benefits from Orica’s cost out program. The group earnings margin rose to 13.2% from 12.4%.
In line with guidance but materially better than Morgans expected, cashflow was down -6% year on year given adverse FX, one-off costs and higher working capital.
Importantly, the balance sheet is strong with gearing towards the lower end of management’s target range despite the company completing its $500m on-market share buyback.
Return on net assets increased to 14.7% from 13.8% a year ago.
Disclosure
Orica’s first half earnings came in around 3% ahead of market expectations. Importantly, the earnings beat was high quality, Ord Minnett suggests, underpinned by stronger operating cash flow and constructive outlook commentary from management.
Ord Minnett was encouraged by how management addressed key investor concerns, particularly around the transition away from the CF Industries ammonium nitrate contract in the US and recent plant disruptions in Australia, while also highlighting several attractive growth opportunities.
Jarden nevertheless has a nit to pick.
Orica has reduced the level of disclosure across the Blasting Solutions business, no longer providing volume or regional performance splits, hampering investor visibility of underlying performance, in Jarden’s view.
Jarden sees this occurring at a critically important juncture given:
1) considerable evolution of the North Americas Blasting Solutions operations (exit from CF Industries contract; acquisition of US explosives business Nelson Brothers);
2) the prospect that Blasting Solutions has seen considerable margin benefits from re-contracting and potential positive developments in Indonesian markets; and
3) the underlying performance of Europe, Middle East & Africa operations.
While business performance remains more leveraged to price/mix and cost-out than history, Jarden thinks the lessening disclosure introduces a greater degree of forecasting error to Orica’s largest segment.
Ammonium Nitrate
The end of the CF Industries ammonium nitrate (AN) contract left investors concerned about Orica’s ability to source sufficient AN supply to feed its explosives business, which was evident in the -24% share price fall in March.
In the US, Orica has been sourcing AN on the spot market since November 2025 following the expiry of the contract.
Despite tightening conditions in the North American AN market, exacerbated by CF Industries’ Yazoo City (Mississippi) plant outage in November, and global nitrogen disruptions linked to ongoing geopolitical conflicts, management described discussions with potential new suppliers as “very, very positive”, Ord Minnett reports.
Orica expects to secure new supply contracts by September.
While the previous CF Industries arrangement was economically attractive, management noted it was operationally inefficient, given restrictions on imports and reliance on a single plant.
Future supply is expected to be sourced from multiple North American locations, with potential incremental volume from debottlenecking nitric acid and AN capacity at the Carseland plant in Canada, which comes back on line in June.
Orica has commenced a request-for-proposal process with potential suppliers for long term AN offtake in the US, and has emphasised it will focus on diversifying its supply network to reduce freight/transport costs.
Outcomes are expected over next few months (likely a mix of domestic and global sourcing). Diversity of supply is a key focus as well as low cost delivered-to-customer via optimised logistics.
In this regard, the company expects to source closer to customers, Citi notes, which should reduce logistics and increase reliability.
In Australia, recent outages at the Kooragang Island and Pilbara ammonia plants have not had a material earnings impact, Ord Minnett reports.
Orica has mitigated disruption through imports from Indonesia and appears well positioned to benefit from global ammonia shortages and elevated freight costs.
With roughly one-third of the east coast contract book repricing each year, Ord Minnett notes there is scope for margin expansion.
Acquisitions
In early 2024, Orica acquired US-based Cyanco, a leading manufacturer and distributor of sodium cyanide, necessary for gold processing.
Cyanco has been a transformative acquisition for Orica, Jarden suggests, and continues to perform strongly. First half underlying earnings grew 20% and underlying earnings margins lifted 186bps, driven by gold/copper miner demand amidst elevated prices.
Orica remains committed to its mid-term target to deliver “high single digit” earnings growth for the segment, but Jarden thinks this could prove conservative given:
1) underlying demand strength in gold and copper markets;
2) the ability to unlock latent capacity from de bottlenecking at chemical plants in Winnemucca (Nevada) and Yarwun (Queensland); and
3) margin mix benefits from less reliance on external suppliers when market demand exceeds Cyanco’s productive capacity (higher network costs).
Back in March, Orica confirmed it has reached a settlement agreement with CF Industries, effectively ending litigation that commenced in October 2023.
That settlement was designed to remove persistent litigation uncertainty and allow the firm to establish a more diversified and secure supply base for AN within the US.
Simultaneously, Orica has reached an agreement with its joint venture partner, Nelson Brothers (Alabama), to acquire 100% of their explosives business.
Last month, Orica announced it has expanded into copper processing chemistry with the acquisition of the Danafloat, which has an established mining industry customer base across Europe, Middle East and Africa and Latin America.
The acquisition of Danafloat further strengthens Orica’s portfolio, Ord Minnett notes, expanding its exposure to zinc and copper processing chemistry. The transaction is capital-light, involves acquiring intellectual property and licensing only, and targets a total addressable market estimated at US$5bn.
Ord Minnett views this as disciplined, high-return merger and acquisition activity.
Danafloat diversifies Orica’s Specialty Chemicals division away from reliance on Cyanco’s sodium nitrate production.
Together, these adjacencies are delivering faster growth, stronger margins and greater earnings resilience, Morgan Stanley notes, helping to offset lower growth in the core Blasting business (flat in the first half).
Guidance
At its result release, Orica reiterated its medium-term growth targets for Digital Solutions (mid-teen earnings growth) and Specialty Mining Chemicals (high single digit).
The core Blasting business is expected to deliver GDP-plus earnings growth over the medium term. Management also reiterated its three-year (FY26-28) return on net assets target of 13.5-15.5%.
Management assured the direct impact of the Middle East conflict is limited, with no material disruption to Orica’s operations or supply chains.
Indirectly, higher energy and ammonia prices have lifted input costs, but also support import parity pricing on recontracting, particularly for traded AN volumes, Morgan Stanley notes.
Orica retains contractual pass-through mechanisms (lags now typically one-two months versus three months historically) and premium-mix benefits to help manage margins.
Indonesian demand, which was noted back in March as a drag on Blasting Solutions demand, should improve from here, Macquarie suggests, with coal customers looking to ramp up production given strong coal prices.
There is a lag given permit requirements but Macquarie believes the headwind over the last 12 months should turn into a tailwind going forward.
At least $100m in cost-outs are targeted over next three years via reducing non-billable costs. This is designed to more than offset inflation and improve business resilience.
The benefits should start to flow meaningfully in FY27, Macquarie notes.
No Change
After Orica delivered its poorly received trading update in March, the seven brokers monitored daily by FNArena covering Orica all retained Buy or equivalent ratings, as did Jarden and RBC Capital, noting the stock fell sharply on the day.
Following the first half result, nothing has changed ratings-wise.
The consensus target among the seven brokers fell to $27.08 from $27.51 following the trading update and continued to be revised lower to $26.19 ahead of the first half result. Following the result, the consensus target has lifted ever so slightly to $26.27.
Jarden has lifted its target to $26.00 from $24.20, and RBC Capital to $28.00 from $27.00.
Morgan Stanley sums up the general mood amongst brokers in citing robust near-term demand in mining end-markets, longer-term upside from Orica’s dominant market position, continued penetration of value-added products, and growth optionality across Digital Solutions and Specialty Chemicals.
Morgan Stanley sees an attractive risk/reward with Orica trading on 16.2x forecast FY27 PE versus a long term average of 17.7x, and offering 11% earnings per share compound annual growth over (FY25-28).
Macquarie acknowledges the stock has sold off on concerns around North American AN sourcing, thus finalised outcomes are a key focus area over next few months.
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