Australia’s Orica expects higher ’09 profits as mining demand holds up

15 November 2008 | 04:33 Code : 18339 Geoscience events
Australia’s Orica Ltd (ORI.AX), the world’s top maker of explosives used in mines...

Australia’s Orica Ltd (ORI.AX), the world’s top maker of explosives used in mines, expects profit to grow in 2009, bolstered by steady demand from coal miners, defying cutbacks in other mining sectors.The positive outlook and a stronger-than-expected second-half result helped push the group’s shares up more than 6 percent, while the broader market added 2 percent."They were a little more upbeat about mining than I would have thought," said Ken West, a partner at fund manager Perennial Growth. "It’s quite good to have a company that’s still got some growth," he added, contrasting Orica with other companies that were likely to report falling profits this year.Orica’s managing director, Graeme Liebelt, said demand from countries like China, where he expects annual economic growth of around 8 percent, would underpin demand for coal used in power stations. The bulk of Orica’s explosives go to coal miners."We see relatively robust demand coming through. We would not expect much, if any, scaleback in that sector," Liebelt told reporters.Second-half profit before one-offs rose 16 percent to A$342.5 million, topping analysts’ forecasts for around A$306 million, according to Reuters calculations.Earnings from the Minova business, which it acquired last year and makes explosion trigger systems, grew more than analysts had expected.And the group’s chemicals division, including Chemnet, which attracted bids from private equity groups earlier this year that Orica rejected, also stabilised.Liebelt said Orica would not be hurt much by cutbacks in iron ore production, noting Orica’s main rival, former subsidiary Incitec Pivot Ltd (IPL.AX), was the biggest supplier to iron ore miners.Rio Tinto Ltd/Plc (RIO.AX)(RIO.L), the world’s second-biggest iron ore miner, announced a 10 percent cut in annual production rates for iron ore on Monday, following a similar cut by top miner, Brazil’s Vale (VALE5.SA)."Barring some really marked and significant slowdown in global economies, we think we might hold up pretty well," Liebelt said.Perennial Growth’s West was cautious about Orica’s view."If we start getting a few more of those announcements, they can’t be unaffected," he said.Orica last week indefinitely postponed plans to spin off its paints and coatings business, which had been planned for early 2009, due to volatile stock markets. Liebelt said the plan would be reviewed only after markets stabilised. ($1=A$1.46) (Editing by Ian Geoghegan)

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