Thank you for standing by, welcome to the Orica Full Year Results conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. At which time, if you wish to ask a question, you will need to press Star followed by the number 1 on your telephone keypad. Please note that this Q&A session is open to investors and analysts only. Media representatives wishing to ask questions are requested to direct them to Orica Corporate Communications at the conclusion of the call. I must advise you that this conference is being recorded today, Wednesday the 19th of November, 2014. I would now like to hand the conference over to your first speaker today, Ian Smith, Managing Director and CEO of Orica. Please go ahead, Mr. Smith.
Thank you very much. Thank you all for your attendance. Just a quick apology, I came down with the flu last night, if I cough and splutter and whatever through this, I apologize in advance. Today, we're going to have Craig taking us through our financials, but also Nick is going to give you a flavor of how we're going with our contracts and how the strategy is applying in place. We've gone through a little bit more depth to give people that full understanding of how the strategy is actually hitting on the ground. I hope you appreciate that. We also have in the room Mr. Larke, who's about to decant the Orica ways on the announcement of chemicals. Well done, Andrew. Overview. Our net profit after tax was up 2%. There was a 48% increase in net operating and investment cash flows.
The efficiency improvements that we delivered during the year largely offset the underlying market conditions. The board has seen clear to raise the dividend to AUD 0.96 for the year, which is up 2%. We delivered our strategy through increased take-up of advanced blasting services. We had growth in the new markets of Africa, CIS and Pilbara, and we laid the groundwork for further growth in North America as well. We've got in place North American iron suppliers over the long term. In the East Coast of Australia, we have in place priced gas supply over the long term as well, which should give us a competitive advantage against others. We had a 35% reduction in our capital spending. There was a sale agreed with funds advised by Blackstone for AUD 750 million, and that should be completed in the first quarter of calendar 2015.
That will provide the company with the flexibility to pursue capital management. Our ongoing transformation program goes into the next phase, I'll be covering that in quite some detail. That provides a pathway on top of what we've done already to a further AUD 200 million-AUD 250 million in cost base reduction, which will be seen fully in FY 2016. Again, that gives us flexibility and positioning points in some challenging markets. On safety, another fatality-free year. I'm pleased to announce that we've hit the lowest all worker case rate point for the company of 0.4. That puts us well in the forefront of the top companies on the ASX for safety performance.
Both our lost time injury frequency rate dropped substantially over the year, and our all worker case rate is now at the point that anyone working for Orica can expect an injury to the point of medical treatment or above once every 250 years, which is not a bad record. The way that we've embedded risk and our risk approach throughout the company gives us great confidence that this will continue to put us at the forefront of performance of all companies. We've continued with our nitrous oxide abatement programs throughout the company. From the base year of 2010 till now, we've actually reduced the emissions of nitrous oxide by 50%. That's the equivalent of taking 300,000 cars off the road.
In conjunction with CSIRO, we've come up with new catalysts, and we're confident that we'll continue to develop new catalysts, which will enable us to continue this downward pressure on what all companies should be working on, which is those gases that are deemed to contribute to global warming over the long term. We're certainly doing our part in that. We're also involved in a thing called MCi, which is mineral carbonation. Basically what this looks at doing is to duplicate a natural process. You take some bentonite, which is a clay, you put it under pressure and heat, and then you blow a stream of CO2 over the top of it. The clay captures the CO2, and it's bound forever because it is simulating a natural process.
And the product of that can be used in building materials such as bricks, such as plaster board, et cetera. We're at the stage where we're through laboratory testing, and that's a tick on everything we've done so far. In early 2015, we'll be moving into field trials using some offtake gases from Kooragang Island. The great thing about this is it can be retrofit to existing power stations. It affords greater flexibility, and it talks to the whole of the base of our customers who are supplying to the thermal coal market. It's not just us that are very interested in this approach. We're joint funders with the federal and New South Wales state governments. We've already signed up several universities and several others within and without Australia are wanting to participate. We're negotiating agreements with them at the moment.
We've signed up an agreement with A*STAR, which is Singapore's Agency for Science, Technology and Research. And they're looking at how can they extract the metals in the serpentinite streams to release nickel and other materials. Then on top of that, we've got an agreement with Xinjiang in China, where they have 9 billion tons of serpentinite resource, which they want to harness this type of approach and apply it to some of the coal-fired power stations that that serpentinite is close to. We're also talking to other building companies who are in the process of signing MOUs with us. Basically, this provides a technical pathway to capture CO2 in a way that's starting to excite both the university sector and the industrial sector. And we will end up owning 40% equity in any company that comes out of this technology.
With that, I'll hand over to Craig to go through the financials.
After you. Thanks, Ian. Make sure I don't drink out of your glass. Let's move that along. Thanks, Ian. Good morning, everyone. This morning I'll provide some details of the company's financial performance for the 2014 financial year. It's a result that, in my view, demonstrates another year of resilient earnings in the face of market challenges and delivers an improving underlying cash flow and balance sheet, providing more financial flexibility for the future. Detailed profit report, financial accounts, and our Investor C ompendium contain additional information, and they've been lodged with the Australian Securities Exchange this morning and also can be accessed on our website. From a headline perspective, statutory net profit after tax for the period was AUD 602.5 million, 2% up on the comparative period 2013.
As I mentioned at the half this year, we've had to restate our 2013 figures in line with changes in accounting standards, and these are principally around accounting treatment for subsidiaries and joint arrangements and also treatment for returns on defined benefit superannuation funds. Further details on them can be accessed on our note 41 of our financial statements. However, the headline impact of these changes is that the full year 2013 net profit after tax result has been restated from AUD 601.6 million we reported this time last year to AUD 592.5 million. That's why the comparatives are provided for you. Turning back to 2014, from an operational perspective, EBITDA of AUD 1.23 billion was 2% lower than 2013, with generally lower demand conditions across mining services and chemicals markets. This was combined with the costs incurred in the first half to reposition our Latin American chemicals business.
Largely offsetting these impacts were efficiency benefits across the board, and this included our ground support optimization program, favorable foreign currency movements, and profit on asset sales. A particularly pleasing result this year was another year of improved cash flow, as net operating and investing cash flow was up almost AUD 150 million, so up 48% to AUD 460 million. From a shareholder's point of view, earnings per share was up 1% to just under AUD 1.64 per share. Finally, as Ian said, in keeping with the company's progressive dividend policy, directors have declared a final ordinary dividend of AUD 0.56 per share, and this has been franked at AUD 0.20 or 36%. We'd expect that going forward, at least in the near future, they're unlikely to be franked at more than 40% as the company continues to grow its international presence. Now moving on to the group EBIT waterfall.
At AUD 930 million, EBIT was down 4% or AUD 38 million over the prior year. In the face of challenging global mining markets and significant pricing pressure broadly, explosives product returns remained generally resilient. Sodium cyanide contribution declined, and while the ground support integration benefits were achieved, these benefits were largely offset by tougher ground support trading conditions. Starting at the left of the chart, earnings this year was impacted by volume reductions across all mining services product lines being explosives, sodium cyanide and ground support. This resulted in an AUD 44 million decline. AN volumes were down 1%, and while cyanide volumes rebounded in the second half, up 9%, they still ended up the year at 5% down. Lower net pricing for sodium cyanide and ground support products resulted in an AUD 35 million decline in earnings.
Net pricing across the explosives product lines generally remained flat to slightly down, despite market pressures in most markets. Again, reinforcing the resilience of our core explosives product lines. The chemicals business contribution was AUD 27 million lower, impacted by lower demand across Australian chemicals markets generally, and an AUD 14 million reduction in the Latin American business. Again, this was primarily due to the AUD 11 million repositioning costs we took in the first half of the year. Like last year, the New Zealand business continued to perform well. Excluding FX impacts, depreciation was AUD 8 million higher, while FX benefits, mainly a weaker AUD to USD, lifted earnings by AUD 24 million. As I said earlier, a profit on asset sales this year was up AUD 23 million in EBIT terms. Efficiency benefits for the year of AUD 69 million were achieved this year.
As I said, AUD 25 million of these benefits were associated with the ground support optimization project, in line with our target. Other efficiency benefits included headcount reductions across all functions as the new operating model continues to evolve. Finally, there was AUD 39 million of transformation and other costs. This is a mixture of general cost inflation of AUD 40 million, transformation costs of AUD 18 million, first half shut down and other costs of AUD 10 million, and this was partially offset by the AUD 29 million of ground support costs we took in 2013 that were not repeated in 2014. This slide is intended to provide an overall snapshot of the regional and product line dynamics around the mining services network, and Nick will cover more of the granular detail a bit later.
If I move through at the high level there, Australia Pacific explosive volumes were up 1%, and this was represented through 33% growth in the Pilbara region and a 39% increase in supply to third-party suppliers as we loaded our plants. These were mostly offset by lower volumes across eastern coal markets. Net explosives pricing was generally flat and showing good sign of resilience in very tough markets, and both sodium cyanide and ground support product groups experienced challenging volume and pricing conditions. Although, as I said, global sodium cyanide business volumes were up in the second half. In North America, explosive volumes were down 3% due entirely to the decline in volumes to the U.S. coal market, and that's mainly in the East. Overall, coal volumes were down 10%, with Eastern U.S. coal down 22% and Powder River off 2%.
Metal mining markets and quarry and construction volumes were up slightly. Importantly, an increased take-up of advanced blasting services was achieved. The ground support market remained challenging and business optimization return continues. In Latin America, volumes were down 2% after a second half rebound. Trading performance across the region was mixed, as we had increases in Colombia and Brazil, offset by declines in Peru and Argentina. The highlight in this region continues to be the uptake in advanced blasting services and our continued reinvestment in this capability. In EMEA, volumes were up 14%, driven by continued strong growth in our focused growth markets of Africa and CIS, up 41% and 12% respectively. In fact, volumes were generally positive across all of the region, combined with improved pricing conditions across key infrastructure markets.
It was also pleasing to see some recent contract success on the back of advanced blasting contracts being signed in Nordics and CIS. Finally, Asian explosive volumes were down 15%, mainly due to a 21% reduction in Indonesian domestic volumes from weak coal markets and lower stripping ratios. Pricing was also down in this market. However, an improved Philippines performance offset some of this impact. The main point I wanted to emphasize from this slide is the second half improvement that we saw in volumes across most markets, apart from our core coal markets of Australia and Indonesia. As you can see from an overall perspective, volumes in the second half were flat after being down 2% at the first half. A pleasing outcome this year is the continued resilience of explosives contribution generally across our network, despite increased market pressure.
This has been achieved through a combination of take-up of advanced blasting services and a sustained focus on margin and costs. Just a reminder that this chart tracks the year-on-year change for explosives products and services contribution on a per ton basis. Tons are based on total ammonium nitrate and emulsion volumes, and regional contributions have been adjusted for FX and any significant one-off costs. Generally, as you can see there, explosives returns per ton have improved year on year across all regions apart from Australia. A good, strong resilience in the face of market challenges. In Australia, the contribution per tonne was down 3% year on year, mainly due to an unfavorable mix impact. This was due to geographically, through increased sales to the Pilbara region, and structurally, as increased supply to third-party suppliers in the industry.
Across the Americas, again, after normalizing for currency movements, both North America and Latin American contribution per tonne were up 3% and 2% respectively. North America's increase was attributable to cost efficiencies and increased services, while in Latin America, the increase was due to a continued success in the rollout of our technical offerings and advanced blasting service contracts. EMEA increased 12% through improved pricing outcomes, a higher take-up of advanced blasting services, and growth in our full-service offerings in Africa. Asia's contribution increased 8%. This benefited from increased production rates at Bontang Ammonium Nitrate Plant, cost reduction programs across the region, and improved returns in the Philippines market. From a chemicals perspective, EBIT declined 29% to AUD 67 million, with a significant portion of this decline being due to several non-recurring factors, along with some generally subdued market conditions affecting traditional Australian chemical markets.
Earnings declined AUD 14 million in the Latin American business. As I said earlier, AUD 11 million of this was due to the rationalization costs that we took to reposition that business. On top of this, general chemicals volumes were down due to soft trading conditions, generally combined with the temporary shutdown of operations of key mining customers that affected acid volumes. Lower caustic soda prices and volumes also impacted Watercare sales. On the flip side, New Zealand earnings continued to improve, driven by increased demand from the dairy and pulp and paper sectors, in addition to favorable currency impacts. Ian will provide more details on the chemicals pathway a bit later. During the year, AUD 504 million was spent on capital expenditure. This was within our previous guidance of AUD 572 million and almost AUD 280 million below 2013 levels, demonstrating the application of our capital-light strategy.
Just on this point, if you profile the CapEx spending for the three-year period 2011 to 2013, with the three-year period you see there, 2014 to 2016, CapEx requirements are forecast to have been stepped down sustainably by around one-third of those former levels. During the year, AUD 186 million was spent on sustaining capital, with the main expenditure being on plant turnaround projects at Kooragang Island. Sustaining capital programs across our network of major nitrogen and initiating system plants continue as planned. AUD 82 million was spent on customer-facing contract capital. Just a reminder that this capital comprises spending on contract-related assets, things such as Mobile Manufacturing Units, emulsion plants, and on-site storage requirements. This should generally run in line with our contract success or new market opportunities. Therefore, we'd expect our forecast spending in this category to increase as we secure more contracts going forward.
AUD 85 million was spent on growth capital, with the main item being a project to align and standardize our global systems and processes. This is a key program to ensure that we're internally optimized through a common approach and common data, also being better able to service our customers and achieve savings along the way. A really critical project that is. Finally, AUD 151 million was spent on the Burrup AN project in the Pilbara region, with around AUD 110 million to complete that project next year. Moving to cash and debt management, I'm pleased to report all key metrics having improved year-on-year. Net debt declined approximately AUD 100 million to AUD 2.24 billion, reducing company gearing by 3 points to 33.7%. At this level, gearing is now slightly under our stated target range of 35%-45%.
Net interest expense was lowered by AUD 34 million to AUD 116 million due to lower average debt levels, competitive borrowing costs, and higher capitalized interest. Average funding costs for the period were around 4.4% versus 4.8% last year, inclusive of commitment and other fees. Capitalized interest was up AUD 16 million to AUD 28 million, with the Burrup plant representing the largest qualifying project. Interest cover remains healthy at 8 times, well above covenant requirements of 2 times, and also stays above the internal company target of 5 times. Like last year, a really positive feature of the result has been in relation to our underlying cash flow generation. As I said earlier, net operating and investing cash flows were up AUD 150 million to AUD 461 million due to solid underlying cash flows, focused target trade working capital management, and our capital-light investment approach.
Trade working capital ended the year at AUD 646 million, around AUD 52 million lower than the same time last year. Improvement in underlying inventory management and debtor collection drove an AUD 67 million underlying improvement, more than offsetting an AUD 15 million adverse FX translation impact. Our well-funded balance sheet and improving cash generation performance provides a solid base for managing in these current challenging market conditions, and importantly, provides some flexibility with respect to future capital application. The company had total debt facilities of AUD 4.1 billion at the end of the year. In line with the improved balance sheet and underlying cash flow performance, undrawn facilities were reduced by over AUD 500 million this year. Even with this change, the company maintains a solid liquidity position with headroom flexibility, and from a debt maturity perspective, a reasonable tenor profile at just under six years.
The company remains committed to its investment-grade credit rating of BBB stable, and we actively monitor the nature and extent of our facilities in line with that position. With our expanded international presence, around one-half of our EBIT result is exposed to translation from currencies other than Australian dollars, and this comprises a basket of 45 different currencies. However, the largest four currencies comprise around 60% of the exposure, the U.S. being the largest at 39%. As a guide, while we talk about a diverse basket of 45 currencies, we work around a 1% sensitivity as having approximately a ±$7 million impact on EBIT. To mitigate this exposure to some extent, we currently have a range of low-cost hedges in place for around 40% of that exposure.
Through the use of participating options at premiums lower than last year, the resultant sensitivity post-hedging is somewhat asymmetrical, with a $7 million upside, but only a $4 million downside for that 1% swing. Not shown here is a broader range of commercial or trading FX transaction exposures that we manage across 55 other currencies. Just for the purpose of extra information there, the predominant transaction exposure is a long US dollar exposure against a whole diverse mix of currencies. Australian dollars to the U.S. represents less than 15% of that exposure, with US dollars to Latin American block currencies representing 40%. We actively manage that risk through a combination of contractual arrangements and hedge instruments as we are governed by our treasury policy. Finally, our environmental remediation program.
On this slide, we've included both the provision movement over the last four years and the forecast spend over the next four years. As you can see, our provisions have reduced by around AUD 60 million over the last four years as key sites are remediated. Over the next two years, our spend rate is expected to increase as we continue work on former sites at Villawood, Yarraville, Engene in Norway, and Seneca in the U.S. At year-end 2014, total environmental provisions have reduced from AUD 188 million in 2013 to AUD 168 million, and this is in line with our community and regulatory commitments. Botany site, of course, being the largest. Just as an update on the Botany projects, in terms of Botany mercury remediation, work continues in line with our approved remediation plan and is proceeding to schedule.
Soil remediation is complete, and the installation of barrier walls will commence in the coming months. When this is complete, permanent capping layers, they will be installed. In terms of other Botany-related programs, groundwater remediation and hexachlorobenzene, or HCB, waste treatment provisions continue to be maintained at levels consistent with last year. The groundwater treatment plant at Botany continues to operate at the level required to contain the plume. As in prior years, annual cash spend on this program is around AUD 12 million, which, in order to maintain that provision of AUD 60 million, similar charges are charged to earnings. In terms of our HCB stockpile at Botany, we continue to safely store the waste in fully licensed and secure storage facilities while continuing to assess other safe and environmentally sound destruction options. All other remediation programs at former sites around the world continue to make good progress.
With that, I thank you, and I'll hand you over to Nick.
Thanks very much, Craig. As Ian mentioned, I'm just going to give you a bit of an insight into what's going on in our mining services businesses around the globe and a bit of insight into our strategy and our delivery of that strategy. In terms of a summary of the highlights, we've achieved very good growth in our developing markets, being Africa and CIS, but at the same time, we've been able to maintain volumes in all of our mature markets around the world. The main one is our ability to hold, and in fact, slightly grow our volumes in Australia in the last 12 months. Probably the most significant part of our business that's transitioning is the amount of revenue that we're gaining from our advanced blasting services and products, and that's now at 21% of our total blasting revenue.
About AUD 1 billion of our mining services business is what's coming from the area we term advanced blasting services, which I'll talk about a little further on. We have had some real success in the last year of transitioning some of our technology products through to introduction. The two biggest ones being our next generation of our EBS, or Electronic Blasting System, which is a world-leading product that we now sell globally. More significantly has been the development and now release of our high-energy bulk products. The background of that is ammonium nitrate, if you take that with an energy factor of one. A normal emulsion can give you sort of double the power of ammonium nitrate, and our new high-energy bulk products can give you up to three times. That's an area that the industry has never been able to get to.
They take a long time to develop. Just to give you an indication of how long it takes, in 2013, we produced and trialed 1,000 tons of this product. Last year, we went on to onsite trials. It was 8,000 tons. We've now released it to the market. In October, we sold 4,000 tons in one month. Really at the moment, that is going to be the biggest single growing product for us. Understand that it is a much higher price. The customer buys a much lower volume, but our margin per ton is much higher. You'll see a transitioning in our business where on emulsions, it may appear we're selling less of it, but we'll be making more money. At the same time, our customer will be seeing a lower cost. It's a great development and an industry first.
We've had a very good year on contract wins. I'll speak about that. It's flown on from the same as the last couple of years, where we're maintaining our win rate on the majority of our existing contracts. We're also picking up a good share of greenfields and competitor accounts. Importantly for us, our global footprint continues to develop. We're really transitioning now where, in the next few years, the earnings from outside Australia are going to well and truly outstrip what comes from within Australia. Although, we still have an objective to maintain earnings in this part of the world. Just to give you some insight into where we are in the world and what we do. Currently, we operate in about 100 countries around the world. Really, the only part of the globe that Orica doesn't have a solid footprint is North Africa.
There really isn't that many opportunities there that are of interest to us at the moment, but the rest of the globe is very well and truly covered. We are the only explosives company that has that sort of coverage. We've got, as Craig mentioned, a lot of our emulsion plants that are based either near a customer or on a customer site. We own those plants, so it embeds us with those customers. Around the world, there's sort of 40 major emulsion plants that sit on mine sites. We have over 1,000 Mobile Manufacturing Units, which are the units that take the explosives product onto the bench, mix it and put it down the hole. Of our sort of total 14,000 workforce, 4,500 of them actually work on mine sites. They're embedded there.
They're technical and operational people delivering the service to the miners. We've now moved to where we've got 32 advanced blasting contracts around the world. That's really where we are paid for performance. We're not paid for product. We're paid for the performance we deliver. I'll speak about that a bit further. Just an idea of how we're embedded with the large miners. About 30% of the mining services revenue comes from the top 20 miners. That's grown a bit in the last 12 months. The other thing that Orica has is our unmatched rivalry on our global footprint, both in terms of AN manufacture, but also our buying power. You need to remember that we sell nearly 4 million tons a year of ammonium nitrate equivalent. We make about 2 million. We're a net buyer of 2 million.
We are always in the market buying, we have the ability to flex where we buy, who we buy from. We've also made a lot of progress in the last 12 months of getting the licensing and the transport in place to import export. For instance, at the moment, we import into Western Australia from our own plant in Indonesia, we export out of Eastern Australia into Latin America. Going forward, we're really enabling ourselves to have good control of our AN supply and price. In terms of our contract profile, we had quite a number of contracts come up for renewal in the last 12 months, we retained well in excess of 90% of those. That's a good outcome. As is always normal, you lose a few, and we have.
For every dollar of contract revenue that we lost at retender, we picked up in excess of AUD 2, either at greenfields, new mines or from competitor accounts. You add those two together and the net effect over time is an increase in our global market share. There are two key targets that we measure, and that's two years running that we've met both of those KPIs. Significant progress with our global accounts. The benefit for us is we are the only explosives company that can give a global offering to the major miners. In the last year, certainly our global accounts approach gave us some work in Africa and North America that I don't think we would have got if we hadn't been able to offer a global offering. We're making quite significant progress on these advanced blasting contracts, paid for performance.
In 2012, not AUD 1 of any contracts were won on advanced blasting. 2013, it was about 3% of our total contract wins. In the year just finished, it was about 7%. The amount we're winning of it is increasing. In the last year gone by, about 4% of our total mining services revenue came from these paid-for-performance contracts, and you will see that grow year-on-year going forward. The other sort of two important points there is that our offering of these advanced blasting services has played a significant part in us winning our contracts. We usually get feedback from our customers, why did we win? In 80% of all of our contract wins, they've said, "It's the offering in addition to the price that actually got you the work." The strategy is very truly paying off.
We've got a big chunk of contracts we're finalizing at the moment, which will all put us in a very strong position for 2015. We've had a good year in that area. Commodities, I'm not going to talk about the price. Everyone knows where they are. Our commodity prices are down. Biggest impact of commodity prices does flow through to coal. Interestingly, for Orica, we haven't seen that many mine closures in our portfolio. Most of it has been reductions of strip ratios or deferment of individual pits. On an improvement in the coal price, we would expect volumes to come back from those existing customers. We are focused globally on trying to get a good balance across all the commodities, that gives us some protection against adverse impacts in one particular area.
In the last 12 months, you will see that we've reduced the total amount of coal exposure. It's gone from 35% to 32%. That is a little bit on the reduction in coal volumes, but it's also by the increase in our exposure to copper and to iron ore. We're just trying to rebalance the portfolio. We pay a lot of attention to where all of our customers sit on the cost curve. Globally, we're pretty well off. Some issues in coal, which everyone's got. We think we're in a pretty comfortable position at today's commodity price. Obviously, wouldn't like to see it go lower. Goes the other way, there's some upside. In terms of globally, we are focusing and growing our share in copper. Iron ore, we're growing our market share.
Gold's pretty flat. The majority of the customers we're with all have pulled their costs down, where they're all total cash ex-cost positive now. Thermal coal, challenging. Coking coal for us is okay. We've actually seen some upturn in the quarry construction market, both in Europe and North America. A couple of slides on market overview. As Craig said, talking Australia-Asia, Pilbara, very good growth for us, which is important with Burrup coming online. The coal's down. As I said, it's really stripping, not mines closing. There is a lot of pricing pressure in Australia. That's been expected. We know. We're working through it. What is interesting is that the customers recognize that product pricing is only part of the answer. They need to improve productivity. The take-up of our advanced blasting is really starting to get attention from the miners.
Yes, there'll be some adjustment to headline prices. They need us to help improve productivity. The strategy we've got is going to actually help us and our customers a lot in Australia. In the hard rock sector, the advanced blasting and the high-energy bulk products have had a big take-up. Yes, there is a whole lot of new market entrants coming into Australia, well-publicized. Let me give you a couple of insights why. A few of them are not very happy about Orica making big inroads into their markets globally. We've gone there, they've come here, tit for tat. They're focusing a lot on just a price approach. We don't play a price approach unless we decide we're going to play it.
At the end of the day, we offer a complete offering to our customers. In the majority of cases, they're looking for value, not just cost. There'll be 5% or something of volumes that'll change around. In the last year, I've lost a couple of contracts in Australia. I've also won some, too. I'm okay with what's happening in the Australian market. I'm pretty comfortable where we are with our major customers. Indonesia, as Craig said, quite a challenging market. There was both the elections. There was some stoppages in the metal mines with the focus on in-country smelting. Volumes were really hit hard in the last 12 months in Indonesia. The outlook actually for Indonesian coal, even though the price is down, is starting to look better.
They've got some big power shortages in Indonesia and big power shortages coming up in India, and Indonesia's a solid market for that. We are actually expecting an uptick in our Asian volumes in the next 12 months off what was a low last year. In the Americas, we did have lower H1 volumes. A lot of that was driven by a very long and prolonged winter in North America, which gave us access problems and railing problems. H2 volumes have come back very strongly, and they've actually continued. Coal, it is all about East Appalachia for us. The impact on our coal volumes all came from the Appalachians. We are transitioning our contract profile by targeting winning some work to move from east to west into Illinois and Powder River, which are lower cost.
You will actually see over the next two years an increase in volumes from Orica in North America, but it will be with the lower cost profile coal producers. We are seeing very significant take-up of our advanced blasting services. I'll just give you an insight. A high-energy bulk product used in a copper mine in Latin America has enabled the mine to increase mill throughput 20%-30% with no additional capital or no additional milling cost. When you can do that by just breaking the rock in the mine, the net impact is a 10%, 15% increase in metal production, they are very interested in what we can offer them. It is the single biggest thing that we've developed that's going to have a big impact on our bottom line and actually on the industry in the next couple of years.
Advanced blasting services are up 11% year-over-year in the Americas. Ground support North America has had a tough 12 months because a lot of that ground support goes into the underground Appalachian mines. We actually think it's getting close to the bottom. There's been a couple of months now where it's actually showing some signs of improvement. The outlook's a little bit better there. As I mentioned, we've had some really big contract wins, which will give us quite significant increase in tonnages in 2015 and then more so in 2016. Europe, Africa, actually a really good period for us. Big uplift in profit, big uplift in volume. We've now got a solid position in Africa. A couple of big mines that are still ramping up there.
They're each 50,000 ton a year mines, they're going to make a big influence on our bottom line. CIS, Russia, big opportunities for Orica on technology. We're growing very, very quickly there. The European quarrying market's picked up. Good overall. We see further growth in those markets in the next 12 months. The ground support market in Europe, which has really now transitioned from coal to construction and tunneling, is picking up. The South African ground support market, which had a tough 12 months with the platinum strikes, it's out of that, and that's really improving. Another improved year coming there. Just wrapping up quickly on the strategy. For us, it's about a big focus on research and development for what do the miners need next, Ian will speak about that.
We have our global manufacturing and supply footprint, we manufacture in all continents around the world now. We've got a lot of technology on blast design, that's designed to give the right output for the customer. We've then got blast execution and measurement and improvement, that's the sort of focus area we have. In terms of what we're looking at, we are expanding our global footprint. As I said, more and more business growth outside of Australia. We're putting in place a couple of technology alliances with the global miners, we're going to start working together on some of these challenges. We're moving more and more to this paid-for-performance style of contract. In terms of what do we call advanced blasting services, it really is about productivity, license to operate, and cost per ton.
That's the breaking the rock to smaller fragmentation size in the pit. It's dealing with noise, vibration, and fume. They're all big issues for the miners now. It's speeding up underground development. It's increasing coal recovery in coal mines, it's the ability to measure, and improve. That's the key part of our strategy going forward. Thank you.
I hope that gave you quite a granular appreciation of how we're going with our contracts and the application of our strategy, which is really starting to kick some goals and deliver to the bottom line. I'm gonna go through the next stage. This is a technological breakthrough area that we are leading the market in. I've spoken with some of you before about wireless initiation. We have actually been running trials, it'll be commercially available mid 2015. Now I'll run you through what that means because this is true breakthrough technology that no one can match us in. That's what a normal face underground looks like when you're trying to charge up. Lots and lots of detonator cords hanging out of the face. This is stripping a drive. It's a bowl of spaghetti. It takes lots of people a long time to hook it up.
You make mistakes. Holes get fired in front of others. With wireless, that's what it'll look like. It speeds up the way that you can put things in place. Some of the first field trials we're gonna be undertaking in 2015 are going to be with a group that fires in an open cut right next to a community. Now they have a regulatory control that over the top of most of their blasts, they've got to put blast mats, which suppresses the noise. You hook up all your detonators with all the cords everywhere, then you drag your blast mat over the top and imagine how many holes don't go off as a result of cutoffs, et cetera. With the wireless system that we have, they can just have one person charging up, then they drag the blast mats over the top.
No cords to be cut. Gives them total flexibility. It enables people to be able to fire stopes underground in whatever sequence you want. It enables people to fire seismic lines without having to run connector cords from hole to hole. It enables people in open cuts to fire the bench in any order, in any segment you want. If you want to fire the middle out of a bench, you can. You don't have to worry about getting access to the far side of a bench to fire the remainder. It gives total flexibility, and it'll be commercially available in 2015. There's no one else in this industry that can make that statement for numbers of years, if ever. This is a technological breakthrough which gives total flexibility and productivity to the miner. On top of that, we expect commercial application of lasers in 2015.
No one else can talk about this. This is an area that through patents and other things, we've racked up largely and will be at the forefront for many years. What's so important about lasers? They replace detonators. When you ship detonators around the world, they're classed as primary explosive. They're the hardest thing to transport. They're the most inflexible item to transport. When you get them to a mine site, you've got to store them in a different magazine to the boosters, et cetera. It takes up space. It makes it hard for inventory control. These lasers can sit inside the boosters and be shipped because they're not an explosive device until they're activated. We've now come up with a laser system and the impregnation of PETN, which is the booster compound, which sensitizes to a laser.
Which means you can have the same size of detonations per second as you get out of electronics. This gives more versatility. It gives you an easier inventory management. It gives you an easier transport management and doesn't diminish any of your flexibility and firing patterns. By the end of the 2015 year, we will have some commercially available application points that'll revolutionize the industry, and no one can follow us for years. We're pretty excited about that because it complements exactly what we're doing with our strategy of offering miners better productivity and a lower cost per ton. I think most of the miners are realizing, as Nick said, that they've pushed their cost downs about as far as they can go without destroying value. It's now about productivity, and that's where our strategy really comes in and plays.
On Burrup, basically at 68% complete, and the overall project is 91% complete. The most important thing about Burrup, as you can see from those pictures, all the big modules have been floated in, dragged to site and erected. The upcoming cyclone season will not interrupt the completion of the project. If we still have big modules to come in, there's some risk of exposure of delay on the project. That'll be completed mid to late 2015 with a ramp-up through 2016 to hit full production at the end of 2016 calendar year. Água Preta is just another example of those 60-odd emulsion plants we have spread around the world on major sites. This feeds into a whole set of new mines that we're opening up as a new market. We'll have that emulsion plant finished by the end of this year.
On top of that, I mentioned in a presentation last year that we were looking at expansion of Kooragang Island on the basis of a nitric acid tank. We've actually finished the feasibility on that. It is feasible. It will give us an uplift of 70,000 tons at the lowest cost per ton of any project around the world in ammonium nitrate. We'll activate that project when the market gives us the right signal that it's ready to be activated. Basically, we have in reserve an uplift point of 70,000 tons out of KI for the Southeast when the market is ready at the lowest capital cost of any expansion project around the world. Let's talk about the next phase of transformation. This is really designed to make sure that we have a true resilience in the face of market challenges.
It also gives us a positioning for growth that's unequaled. It gives us an efficient, scalable, and flexible operating model. We've been pursuing transformation in the company for several years now. This is the last big tranche of embedding the new structure and making sure that we're truly aligned, so whether we can enable growth, but we can also meet a flexible and challenging market position. The main three components are around supplier efficiency. We're well advanced in going out using our size under the new structure to actually give people the opportunity to drop their prices in supply to us if we give them an open door to a greater slice of how we operate as a company. Labor and manufacturing efficiency, we've gone a long ways down this path, but we'll be enacting the last tranche of that.
Basically, what we're doing is cutting out SKUs. That's a fancy word for the lines of products that we produce. In the last 12 months, we've cut out over 1,800 SKUs. We used to produce all fancy types of det cord with different colorings and different configuration and figure eights versus wound on coils. We've been giving customers opportunity to go to standard supply lines, giving them a discount, but actually enabling our factories to be more efficient and to drop their costs. That will advance further. Out of that, we have some plans for the amount of manufacturing points that we have to run to be reduced as well. A European restructure. Basically, we've got a fair footprint in Europe, but it's being run as a collection of independent operating points.
We're going to go back and look at the overall rationalization of what Europe should look like as concerns plants and where people are there to back up the market. That will lead to a point where some of the factories that we now presently run in Europe will be closed, and we'll restructure the whole of the European approach. The other thing to keep in mind is that Q&C or quarries and construction is coming back in Europe, but our major growth markets are on the edge of Europe into the CIS, Eastern Europe. A lot of the traditional Western European areas are purely for the Q&C market into the future. We're restructuring on the back of that.
What that looks like in a pie, the gross benefits, 45% out of supplier savings, 48% out of labor and manufacturing, and 7% out of the European restructure. Over the last couple of years, we've dropped in excess of 1,300 people on the back of the installation of our new structure and the removal of duplication. We have not dropped anyone that is customer-facing, so we're actually ramping up the amount of customer-facing support, but dropping off the functional support areas in the back office, if you like. During this year, we'll drop a further 700 people. This is before chemical separation. We will have a manufacturing footprint that is far more efficient and talks to our global structure. They're the main auspices of that.
Out of that 700 people, we've already informed over half of those people of what is intended over the next couple of months, by the end of the first half, most of those redundancies would be enacted, or most of the people would be informed of how that would trail off during the second half of the year. What does that mean for us? The cash costs envisaged in this ongoing transformation in 2015 is between AUD 60 million-AUD 70 million. The non-cash costs, mainly out of that European restructure and plant closures, are AUD 40 million-AUD 50 million, which could add up to an indicative annual cost for 2015 of AUD 100 million-AUD 120 million. Then in 2016, drop back to AUD 20 million-AUD 40 million. The benefits before those costs in 2015, AUD 140 million-AUD 170 million. Then in 2016, AUD 200 million-AUD 250 million.
You can see that we are setting up to drop our cost structure even further for the long run, which will give us an enablement of margin control and margin enhancement greater than anyone else in this industry. Chemical sale. There's an agreement to sell chemicals business to the funds advised by Blackstone. Purchase price is AUD 750 million, which in FY 2014 EBIT terms is over 11 times. The completion is expected in Q1 of calendar year 2015, February, March timing on the completion. The conditions are FIRB and the New Zealand authorities, other customary conditions, including material adverse change provisions, which only are applicable during the time of completion of the deal. They're at a level that we're confident they won't be enacted. Indicative financial impact.
After the costs of this transference are undertaken and brought to bear, we're seeing a range of AUD 620 million-AUD 650 million, that's after all the separation costs attributable to the sale are taken into account. That's roughly in line with the book value of the chemicals division as it stands at the moment. We will continue to carry the environmental liabilities. As part of this transition, we're undertaking an identification point, a baseline survey across our sites in chemicals to establish what that environmental profile looks like, that historical profile will be kept with us. As Craig went through before, those environmental provisions in excess of AUD 160 million, over AUD 130 million of them are already there for chemical sites. Why did we go ahead with this?
We undertook a strategic review that said, given that this constitutes around 7% of our EBIT, given that we are moving to a full-play mining services company, it was far better for the future of chemicals to be in the hands of someone that could give particular focus to that group rather than continue to be part of Orica overall. The board formed the view that a sale would likely result in a higher and more certain value for shareholders than a demerger. It affords faster completion than a demerger, less distraction to Orica and its customer base than a demerger would. It has lower transaction costs, that flexibility for the consideration of capital management comes a little earlier. That point about capital management, it's not just about the chemicals sale, but the chemicals sale in conjunction with our cash flows and our strong balance sheet.
When the chemicals sale is concluded, will put us in the position where we can look at how we can maximize return to shareholders. It's certainly a point that the board holds dear, that we want to continue to reward shareholders. This transaction, as part of what we're doing overall strategically for the company, should put us in a position where we can pursue that path. Let's look at outlook. Profit guidance in this type of environment, given the timing of what we're doing with chemicals is indeterminate at the moment, is problematic. What we're doing is sharing with you some key assumptions about what will drive the overall outcome for the year. Global explosives volumes will be in the range of 3.8 million-4 million. At this stage, we're thinking it's towards the top end of that.
Some of those commodity prices could drop further, the Aussie could strengthen, all of those things could come to play. Explosives pricing pressure is expected to increase, particularly in Australia. As you saw in that margin portrayal that Craig put up, we would expect some price pressure to continue in Australia to a greater extent than what we're seeing in other parts of the world. Sodium cyanide volumes are expected to increase this year on the back of that good improvement in volume in the second half of last year. Although, the pricing pressure will remain in the cyanide market. Our operating costs are anticipated to reduce on the back of this latest stage of transformation for the company. All of those points, including the timing of the chemicals separation, are formative assumptions in the way that we look at outlook.
In this type of market, we aren't going to give a definitive number at this stage. Let's turn to a summary about what we look like as a company. We're expecting flat to moderate volume growth during the year 2015. That's after being down 2% in the first half of last year and flat in the second half of last year. We have seen the markets come back in the second half. The transformation net benefits provide flexibility in how the company positions itself across its diverse markets and customer base. That is not the only reason we're undertaking this stage of transformation. It is part of how we are changing our strategy and structure as a company. It will put us in a position of having a lot of flexibility in how we react to any market positions.
On price, Orica may use price reductions to strategically position for volume and/or contract longevity. We think that transformation will put us in a position where we have total flexibility and we, from a strategic viewpoint, can choose whether we go forward with some price reductions if it is warranted, if we get a reward in the longer term, and if we get a penetration of a greater percentage of a customer's base. We are affording ourselves greater flexibility than anyone else can afford themselves in this type of market. Our market share has been growing. As Nick went through, for the second time in a row, we well exceeded 90%, and we well exceeded an uplift in our earnings basis. Our EBIT basis has grown and our market share percentages around the world have grown as well.
That suggests to us that when you come back to a normalized point, and I use those words advisedly. If you go back to the very logic of this industry, over time, the world needs more resources to supply an ever-growing middle class, et cetera, around the world. On top of that, the miners always take the best deposits first or the best parts of deposits first. The incremental growth in explosives demand should be greater than the incremental growth in commodities. It is a great statement, and over time, we have a database that backs that up. Unfortunately, for the last 18 months, up until the second half of 2014, that did not hold. We saw a down period in volume.
In the second half, we saw that come back to equalization with the year before, and we're expecting to see at least the same profile for this year. Over time, when we get back to that average profile for the world demand for explosives and commodities, our market share and our positioning put us in a very favorable position. Our strategy is letting us play not only in the commodity space of ammonium nitrate pricing, but also that added space of productivity and value accretion to the customer. The customers are giving us very clear signals now that they can see how that can help them get their cost per ton down. A point I will just leave you with. At AUD 0.90 or below AUD to USD, the majority of our revenue and profit is generated outside Australia.
As Nick pointed to, that split between Australia and the rest of the world will continue to move to the rest of the world. We see far more growth opportunities over the next 5 years in the rest of the world than Australia. We already have over 50% of the Australian market. We're now in a position where if the AUD slides, that will give us a benefit to our bottom line to a greater extent than what it would have had 3 or 4 years ago. It's not only these pointers that give us far more positive outlook for the years in front of us, but also the fact that we are technologically going to a place that others can't go.
The introduction of wireless and lasers will enable flexibility in the application of our strategy to a far greater extent than what you've seen in the past. On top of that, what we're doing with carbon abatement, what we're doing with the Singaporean authorities and Chinese companies about the application of clay in the capture of CO2, puts us at the forefront of technology right around the world for something that is a base cause of concern for a lot of communities. We think with the repositioning of the company as a pure play mining services company, the reinforcement that the strategy is actually kicking in and you're seeing more and more of that feed through to our profit line, and the repositioning that we're going to undertake even further this year with transformation on our cost base, we're in a very strong position for the future.
With that, I'd like to hand over to questions. Are we going to take questions in the room first, Karen? Yep.
Thanks, Karen. Ian, it's Mark Wilson from Deutsche. On the potential for capital management, wondering, what are the precursors to timing there? Do you actually have to complete the sale, or is it just when you become more confident? What initiatives would you envisage? Is M&A on the agenda or off the agenda?
I'll unpick the two questions you had there. We, as I said, expect chemicals to be completed February, March. We wouldn't expect us to pursue any capital management before that time. It'd probably be, if we were to pursue it, something that is coincident with the second half of the year. On the second point about M&A, we've just proven in CIS and Africa that we don't need to buy our way into markets. We can grow from an organic base quite successfully. If we came across an opportunity, this is within the mining services space. If we came across an opportunity where someone had a particular technology that we thought could be an adjunct to where we're going, then we may well look at it. We don't feel we're in a position anywhere in the world that we need to buy in just for geographic footprint anymore.
We think that we have that capability, we have a network and a structure now that enables growth without buying our way into markets. If there was some other opportunity that came out of the left field that gave us a unique position in any particular market or a spread of markets, we'd certainly look at it, we've got the flexibility to do that. At the moment, we do not see anything on the horizon that gives us a technological or geographic uplift to the point where we would pursue M&A in the immediate future. We never preclude it, of course.
Ian, Michael Ward from CBA. Historically, you've talked about continuous manufacturing and your drive towards improving your utilization levels at your plants. Can you just give us a sense of whether or not that's been achieved over the last 12 months?
Yep. I'll give you a specific example about KI. I think I flagged to a few people in this room and others in the past that we were pursuing a new enterprise agreement at Kooragang Island. That's now been concluded. We had some minor industrial action on the way to getting that concluded. Basically, we've now gone from three rosters on site to one. That's enabled immediate step-ups in productivity. Each part of that plant is now running at higher rates than it's ever run in the past. We're now sitting regularly above 1,000 tons a day of ammonia. Over the last 12, 18 months, we've been able to halve the amount of people coming onto Kooragang Island from a rate on an average day of in excess of 400 to just over 200.
We see that productivity improving going forward We're using the different approach on each of our sites in conjunction with our new approach to maintenance, et cetera, to actually run our plants at far higher efficiency than they've ever been run before.
Can you give us overall sort of metrics which demonstrate that?
Well, KI, I just did.
Yeah.
Our cost per ton out of our plants is lower than it has been and will continue to go down. That's the overall metric we look at.
Okay.
We have greater flexibility in the way we run our plants, number 1. Our cost per tons are going down, and each component part of our plants is going up in its utilization % and availability.
Just secondly on, I guess, innovation and technology. You've sort of outlined a few things that are obviously quite interesting. Can you just give us a sense of whether or not in the longer term that's something that you actually believe you can get paid for, or whether or not it's something that actually allows you to stand still?
With lasers, we think the cost comparison to detonators is in the same ballpark. It'll give greater flexibility at around the same cost. With wireless, the initial application of wireless will be a little more costly than the normal detonator, but it saves on labor. If we had wireless available in whatever numbers at the moment, I can assure you the seismic industry would start using them tomorrow because the cost there, compared to running out full lines, et cetera, makes wireless compelling. In the situations of that Canadian mine I talked about having to drag mats over, wireless is compelling. If you want to have a special firing, wireless is compelling. It gives us the flexibility to apply our high-end contracts, and that's what we like about it.
We can say to a miner, "If you give us an outcome-based contract, don't worry about how we're going to do it. You pay us for the results." We think the productivity improvements and the flexibility of how you go about a firing to maintain their plant at full throughput far exceeds anything to do with cost of detonators, et cetera. Yep.
It's Richard Johnson from Citi. I just wanted to ask you a question about mix in general. Really two things. Can you remind me what the difference in explosive intensity between the various commodities, particularly the difference between iron ore and coal? Secondly, your very helpful chart on contribution per ton. I was wondering if you could talk in very general terms what the difference is in actual terms between the various regions. Thank you.
I didn't listen to the last part because I was stuck on the first question you asked. What do you actually mean by that? Do you want me to give you a very technical powder factor answer? Is that what you meant?
Words of one syllable will be good for me, thanks.
Okay. I'll go into some technicals here because it's interesting to understand this. The strip ratios, I'll go right back to the beginning. If I'm boring, put your hands up. I'll stop. When you talk to metal miners, when they talk strip ratios, it's ton to ton. If they say a strip ratio of 2 to 1, it's 2 tons of waste to 1 ton of product. When you talk to a coaly, they talk BCMs to tons. If they quote a strip ratio of 4, it's 4 BCMs of waste to a ton of coal. In New South Wales, the strip ratios are between 4 and 4 and a half on average. In Queensland, they're just over 8. They have very high strip ratios compared to the Pilbara, where it's around 1 to 1.
When you talk Pilbara, it's metal, so it's a ton of waste to a ton of iron ore. These are average numbers compared to the coal industry, where ton wise to ton wise, you're talking about 10 to 20 tons of waste for every ton of coal. That's why we're seeing a differential in the usage of explosives, because people are backing off the amount of waste they move to drop their overall costs. As Nick said before, if we saw a recovery in those commodity prices, we would see an uplift in usage of explosives because people would want to catch up on their strip ratios. Over time, you've got to catch up at some stage. The intensity of explosive used in coal at the moment is a little higher than iron ore.
You've got to understand that the intensity on both goes up when you turn the capital tap off, because the new deposits that are brought in with capital on average have lower strip ratios. When you get up to 850 million tons out of iron ore, it's 850 million tons of waste. You turn the capital tap off, we think that strip ratio will go up quite quickly, and that'll give an intensity of explosive demand in iron ore, which will be quite good going forward. That's why we're positioning the way we are. The relative intensities at the moment, coal consumes a lot more per ton of coal as explosive was than iron ore. The relative size of the industries is catching up with each other.
That's very helpful. Thank you. Just a second question related to your chart on explosives contribution per ton, which is obviously a movement year-on-year. I was just wondering if in very general terms, you could talk about the difference in the actual contribution per ton between the various regions, i.e., which are the higher contributors and which are the lower?
Now you're getting into complications because we have been maintaining our margins on the back of the uplift in services and the pricing, and pushing down on our costs continually. That is different for each of our customers, different for each of our geographies, different for each particular plant. To make generalized statements about it, the only generalized statement I'd make about those margins is with the transformation ongoing, you should see that in us at least maintaining that margin or enhancing it because of the cost that we'll be taking out of the business during the year.
Hi, Ian. John Purtell from Macquarie. Just had a few questions on the efficiency program. First two are pretty factual. Just in terms of the implementation cost of the restructuring, will they be taken above the line or below as significant items?
I think they'll be taken above, which is what we've done in the past with most of these things. We're not in the habit of taking them below the line. We'll keep them above.
John, like always, what we would do is to make sure that we adequately describe them at each half year like we do.
The second one, just a factual one. I think you mentioned before, Ian, but the AUD 140 to AUD 170 of benefits in 2015, that's on top of the AUD 69 in 2014 that you realized.
Yep.
Thirdly is more qualitative. How do you think about the ability of Orica to retain these savings and drop them to the bottom line? Obviously, there's a range of moving parts around that. You flagged that you may invest some of this in terms of lower price, and obviously there's challenging end markets that continue. How do you think about that?
Yeah. It's a very good question that goes to the bottom line of the outlook and forecast for this year. I'll just restate what I said before. What we're doing with transformation, the ongoing transformation, puts us in a more flexible position than anyone else. If we have to meet the market through price for ammonium nitrate, and then over time, get some payback out of services, whatever, because we can help productivity, we are in a position to do that. What I'm saying out of this transformation program and the way we're positioning ourselves is that we cannot think I shouldn't say that. For most scenarios we can think of, you can see the resilience in our earnings. If we don't have to use as much on price downs as the upcoming market puts on us, then you'll see it go straight through to the bottom line.
We are in a position to use as much as we think we need to reposition for the long term if it gives us a long-term benefit. The resilience of the earnings compared to 2014 should not be impacted. We're sort of trying to set a base with possible upside, but we can use some of that upside to strategically reposition.
Good morning. It's Ramoun Lazar from UBS. Just a bit more color on North America, if you could, Ian, just on the timing of those contract wins there and maybe the materiality and how we should think about those.
Nick, do you want to
Yeah. Is that on? There is a couple of big contract wins we have had. Both the big contracts start in the 2015 year progressively. They will be running fully in 2016, and between them, there is about 200,000 tons a year of AN equivalent. It is a big lift in our North American earnings, revenue and earnings, partially starting in 2015, but really flowing through in 2016.
It is starting to kick in at the start of the calendar year 2015.
First one starts in January, second one starts in April.
Basically, that will put us in a position where we are the biggest supplier in the U.S., as well as the other component parts of North America.
Just on Burrup, just wondering if there's been any further progress on the level of offtakes there and how you're thinking about placing those volumes once the plant begins to ramp up.
Yeah. We're still within the Pilbara at around the two-thirds mark loaded. If you look at the total for Western Australia, for the total amount that we sell in Western Australia, it exceeds the capacity of Burrup. On top of that, the tons that we're getting in Mozambique and the east side of Africa are going up as well. We see lots and lots of opportunity to be flexible in how we apply those Burrup tons. As the tonnages ramp up in the Pilbara itself, and they're continuing to ramp up, as you see from all the announcements from the miners, we're fairly confident that we will at least load Burrup out of Western Australia, and in particular, get close to loading it out of the Pilbara area. We've still got a lot of expansion going on there.
Hi, Ian. Scott Hudson at CLSA. Could you just talk to us maybe in terms of your view of supply-demand balance in the northeast, the southeast, and WA at this stage of the cycle?
The fixation with Australia. Yeah. There is the pressure, as I went through with the coalies before and their strip ratios, and that's putting pressure on the market. As Nick flagged, we do have flexibility to export from Yarwun to South America. We've demonstrated that. We've run loads, et cetera. We can move tons out of that area. At the moment, it's a fairly pressured market. It's not too much of an imbalance at the moment, but if there was to be further pressure on the coal price and that engendered a volume response out of the coal industry, then we would have to pull on that lever of exporting more of the tons out of Yarwun. We haven't seen any deterioration of any great extent or indication of it going forward. You saw the Glencore announcement the other day. That'll have a minimal effect on us.
The other thing, Ian, there's a slide later in the pack. Year-over-year, imports into Australia are down. We're one of the big importers at the moment. With the AUD, it takes out really the competitive import option. It keeps the Australian market a bit more balanced. Look, it'll go into oversupply, we know that. As Ian mentioned earlier, it doesn't take much of a change in commodity prices for that volume to get sucked up very quickly. We've got that option of exporting our surplus out if we have to.
KI's in a very secure position. Yarwun's got the ability, if we wanted to flex more tons into South America. As Nick just said, if that commodity price moves in a positive fashion, let's say the AUD comes off AUD 0.05, AUD 0.10, those strip ratios will more than absorb anything that is currently supplied into that northeast area.
Long term, the most important thing with AN is where is the plant based. That's where the supply chain sits.
I guess somewhat tied to that, given your comments around willing to play with the price, how come you're increasing your supply to third parties and not necessarily winning those contracts at the mine site?
Sorry, what was the?
You make a comment about you're increasing your supply to third parties.
Yeah
in the Australian market. I'm just trying to understand the strategy behind that as opposed to not, given your comments around willing to play with the price point, I guess not winning the contract itself.
There's a simple answer. You can't win 100%. No one's gonna let you have 100% of the market. We always have a secondary offer. If someone wins the primary work, we can supply it as a product.
We are now supplying some people that were importing tons. That's replacement really of those import tons. We have been picking up tons on the East Coast when we think it's a good contractual position for us to pursue. Some of these players that are coming in are really ferreting around the bottom of the industry and providing play on the commodity side of AN, whereas we're positioning more onto services in a more sophisticated end. You pick your mark in a market, but as Nick said, 100% of a market is a dangerous thing.
Lastly, just in terms of those contract wins in North America, are those in relation to that, I guess, shift to the Powder River Basin and the Illinois Basin?
Yeah.
Thanks.
Yeah. No more questions in the room? Are there any via phone? Three questions via phone.
Thank you. At this time, if you would like to ask a question, please press star followed by the number one on your telephone keypad and wait for your name to be announced. If you wish to cancel your question, please press star, then two. Please note that this question and answer session is open to investors and analysts only. Media representatives wishing to ask questions are requested to direct them to Orica Corporate Communications at the conclusion of the call. Your first question comes from the line of Stuart Jackson from J.P. Morgan. Please go ahead.
Hi, guys. With regards to, coming back on the Burrup sort of situation and the movement of volumes out of Yarwun and Bontang into Western Australia at the moment. When that plant starts up, obviously that's going to displace existing volume. You're shipping out of those locations. The next best option, obviously you do have that option for Yarwun to go to Latin America and Africa for Bontang. Can you talk about the impact that would have from a net proceeds or profit perspective on that manufactured AN out of those locations for those volumes?
The first point is that we are expecting to sell more tons in Indonesia this year than the year just completed. We have positioned ourselves in Indonesia that the expectation should be met, that those tons will grow into the future. We've got till the end of 2016 to reposition a fair number of those tons into the Indonesian market. As Nick said, the Indonesian market had some unique things happening within it last year. Several of our customers closed down for partial periods through the year, and there was particular coal mines closed for the full year. We see growth in the Indonesian market going forward. I'll just preface my comments with that. We see growth and opportunity there that should absorb most of the output of Bontang. With Burrup, as I went through before, the current profile in Western Australia exceeds Burrup's capacity.
That's a base of flexibility where we can work from. Then you've got the East Coast of Africa, which would give us a slightly less margin, but you've got to look at the total global supply points, because it would displace some other tons that we ship into there at the moment, and would actually give us a greater margin in East Africa. The balance points are not that great. If we were to ship tons against Burrup, there would be some dilution. Against Orica Inc. or Orica Global, not much dilution at all. That really attests to our flexibility of moving tons around the world. A ton displaced in one part may transfer profits from one area to another. Overall, we make the best call for Orica Global.
Probably on Yarwun. This year we have exported from Yarwun into Latin America. We've proved up all the supply chains. We've proved up the costs. We're just going through the approvals to lift the shipment size. Once we do that, it will be price competitive in Latin America for us.
If I could join in. The other work we're doing as part of transformation is to push hard on our shipping and logistics capability as well to extend those economic footprints around the world.
Okay. Thanks. Just regards to the advanced blasting services, and the uplift in the portion of your revenues coming from that, can you talk about that on a more regional basis? Because obviously there's been some feedback, it's various locations about pushback on that, as well, by commodity as well.
Yep.
Do you want to cover it, Matt?
Yeah, you've got to split it two ways. We have service income on site, which is basically people turning up with a truck with a hose. Some of that there has been pushback from customers to try and get us more efficient, which we're working with them, do it with less people, more efficient with trucks. We have in some of our regions, say, Australian coal, seen a reduction in on-site service revenue. The advanced blasting is the technical side of it. In all regions, that's growing year-on-year. The most significant growth and the biggest take-up has been Latin America. It's mainly in Chile and Peru, and it's all to do with copper mines where they need to increase mill throughput. They've got restrictions on power, restrictions on water, and don't want to spend any capital.
In the last year, that's transitioned up into North America, and we've now got trials happening in Western Australia. Also, they're wanting to try it in Africa and in Europe. In every one of our regions, they want to try the high emulsion advanced blasting services. Understand, we can either give a better production or better fragmentation profile. In a hard rock mine, it's not just the cost of explosives, it's drill and blast. You've got to drill a hole and do the blasting. In waste, if you use our high energy emulsions, you can expand your drill patterns by 50%. Yes, they pay us a lot more for our explosive product, but they save a lot of money on drilling holes. Uptake in every one of our markets.
Great. Thanks.
Your next question comes from the line of Michael Evans from Quest Asset Partners. Please go ahead.
Thank you, and good morning. Just a quick question on the chemical business sold. What is the difference between the sale price and the net proceeds?
That is the cost of undertaking the transaction. There is a bit of stamp duty involved, a little bit of tax, some of the costs of repositioning some of the sites, et cetera.
Have you assumed some of the environmental provision gets used? AUD 120 and AUD 100 million-AUD 130 million seems like a lot of stamp duty.
What you have to understand also is that the chemicals business is really heartland Orica for many, many years. The cost incurred to separate that organization from the go-forward mining services are considerable, as you would imagine. It is not dissimilar. In fact, it is probably even more complex than the DuluxGroup
Right
demerger event.
The average tenure of a person in chemicals is probably higher than the average tenure of a person in the rest of the company and their superannuation provisions, et cetera.
Right. There's restructuring provisions or restructuring costs as well as the Yeah. Okay. Thank you.
Separation.
Yep.
Yep.
Your next question comes from the line of Grant Saligari from Credit Suisse. Please go ahead.
Thank you. Thanks for the additional detail. Two questions from me. Just one on the chemical separation. Is there any material probability that the liabilities being retained could increase significantly?
I said that we're actually undertaking a pretty comprehensive survey of each of our sites. We will invite the other party to participate in that, to nominate people who they'd like to set that baseline as well. Jointly, we will define each of the sites for their historical context. The biggest sites, which is Botany and Deer Park, we're going to retain on a lease arrangement. We'll still define what the environmental footprint looks like, because when we take those leases back over time, you want to know what the incremental change in the environmental footprint looks like. That's been comprehensively agreed with the other party, and we've been through it in particular detail because we did see it as a risk area. They saw it as a risk area. We have a very clear pathway to define what is historic.
On each of the sites, we have a very comprehensive, because of the environmental work we've been doing over the last couple of years, profile of each of our sites. We'll fill in the gaps over the upcoming six, nine months. That is a very clear picture going forward.
Thank you. Second question from me, if I could. Would you be able to hazard a view as to how far through the rebasing or repricing of contracts we are in Eastern Australia at the moment? Is this going to be, do you think, a multi-year phenomenon as we see some of those prices continue to fall with recontracting?
Our average contract price sits, I think at the moment, about 3.6, 3.7 years. A certain percentage of our contracts come up every year. East Coast of Australia profile is no different to anywhere else around the world, there's no particular cliff coming up or whatever. We've just been through some contract basis with a large mining company in Australia and managed to keep those contracts going forward. There's no difference in profile to what we have been undertaking over the last couple of years.
Okay, thank you. Appreciate the comments.
All right. Thank you.
We have no further questions on the phone at this time.
Okay. Well, thank you very much once more for your attendance today. I hope this approach gives you more granularity and understanding of how we're going with our strategy and what the application points of that strategy are. We think the combination of our balance sheet, our cash generation, what we've done with chemicals, what we've done with technology, how we're actually offering the market a way to get lower cost per ton, positions us in a quite unique manner. Thank you very much for your time. Thank you.