Good morning, everyone. Thank you for joining us today under what continues to be the most extraordinary of circumstances. I hope everyone is healthy and staying safe. Currently, there's a definite feeling of cautious optimism in many Western countries, with governments beginning to ease social restrictions and people making the first steps towards restarting their societies and their economies. Mining will play a crucial part in that global economic recovery, and all of us at Orica are proud of our role in that. Of course, there are still millions of people that have yet to go through the worst of it, including numerous countries that our people work in. We are doing everything we can to keep them safe. Hope we can all find the quickest way back to normal life. On this note, I will commence the presentation.
I ask you to quickly glance at the disclaimer on the next slide before moving to slide three. Nothing is more important to Orica than keeping our people safe. I'm pleased to let you know that over the half, our serious injury case rate was at its lowest in the past three years. Of course, the safety of our people has been our number one priority throughout the COVID-19 pandemic. Around the world, there are strict protocols in place to protect our people and communities. Starting in February, we set up a crisis management team across Orica at a group level in each region, in manufacturing, in Minova, GroundProbe, and at a country level. The teams meet regularly and have been closely following advice from the World Health Organization and local authorities.
I'm very proud to say that they have led what has been a fantastic response across the breadth and depth of Orica. Our people across the globe have risen to the challenge, adapting their ways of working to minimize risk. Have quickly settled into a new normal while keeping our manufacturing plants operational so that we can continue to serve our customers. It has been inspiring to see how our company has responded with flexibility, resilience, and courage. As well as looking after our people, Orica strives to be a good corporate citizen. We have endeavored to support other communities in which we operate, many of which have been deeply impacted by the pandemic. If I may give a couple of examples, in Peru, our people delivered food to those living in the remote district of Uchumayo.
In the Philippines, our global business service team delivered meal packages to medical and frontline workers. Here in Australia, our Kooragang Island team contributed to a fund to help disadvantaged people access free meals. Our community support throughout this crisis has been a good example of a broader strategic repositioning of our global investment program that is underway, which aims to address issues at the local level, particularly around economic development and vulnerable populations. Orica also takes its responsibility to the environment very seriously. I am pleased to report we have had no major environmental incidents in the half. Our greenhouse gas emissions intensity was steady, keeping us on track to meet our fiscal year 2020 target. We're also on track to align our corporate governance and climate risk disclosure with the recommendations of the Task Force on Climate-related Financial Disclosures.
Moving to slide four, which details the impact the coronavirus has had on our business. It has been gratifying to see mining activities confirmed as an essential service in most countries around the world. As a result, we have limited impact in Australia, the U.S., and CIS countries. Across these regions, approximately 90% of our volumes have remained intact, which is very fortunate compared to the impact many other industries have suffered. However, strict government mandates have led to varying demands in countries including Quebec, Mexico, parts of Latin America, Asia, and Europe. I want to clarify, these are all related to quarantine measures, not demand measures. Based on this, we currently expect the second half volumes to be somewhere between 10%-15% below the expected pre-COVID-19 volumes for the second half of fiscal year 2020. Throughout this, our commitment to our customers has been undiminished.
Our manufacturing teams have gone above and beyond the call of duty to deliver, with all our continuous plants achieving overall equipment effectiveness of at least 80% in the half. More precisely, I think it's Carsland and Kooragang Island have been in the 90s, and the others around the 80s percent. Our supply chain management team has tightly worked to support our ongoing operations, albeit at increased freight costs and other supply increased costs. While there has been great uncertainty on so many fronts, we continue to control what we can. We are being prudent and controlled on cash whenever we can, including reducing discretionary expenditure within our control. We have maintained strong liquidity and capacity to debt covenants. Chris will talk more about this later.
We are now running more frequent supply and demand planning reviews as customers continue to adopt their mine plans. With that, we are managing inventory tightly. In simple terms, we are setting ourselves up to hit the road running once conditions begin to normalize. On slide five, you will see our strong underlying financial results for the half. Let me start by saying that we are delighted with the results. They are strong results in spite of what have been very strong headwinds. Just to summarize, we've had the start of the year in Australia with the bushfires, then extreme weather conditions in the east led us to lose about 30,000-40,000 tons. We had the cyclone hit Burrup right in the middle, that delayed us several weeks.
Gas prices continued to hinder the competitiveness of all the industry. We actually started feeling significantly coronavirus in the second half of March. That took away about AUD 7 million of EBIT. When you take all the headwinds, we still delivered on probably slightly above consensus. We are delighted with these results. Total AN volumes were up by 4%, led by strong growth in Australia and the CIS. EBIT was up 2% to AUD 309 million, or probably more realistically, 5% up on a normalized basis after adjusting for the ownership structure change in the China business as announced last year. This is a strong result, as I stated before. This earnings growth has come from strong volume demand from new and existing customers, further improvements from Minova, and the cost savings we have put in place over the half.
I'm delighted to confirm that the Burrup plant is now operational. I'll talk more about that shortly. Positive cash flows are ensuring strong liquidity. Our balance sheet remains strong. Chris will speak more about that later. The interim dividend will be AUD 0.165 per share unfranked, which represents a 40% payout ratio. Whilst many companies have canceled their dividend in this uncertain world, the strength of our balance sheet, our view of the mining activities, and the commitment to our shareholders have allowed us to pay this dividend. I will now go through the performance of each region, starting with Australia Pacific and Asia on slide six. Starting with APA. Overall, this is a pleasing result for the half.
AN volume is up 5% on the prior corresponding period, driven by an increase in our market share from new contracts, despite, as I mentioned before, the impact of the bushfires and severe weather in Australia early this year, which reduced volumes by some 30,000-40,000 tons, with some of it being in the Australian East Coast coal sector. These are very high margin tons. Thanks to strong customer conversion, we have been able to deliver an 18% increase in electronic blasting systems in EBS, with a large percentage of this being in the East Coast of Australia. We continue to see further successful adoption of WebGen and other technology products at many existing and new sites in the region, including at Newcrest Cadia Mine, which I will talk about later.
Since 2018, Orica and Roy Hill have collaborated in an innovation-focused partnership committed to developing a smart mine of the future. Over the coming months, Orica and Roy Hill will continue to integrate measurement up and down the mining value chain and increase the value delivered away from the blast and the pit. So far, Roy Hill has seen improvements in dig rates and continues to investigate further benefits. We are very excited by these partnerships with some of our key customers as we realize the full potential of the innovative technology solutions that we have created and implemented. EBIT was 1% up, excluding the accounting change from the China JV formation in the second half year. This growth was due to higher volumes and increased uptake of more advanced products and continued improvements in manufacturing.
However, EBIT was impacted by higher gas costs on the Australian East Coast, which is reflective of the continuing gas industry issues in Australia and the loss of volume due to weather issues, as I mentioned earlier. Let's move now to the slide on Burrup. Burrup is now producing ammonium nitrate tons, as you see from the picture that I was very glad to receive. The rectification works required to commence production are now complete with no major issues to date. It was encouraging to see Yara's ammonia plant over the fence recommence production in March. Looking forward, the outlook is positive. We expect a positive contribution in the second half, and we anticipate the plant being fully loaded in fiscal year 2021 with current secured contracts. As you know, this plant is very strategically placed near to our customers in the Pilbara region of Western Australia.
It will be a key asset in the years ahead. Production for the half year will exceed 100,000 tons. We should quickly get up within some two or three months to 80% of production. The plant was already producing around 90% yesterday. In the first months, the average is lower because of commissioning issues. It is running very well. North America. On to slide eight. North America, where our steady performance continues. Volumes of AN were in line for the same period last year, with growth in the U.S., mainly in quarry and construction. However, this was offset by lower volumes in Mexico due to ongoing political unrest and the shutdown of the majority of mines due to COVID-19. Right now, it looks like this uncertainty will continue through the second half of the financial year.
In Canada, we have delivered a 5% increase in EBS from new contract wins and the exit of a competitor from the eastern Canadian market. In addition, Canada continues to lead on the conversion of nonelectric detonators to electronics. Across the region, EBIT increased by 2% in the half. In the U.S., we delivered growth in AN volumes and saw some upside in currency fluctuations. This was partly offset by customer consolidation in the gold sector, which impacted pricing and lower margin from increased wholesale sales to JV partners. Fortunately, despite the devastation in some parts of the U.S., mining activity in our largest market in this region has only been marginally impacted by COVID-19, with continued demand, particularly in quarry and constructions. In Canada, we saw a positive product mix, thanks to the increase in EBS sales I just mentioned.
There was an impact from COVID-19 in the second half of March with the Quebec provincial government order shutting down all mines. This has subsequently been lifted, with most mines having restarted in the later part of April. In Mexico, unfortunately, we have seen lower product volumes and no spot sales of cyanide compared to the same time last year. We next turn to Latin America. Strong AN volume growth continued in Peru, which is the one of the leading copper and gold markets in Latin America, and where our recent strategic acquisition, Exsa, has a strong market position. AN volumes were down by 4%, mostly due to a Colombian customer's changing business model, where they shifted their requirements from AN to services. This was partly offset by new customers wins in Peru and higher demand from our customers in Brazil.
The outbreak of COVID-19 in the region did result in significant disruption to mining activity in some parts of the region, particularly in Peru, Colombia, and Argentina, where mining activities were completely closed. As a result, volumes in these countries were down in March by 20,000 tons and continued with a similar impact in April. Whilst Peru has been slowly ramping up during April, some mines in Argentina were authorized to open in late April, and Colombia will only resume in May. More positively, EBS sales were up 14% with significant market conversion, particularly in Peru, Colombia, and Brazil. Cyanide volumes were 30% higher from new customers wins in Brazil and Argentina, plus higher demand from our customers in Peru. All together, EBIT grew by 16% over the prior period from an improvement in service margins, strong cyanide sales, improved product mix, and cost efficiencies.
This is a very good result given the COVID-related volume impact I mentioned earlier. We now move to EMEA and the CIS. We have seen a continued uplift in the AN sales in our key growth market, particularly Russia and Kazakhstan, which was driven from both new contract wins and higher demand from existing customers. This has more than made up for lower demand across Europe. The positive trend in electronic blasting systems in the region has continued with strong customer conversion in Europe, particularly in Norway. Sales are up 7%, which come on top of what has already high growth last year. In addition, we have increased cyanide volumes to high-margin customers in Europe. Similar to other regions, COVID-19 has impacted this region, and quite strongly. We have seen some low EBS sales, particularly in the Nordic countries, as several tunneling projects were temporarily stopped.
We expect this to continue in the second half. In terms of earnings, EBIT improved by 9% from the previous half. This was underpinned by sustained volume growth in the high-margin CIS region from both new and existing customers. As just mentioned, the lower demand in Europe, particularly Norway, impacted the result and is expected to continue into April and May. A continued focus on cost efficiencies remain a key priority for the region, delivering lower fixed costs for the period. On to Orica Monitor Division. More and more of our customers are no longer seeing these monitoring systems as a nice to have, but as a must have, and that is translating into positive commercial outcomes. I am delighted to let you know that March was a record sales month for both GroundProbe's radar and laser systems.
In particular, our new laser products are now gaining a foothold in the civil tunneling market, with units deployed in Australia and Asia. GroundProbe's EBIT remains ahead of our initial investment case, even with the higher costs associated with investing in strategic growth initiatives in LATAM and Australia and Asia. Included in this segment is Nitro Consult, a blasting consulting company in Sweden, which is undertaking some restructuring in underperforming areas and impacted earnings in the half. Going into the second half, we expect a temporary increase in supply chain costs, particularly in freight costs, as a result of COVID-19. On slide 12 is Minova. Sales of powder volumes were up 20% overall, led by a remarkable 40% growth from new customers wins in Russia. Revenue was down 10% over the period as a result of lower natural gas prices in the U.S. impacting coal sector volumes.
The outbreak of COVID-19 has had some impact on seal and resin volumes in mid-March, and we expect this to continue in the second half, although we think this will also be temporary. We did see an uplift in EBIT across geographies, actually around 60%, supported by better product mix and improved pricing, and an improvement in manufacturing cost efficiencies from plant rationalization and a continued reduction in overheads. I will now hand over to Chris to talk about financial performance.
Thanks, Alberto. Looking at the key financial metrics on slide 14. Sales revenue of almost AUD 2.9 billion was up 2% from the prior period, with growth across all segments of the business from a combination of higher volumes from increased demand and new contract wins, increased service revenue, and favorable FX. This has been partially offset by lower revenue from Minova, the impact of pricing as a result of customer consolidation in the North American gold sector, and the impact of the change in ownership of the China business. Underlying EBITDA has increased 10%. Adjusting for the impact of the new lease accounting standard, which reclassifies operating lease expenses to depreciation and interest, EBITDA is up 2%. Underlying EBIT has increased 2% over the same period. Excluding the impact of the China business, which is now equity accounted and no longer consolidated, EBIT is up 5% on the prior period.
Underlying NPAT of AUD 165 million is 1% below the prior period, driven by higher interest expense as a result of the impact of the adoption of the new lease accounting standard and foreign currency translation of U.S. dollar interest expense at a lower exchange rate. Statutory NPAT of AUD 165 million was significantly higher than the prior period, driven primarily by the non-repeat of significant items that occurred in the first half of 2019. The effective tax rate of 32% was in line with expectations. At AUD 0.429, earnings per share is down 2% on the prior period, driven by a lower underlying NPAT and an increase in issued shares during the period following the equity raising to support the acquisition of Exsa in Peru. The interim dividend of AUD 0.165 per share will be unfranked and represents a payout ratio of 40%.
Whilst this is at the lower end of our target dividend range, it is appropriate given the uncertain external environment as it relates to COVID-19. Turning now to the EBIT bridge on slide 15. As a reminder, in the second half of 2019, Orica formed a new explosives initiating systems and blasting services joint venture in China with Guizhou Jiulian Industrial Explosives. The effect of this is that AUD 7 million of EBIT previously consolidated is now treated as an after-tax equity accounted investment at 49%. This one-off impact reduced the year-on-year EBIT contribution by AUD 7 million. Inflation on overheads had an adverse impact of AUD 15 million, which is in line with our expectations. Volume had a positive impact of AUD 7 million. Ammonium nitrate volumes increased by almost 4%, driven by new business and higher demand from existing customers in Australia and the CIS countries.
Specifically in Australia, AN volume growth was underpinned by strong demand from existing customers in the Pilbara, new contract wins in the East Coast coal markets, and increased sales to competitors. Increased demand in the CIS countries was driven by new customer contracts and expansion at existing customer sites. This was partially offset by lower volumes in Colombia following a change in supply conditions, whereby the customer directly sources its own AN and a continuation of unfavorable operating conditions and political uncertainty in Mexico, reducing demand from mining customers. Sales volumes of our higher value, more advanced electronic blasting systems increased 8% over the prior period, specifically in the Australia, Pacific Asia business, Latin America, and EMEA, due to continued conversions by customers to more advanced products. Net mix and margin increased by AUD 18 million.
Improved margins, most notably in Latin America, North America, and Australia, has contributed positively to EBIT. Within the Latin America business, this has been delivered through higher service margins in Colombia, Chile, and Peru as the business focuses on a full service offering to customers. This has been aided by a lower cost structure as the business focuses on driving cost efficiencies. The improved performance of the joint ventures in North America and a focus by the Australia business on reducing raw material costs in cyanide have contributed to improved margins. In addition, increased sales to higher margin cyanide customers in Africa has driven an improvement in EMEA. Additional benefits have been achieved through favorable FX impacting margins.
These benefits have been partially offset by the impact of price on contracts in the North American gold sector following a consolidation in the key players, and a known lag in the pass-through of higher gas costs in Australia via contract mechanisms. Global manufacturing impacts. Improved reliability and performance and cost management across the continuous manufacturing plants has contributed AUD 3 million in EBIT compared to the prior period. This reflects the continued focus on operating discipline and efficiency to ensure our manufacturing plants are able to meet our production requirements. It is our expectation that in the second half of the 2020 financial year, a number of planned plant shuts are expected with a view to managing down inventory levels. I will discuss the impact of this further at the end of my presentation.
In terms of the Burrup plant, Alberto has previously given a comprehensive update on the rectification works and plant commissioning. Of the negative AUD 7 million impact in the first half of 2020, some AUD 4 million represents the ongoing impact of increased arbitration costs. The arbitration with the contractor continues, and we are pursuing recovery of costs associated with the rectification works. The balance of the adverse impact includes environmental provisions and overheads. Adjacent businesses includes Orica Monitor and Minova. Whilst GroundProbe continues to deliver in line with expectations, the impact of restructuring costs within Nitro Consult has meant that Orica Monitor has delivered a similar EBIT to the prior period. We remain pleased with the performance of Minova business, which has delivered a further increase in EBIT of AUD 4 million over the prior period.
This improvement has been driven by higher demand for injection chemicals and powders, improved pricing in key sectors, and manufacturing cost efficiencies and further reductions in overhead costs. Finally, savings in overheads has resulted in a benefit on the prior period of AUD 5 million. The net result is that EBIT finished the half at AUD 309 million, despite the impact of COVID-19, which had an adverse impact to EBIT of approximately AUD 7 million in the last two weeks of March as a result of lockdowns that occurred in a number of countries within North and Latin America and EMEA. Looking at capital expenditure on slide 16. As mentioned over the past few years, we will ensure that capital allocations related to safety and environmental obligations are not restricted. All other capital requirements continue to be subject to financial metrics and a rigorous review and approval process.
Excluding the AUD 72 million of capital expenditure to replace the defective Burrup assets, total capital expenditure for the half year is AUD 206 million, marginally above our expectations due to the impact of FX on offshore capital spend. Included in the total spend is AUD 67 million of capital associated with the final ramp-up of the SAP project, which is expected to go live in the second half of the financial year. In total, the implementation of the single SAP project is expected to cost AUD 314 million. Growth capital expenditure at AUD 39 million includes spend on new customer contracts in the CIS countries, Peru, and Asia, further investments in the commercialization of new technologies that contribute to an increase in future earnings, such as the Bulkmaster 7 units, WebGen, and BlastIQ, and investment in new GroundProbe units to support their leasing market revenues.
Sustaining capital expenditure of AUD 100 million reflects spend on compliance and efficiency capital at Kooragang Island, Yarwun, Carsland, Brownsburg, and continued replacements of the older MMU fleets on existing customer contracts. The spend on the rectification works at the Burrup plants is progressing well, with the plant now producing its first tons in May 2020. Our disciplined approach to capital expenditure continues to be a key focus area to ensure we maintain a strong balance sheet. In 2020, capital expenditure is expected to be in the range of AUD 380 million-AUD 400 million, excluding the spending on the Burrup rectification works. The increase of AUD 10 million on previous guidance is driven by the capital expenditure requirements for the recently acquired Exsa business.
Including the impact of the new lease accounting standard, which has resulted in leases being brought onto the balance sheet in 2020, depreciation and amortization is up 26% on the prior period. This includes AUD 33 million increased to depreciation as a result of the new accounting standard. For the full 2020 year, it is expected that depreciation and amortization will be up to 30% higher due to the impact of new lease accounting standard, the commencement of depreciation on our investments in IT systems, and the commencement of depreciation on the Burrup plant in the second half of the 2020 financial year. Moving on to slide 17, entitled Cash Flow. The generation of strong cash flows remains a key priority for the business.
As I previously reported in the 2019 Investor Day presentation, as part of our full-year results presentation in November 2019, we expected a decline in cash conversion and cash generation in 2020. These numbers presented are in line with that expectation. Despite this, cash generation remained positive, with net operating cash flow generation of AUD 108 million and cash conversion of 62.9%, driven by an increase in trade working capital of AUD 178 million, compared to that as at 30th of September 2019.
The increase in inventory levels and creditors' balance was in line with expectations as we built inventory at Burrup to ensure our customers' needs are met in advance of the plant commencing production, as we plan an appropriate increase in inventory safety stock levels as a conservative contingency in advance of the new SAP system, and as we achieve discipline, simplification, and standardization across our supplier base on contractual terms, as well as an improvement in our payment processes, along with the implementation of a single SAP system. The increase in debtors that occurred in the first half was driven by an associated increase in sales volumes and a temporary delay in debtors' payments as a result of lockdowns in certain countries in late March that resulted in customers being unable to process their payments.
Importantly, we monitor debtors' balances closely and have no reason to believe payment commitments will not be met going forward. As previously flagged, we expect cash conversion in 2020 to remain at around 70%, returning to between 90%-100% in future years. Turning to net debt and gearing on slide 18. Our balance sheet remains strong. Net debt at $1.9 billion includes the translation impact of $199 million, resulting from FX on our US dollar-denominated debt, and the additional $282 million of lease liabilities, which are now treated as debt under the new lease accounting standards. Despite the inclusion of lease liabilities as part of reported net debt with effect from the 2020 financial year, we continue to reduce our gearing, which is now at 33.7% and is comfortably within our target range of 30%-40%.
The final slide I will talk to today is slide 19 on our financial strength. The actions we have taken in the past to strengthen our balance sheet have positioned us well as we navigate these difficult times. We have strong liquidity available, as demonstrated by the AUD 1.2 billion of undrawn committed bank facilities and a further AUD 1.2 billion of cash, noting that AUD 300 million has subsequently been deployed as planned via the settlement of the Exsa acquisition on the 30th of April 2020. Over the past year, we refinanced and proactively pre-financed AUD 855 million of committed debt facilities with existing group relationship banks to extend our debt maturity profile. In February of this year, in a pre-COVID-19 environment, we extended a number of key facilities for periods of four and five years without any adverse changes in terms at favorable financing costs.
Our all-in cost of funds is currently 4.3%. Our average drawn debt tenor is four years. Available liquidity and our refinancing activities positions us well in terms of options to refinance our next bond maturity of AUD 410 million due in October 2020. Our two debt covenants, namely gearing and interest cover, are comfortably within range. Our focus in the near term will remain on cash preservation, with a specific focus on inventory management. In this respect, and balancing the requirements of both the Burrup commissioning and the single SAP go-live, we are planning some temporary site closures to maintain inventory at responsible levels given the reduced demand we are experiencing in a number of countries within EMEA, Latin America, Asia, and Canada.
Whilst this will see cash flow benefits through a reduction in absolute inventory levels, it will have an adverse impact on EBIT in the second half of the year as a result of lower recoveries through the manufacturing plants. With the increase in supply chain costs associated with COVID-19 that is currently being experienced and that is expected to continue in the second half of the year, we are focused on accelerating operating efficiencies and have placed a hold on discretionary spend. Additional focus areas include the utilization of leave balances, the suspension of hiring activities, the review of contractor workforce, and the use of furloughs. We also focused on a review of the operating model to accelerate the benefits of the single SAP implementation post go-live. We are also looking at a reduction in overhead costs at manufacturing plants that are subject to temporary shutdowns.
We continue to review our capital expenditure for opportunities for deferment. That said, we will not sacrifice capital related to safety or environmental obligations and will continue with the completion of both the Burrup plant and the single SAP system. We expect to maintain our strong BBB investment-grade credit rating and remain committed to maintaining a strong and flexible balance sheet as we go through these unprecedented times. It is important to note that we entered this current COVID-19 crisis in a position of strength with ample cash and available liquidity. This also places us in a good position for our business to be ready to support growth and be ready for when customer demand returns to normalized levels. I'll now hand you back to Alberto. Thank you.
Thanks, Chris. Moving now to slide 21 and recapping Orica's strategy, which centers on our core and high-growth engines. We will continue to explore M&A activity that supports our existing core markets. We will expand our existing products into new applications and commodities. For example, the way we have expanded WebGen from underground to surface applications. We will continue to optimize our existing product line, as we are currently doing with WebGen 200, and continue product development in both ore extraction and monitoring and measurement across such products as BlastIQ and Bulkmaster 7. We will seek opportunities to supplement our customer offerings with technology capabilities, including GroundProbe. We will invest in key upgrades of our systems, processes, and product lines with our current SAP project and SKU rationalization programs being familiar to all of you.
We'll continue to take a disciplined approach to assessing opportunities in our core capital initiatives and growth engines, where the asset base, market dynamics, and financial returns justify further investment. We now turn to slide 22. As a reminder, Exsa is Peru's leading manufacturer and distributor of industrial explosives. The acquisition makes us the number one player in the country, consolidates our position in the broader Latin American market, and transforms our entire initiating systems manufacturing capability, our worldwide capability. I am pleased to confirm that we have now completed the acquisition of 83.5% of the shares and anticipate completing the tender process for the outstanding shares by the end of the calendar year as planned. Everything has gone extremely smoothly.
While Peru is being significantly impacted by COVID-19, being with most of the population under a night curfew and a day lockdown, we have been able to progress our plans in line with our schedule. Last week, we formally welcomed the Exsa team into the Orica family with a town hall gathering that I was able to address remotely. We have formed an integration management office comprised of experienced members from both companies, which is executing our comprehensive integration plans. Under Germán Morales' leadership, we feel confident that we are well prepared to hit the ground running, and remain on track to meet or exceed the significant synergies that are expected to be achieved from the integration of Exsa with Orica. Moving to slide 23 to recap the synergies.
Central to the acquisition of Exsa's new initiating systems manufacturing facility is Exsa's new initiating systems manufacturing facility at Lurín, Peru. Not only does it utilize state-of-the-art technology, but it is considerably underutilized. The facility currently manufactures around 11 million caps per year, which can be increased to around 55 million caps per year, and with no capital requirements, can deliver an estimated net cost savings of around $0.12 per cap. The plant also has further potentials to increase capacity to approximately 60 million-70 million caps per year, which is enough to service Orica's demand across the entire Americas. Furthermore, the Lurín facility integrates the manufacture of almost every component of a detonator on-site, meaning we don't have to source them externally, which will deliver significant efficiencies to Orica's local supply chain. Once Exsa's assets are fully integrated into Orica's operation, we expect to realize significant synergies.
By the third full year of ownership, we anticipate run rate synergies of around $80 million each year, with approximately only $20 million capital expenditure required. These savings will come predominantly from material manufacturing synergies and reduced supply chain costs by improving Exsa supply chain and optimizing the combined IS production. As you can see, this is a game changer for operations in the region. Consistent with our strategic drivers, the integration of Exsa into Orica will build on our strong foundations in Latin America, will strengthen our entire global initiating systems manufacturing footprint, and will grant us access to the Peruvian underground market. Turning now to the technology slide. We're continuing to see an increase in awareness and interest of our new technologies from both existing customers and new customers across the industry, which is leading to growing customer uptake and adoption of our innovative solutions.
WebGen, the world's first fully wireless initiating system, capable of firing blasts through hundreds of meters of rock, air, and water, is continuing to gain traction in the market. We have now fired WebGen in over 750 blasts in both surface and underground mines around the world, and have seen a fivefold increase in the number of units fired in blasts over the last 12 months. Following successful initial trials at BNC Botrel, the mine is now moving into a phased introduction of WebGen technology, a trend we are seeing among customers trialing the product. Customers are identifying and validating the value of this game-changing technology to their operations. We're preparing to launch our next generation WebGen 200 product with significant improvements that will open new markets and possibilities. It will feature improved safety and reliability, as well as enhanced security to support new and complex mining operations.
WebGen 200 will consist of several product variants, opening new market applications and opportunities, including large volume surface market and enabling the first stages of automation of blasting. FRAGTrack uptake continues to grow globally, and customers are confirming value delivered. Remote installations will enable adoption growth to continue through COVID-19. It is now operational in some of the world's harshest conditions across all continents. We have also recently completed the first fully remote installation of FRAGTrack at a customer site in Australia. This enables us to adapt to COVID-19 restrictions and continue to release the product to new customers without having to be on-site to do so. Our BlastIQ digital platform adoption is on track. It's enabling remote workers during COVID-19, and we're starting to see our customers integrate blast data into their operational systems to discover insights and make data-driven decisions at a whole of mine level.
BlastIQ, our digital blast optimization platform, is now active across 59 sites globally and delivering significant value to our customers. Our cloud-based BlastIQ technologies are also supporting our customers' remote employees and operations during COVID-19, providing them with digital licenses and products to ensure they can continue to operate. Continuous improvement and releases are also supporting acceleration of adoption of our digital products. Moving on to slide 25. In the automation space, we are making good progress and have advanced with two key partnerships to make the automation of drill and blast a reality. In November 2019, Orica and Epiroc announced a collaboration partnership to deliver a semi-automated explosives delivery and charging system, leveraging the unique capabilities of WebGen. A prototype of the system is currently in development, which will enable the explosives charging at the development tunnel phase in underground mining.
The partnership brings together experience and expertise from two global organizations with the goal of addressing the growing demand from customers mining increasingly more hazardous and challenging underground operations. A customer-led collaboration between Newcrest, Orica, and MacLean Engineering successfully applying the WebGen wireless technology to develop a tele-remote solution to safely remove human exposure and bring down block drop points in block cave mines. That is a reality. Hang-up blasting is a major challenge for block and sub-level cave minings, where up to 30% of all drop points can be unavailable due to oversized material and exposes employees and equipment during removal. The size of this problem we are solving for here in block and sub-level cave mines is significant. In one particular mine I can think of, they have approximately 6,000 blocked drop points each year, 4,000 of which require blasting to open up.
In a positive step forward, trials were successfully completed in March this year with the first fully mechanized drop point hang-up blasting solutions at Newcrest Cadia Mine in New South Wales, Australia, demonstrating the capability of drilling and charging up to eight blast holes remotely using WebGen wireless technology. For Newcrest, this has improved safety dramatically, with no need to tie in detonators and eliminating exposure risk to employees. It has also improved production rates and enabled full automation through remote management of ore hang-ups and oversized rocks. The entire industry is moving rapidly towards a digital and automated future, and the introduction and adoption of WebGen BlastIQ and FRAGTrack and other products signifies that we are serious about being a big part of the future. Let's move to outlook.
As we prepare for the COVID-19 recovery, our immediate priorities remain on continuing to keep our people safe and ensuring our manufacturing plants remain operational and our customer requirements continuing to be met. We are running as fast as we can while maintaining best practice principles and operations and setting ourselves up to hit the ground running when the situation normalizes. Earlier in the presentation, I spoke about the varying impact of COVID-19 on our business across the globe and the expected impact to be somewhere between 10%-15% below the expected volumes for the second half of fiscal year 2020. We continue to analyze the impact of this pandemic on commodity production in the medium to longer term, in conjunction with external research.
According to Wood Mackenzie, as of Q1 2020, global production of commodities Orica is most exposed to is forecast to increase by an average of 3% between 2019 and 2021, resulting in a positive growth in material moved outcomes. Just to clarify, this is a post-COVID estimate by Wood Mac. Taking this 3% forecast and adding the continued benefit of increases in strip ratios and our known situation with new and existing contracts, we expect Orica's AN growth of around 4%-5% between 2019 and 2021. This will be complemented by a number of factors. First, Burrup, which as I mentioned earlier, is now operational and will deliver a positive contribution in the second half.
Based on our current contracts in the Pilbara regions, we expect the plant to be fully loading in fiscal year 2021, and with its strategic location alongside our customers, will give us significant competitive advantage. A full deployment of 4S will be a game changer for Orica, giving us truly transformational operational insights and efficiencies. In addition, we will continue our focus on achieving efficiencies across the board to improve manufacturing reliability, supply chain efficiencies, product and footprint rationalization, streamlined overhead structure, and cost reductions following the deployment of 4S. The full integration of Exsa will establish Orica as the number 1 player in Peru, Latin America's highest growth market, transform our entire initiating system footprint, increase our exposure to gold and copper, and offer significant cross-selling opportunities to introduce our products and services to Exsa broad customer base.
We are firmly on track to integrate Exsa's operations, and we will meet or exceed the synergies by 2022. The commercialization of our unrivaled technology suite will ramp up, affirming our leadership in this high potential growth area. We will increase penetration of our best-in-class technology, and alpha testing of our new generation WebGen 200 product is the start of our next phase of growth in this area. We will continue to improve our manufacturing sites, ensuring reliable, safe, and efficient production. In summary, our platform to deliver continued profitable growth remains unchanged. That concludes our presentation. Chris and I are now happy to answer any questions you have. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Alex Kapos from Goldman Sachs. Please go ahead.
Hi, team. Good morning. Just two on my end. First, if we could dive a little more into what you're seeing in the USA. Surprising to not see more impacts there on the business. Just maybe one, what you're seeing COVID related, and two, just a little more color on that commentary around gold contract pricing in the period.
Yeah. Thanks, Alex. Look, we were also pleasantly surprised. I can tell you this is March data, April data, versus our plans before COVID. They have been very much on track on the United States. That has been pleasing. Our biggest impact has been Mexico. Mexico is about 25% of our EBITDA the region, and that has with, as you know, all costs are almost fixed in the short term. That's probably where we have been hit very, very significantly. Quebec also hit us quite hard in April. We expect Mexico to continue to not perform, but we expect U.S. and Canada to be close to normal quite soon. Look, the gold. This consolidation of gold companies, again, and the leverage that they have on all suppliers it's not a surprise. It's part of business as usual.
I do want to say something on the other hand. We have been able to renew worldwide with the largest gold mining companies in the world and copper mines and in Australia for two to three years now. All in all, we're quite happy with the performance of our marketing team in that area. We've actually been able to increase our contracts in Australia, contracts we didn't have with one of the largest local producers. In Peru, for example, all of our very large customers, all of that has been renewed 100%.
Thanks for that. Just a bit of clarification on the guidance and more in Latin America specifically. When you're guiding to your volume outlook, and you look at a region like Latin America where you've talked about Peru's restarting, Argentina's restarting, Colombia's coming later this year. Is your assumption that when you come out of those forced shutdowns, you go to that normalized kind of trend level, or will it take a bit of time to get to normalized rates, and is that what's embedded in the guidance here?
Look, it will take time. You can see, for example, take Colombia. Cerrejón is restarting, but they are restarting at 10% of production, and it will take them months up to ramp to where they were. This guidance was particularly difficult, Alex, because of the uncertainty. If I look at what I'm seeing in May, we would think that by July or August, things would be much better. There are many things you don't know. What happens if there's a second wave and all of that. It's just very, very uncertain. Even though in spite of that uncertainty, I think one thing is COVID and one thing is mining activities. We don't believe that we would see something in mining worse than April. That gives me some confidence that the guidance that we give has a reasonably high probability, let's say a P80.
Again, it will all depend on the quarantines of the different countries. That is our best estimate as of today. It implies a slow normalization, but then we are getting to around October or November, close to where we would have been before COVID. That's the current conventional wisdom. That sort of also illuminates the guidance we gave for 2021.
Very helpful. Thanks, Alberto. That's it for me.
Your next question comes from Grant Saligari from Credit Suisse. Please go ahead.
Hi. Good morning. Thank you. Alberto, I wonder whether you could talk a little more around Europe. I guess one of the things we're trying to think about is the impact on public spending and private spending for that matter on various forms of construction, and the impact that that could have on your quarrying volumes there. I wonder whether you could just talk a little bit about what the exposure is there to quarry in Europe and the degree to which, I guess the cost structure could potentially flex to mitigate some of that impact.
Look, the European and Middle East region is about 30%-40% of the whole region. If you take the first three weeks of April, it was very badly hit in Europe, not surprising. In the last week of April, then starting to see actually some activities in several countries in Europe. One point we haven't incorporated into our forecast, but there's a lot of debating this, is infrastructure. We do hear that governments in the U.S. in particular, in Canada, and in many places in Europe, to compensate for the unemployment, will have to increase infrastructure spending. That would not be in our current estimates, but that could really help the normalizations. As you say, Europe is basically quarries for construction and infrastructure and tunneling. We would be very much depending to have a full normalization.
It would have to pass by increases in infrastructure spending, we would think.
Mexico has been a problem, it's factors completely outside your control. Are you able to indicate approximately what the level of investment that Orica has in Mexico and could this be a long-term situation where there is either any risk to the capital that's invested there or that the cash flow gets to a point where you have to reconsider the position in that market?
The level of investment is very small, Chris, I will ask him to elaborate on the level of investment they have in Mexico. Respecting to the longer term, Mexico has three probably characteristics, I hope none of my Mexican friends are hearing. It has hit by COVID-19. Mining is not that big, so it's not deemed as essential, it has a president who really doesn't know what he's doing. You put those three together, the animal spirits there in Mexico are not very good. We do expect, part of the guidance, Mexico is about 25% of the EBIT of the region, it doesn't take much to wipe that EBIT with a 20% down or 30% down in volumes, you sort of wipe that EBIT up. That's what we've seen in April.
Very difficult to call, basically our assumption is that for many months, Mexico still stays doing not well. What we will do and what the president of North America is really tasked doing is if we start seeing in eight or 10 weeks the situation not improving, we can pull fixed costs down relatively quickly, we will do that. We will probably give it some weeks, we have no, let's say, patience to start, for example, bleeding cash or anything. There are levers we can pull to reduce that pretty quickly. That's part of the analysis that we're doing. It may not give us much profit, it will not lead us to a, let's say, negative cash depletion. Those are all works that are in progress as we speak.
Now I'll pass to Chris to talk about.
Just on the assets that you spoke about, we don't have a significant capital investment. What assets we do have on the ground are by and large movable assets. To the extent that they were moved out of Mexico, we could redeploy them to other part of the business. Alberto is right. We've already identified what operating costs we would take out if the need arose, so we could respond fairly quickly.
That's helpful. Just one quick one, if I could. Just Yarwun tons. Now that Burrup is up and operational, has there been any change, I guess, in the opportunity to place the freed up tons in Yarwun now?
Our contract profile right now is quite good in the sense that we have very high percentage of contracts contracted, almost 100% for the year, and for next year, about 85% contracted. A lot of small, medium sort of competitors are coming up. We will use those tons to compete in that market. Probably the disappointment is that those 40,000 tons that we lost in the East would have come from Yarwun, it's been below what we would have wanted. The capacity of Yarwun for 2021 would be around 450,000, 470,000. That's where we're preparing it to be. At the same time, we want to make sure that we have a good understanding of prices and next best alternatives and all of that. We are preparing with Burrup now coming in.
We are preparing to displace some of those tons into the market, in a thoughtful way.
Okay. Thank you. Appreciate it.
Your next question comes from Richard Johnson from Jefferies. Please go ahead.
Thank you very much. Good morning, everybody. Could I just start with a question for Chris, please? I'll give you a rest, Alberto. Chris, I apologize if I've missed this, but could you take me through or step me through all the moving parts of AASB 16 on the first half numbers?
Yeah. Richard, the 2019 numbers that are presented there remain the same as what we presented last year. There's no impact to 2019. When you look at 2020, how you've got to look at this is there's AUD 35 million of operating lease expenses that were previously above EBITDA that now gets reclassified. You get an increase in depreciation of AUD 33 million and an increase in interest of AUD 5 million. That doesn't quite balance out, and that's really a function of the fact that the depreciation and amortization on the assets that we've recognized is linear, whereas the impact on the interest is weighted towards the front end of the lease arrangement. In the first three years of the leasing standard, we actually get penalized at an NPAT level, and then the years after that, it starts improving. If that makes sense.
It does. I've got that. It's very helpful. Thank you. Then just two quick questions on the operations. Alberto, can I just return to the U.S. quickly, and I would be interested to get your view on how you're seeing U.S. coal in particular, and what that means for your JV partners.
Yep. Look, at a macro level in U.S., we are up actually in volumes. That's because the copper, the gold, the quarry sectors have been very strong. You are right that we have beginning to see some decrease in the coal. The one that is mostly feeling it is Minova. Minova in April, and probably we flagged it out in somewhere in May, the underground coal is particularly the first thing they cut is this exploration. It's sort of similar level of thought in Minova products. We're seeing more reductions in those type of expenditures. That's basically it. All in all, when I take U.S., it is still positively growing.
Got it. That's great.
From the U.S. I want to comment also, Richard, to thank you for your question to Chris, because it makes his day. He loves these topics of accounting and all of that, thank you for that.
It's a pleasure. Then a similar sort of question on Bontang. I was just curious as to how you're seeing that, and whether you've changed or taken a different view on potentially increasing the capacity there.
Bontang actually was I think that was the other one that was up in very high OEE, in the 90%. Look, with so much expenditure, we are still going to increase that by 25,000 to 30,000. At this stage, probably that was one that will slow down a bit in terms of when we look at all of our CapEx, as probably Chris said, we prioritize 4S, Burrup, and any sustaining CapEx. That one was pushed up a little. We're still keen on increasing debottlenecking that by 25,000 to 30,000.
Truly, thank you. That's it for me, and good luck. Thanks.
Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.
Good morning, team. I might ask another accounting question to Chris, given he likes it so much. Just in terms of the cash conversion, 62.9%. You talked through some measures to improve that. Can you just maybe expand on those points a little bit more as to how you think you can get to an average of, I think you said 70% in FY 2020, and then up to 90% in 2021?
Yep. From the 62.9% to 70%, that's really going to be a function of taking back the debtors that didn't pay at the half year. There'll be some tightening of the inventory. As I said, we were going to slow down the plant, that should get you back up to the 70%. Going forward, once we have the stabilized level from a creditors perspective that I mentioned, you won't have further absorption or decrease in creditors balances. Plus you'll have inventory back at the right level. Theoretically, in a stable market, you should be generating about 90%-100%. 100% in a stable market, 90% in a growing market. Did that answer your question, Sophie?
Yeah. No, that's fine. Just in terms of the debtors, can you maybe provide some color as to which region you're getting impacted by most?
In terms of the lockdowns, it was predominantly in Latin America. We had some impact in Europe, and we had some impact in Canada. A little bit in Asia to some degree. Those payments subsequently came in shortly after year-end. We continue to watch our debtors balances every week to make sure that we don't have any risk as a result of the COVID-19 situation, and we monitor it very closely with our customers.
Okay. Just in terms of COVID, Alberto, just in terms of any lasting impacts. You talk about the expectation to normalize by October, November this year, so FY 2021, back to normalized levels. Can you see, whether it be positives or negatives, any lasting impacts coming through that we need to consider?
Look, at this stage, we don't see any, but it all will depend really on what happens to mining. Let me tell you by sector. I think iron ore with Vale issues and all of that, I think that should be fine. Copper is interesting. You would've seen all the forecast copper was getting back to probably six months from now at 280 or something like that per pound, and many have shifted up to around 220. But as long as copper is, for six months, above $2, we don't foresee any problems in the sense that the mines are still, most of the mines, let's say 90%, would be cash positive, and hence they would remain open. The issue is, if in any sector the price goes to such levels for six months that the mine starts closures, in which case we would be affected.
At this stage, we would not see that, but that's going to be really the secondary effects of this COVID and what we don't know what is factoring. One thing that was encouraging, if you saw Jean-Sébastien Jacques's comments on Rio Tinto, China getting back to normal. That's what we see too, and China is 50% of the world market of all of these. Asia in particular, it also would be on thermal coal, is very, very important for thermal coal in particular. The long answer is we monitor these very closely. At this stage, if we believe that the prices reflect the expected views of the next 12 or 24 months, we would be fine, and hence there would be enough in demand so that the operations remain open. Now, exploration, expansions, investment, that probably at this stage probably would go much slower than usual.
The ongoing operations at this stage seem to be going as business as usual. When I talk to the CEOs of the large companies, they are very, very committed to keeping the lights on and to keep producing as much as they can. That's as much as we can tell you today. I can tell you that in a 10% world, something could happen in some of these sectors. In a P80 world, if I can put it that way, I think we're fine.
Okay. Then on the positives, in terms of the way you've looked at this internally, in terms of the cost outs, is there any sustained cost outs or reprioritization of factors that you can see Orica benefiting from the way you've dealt with the virus or the way you've dealt with the situation?
Look, I think the working from home and the teams that work and all of that has been very, very interesting. There's different teams and different results, and the productivities in some places have actually increased. We do have some visibility. It has given us some important insights. I like to comment things when we do them and not that we are going to do them. As you may have heard Chris say, we are completing our 4S. That's a big investment, and it will increase our efficiency and our effectiveness, and that will entail some implications. There's a lot of work around how can we improve after going live, and that will happen sometime in the third quarter of this year, then we will start seeing the benefits in 2021.
I've spoken probably that in the past. We are thinking a lot about that, but I prefer to say things when they are done.
Okay. Then just a final one on Burrup. You mentioned that you'll get to full capacity by FY 2021. Does that mean it's 100%, like the 330,000 tons, or we need to factor in shutdowns?
On average, these plants, they never run at 100%, but I would say on average, that plant should be producing between 20,000 and 23,000 tons per month. That's the expectations, and we should get there within three months, is the expectation. After that's what I would expect from the plant. There are still some works to be done on the plant, a stage 3 remediation. After that stage 3 remediation, that will last around six months probably, we would like that plant to be at 25. For now, after three months, something between 20,000 and 23,000 is where I would expect the plant to see. We can sell those tons today. We don't have to wait until 2021. The demand is there today for that.
When we talk about that, is that in 2021, let's say you can take 21,000 or 22,000 and multiply by 12, that's what we would expect Burrup to produce in 2021.
Okay, clear. Thank you very much.
Thank you. Your next question comes from Sam Teeger from Citi. Please go ahead.
Good morning, Alberto and Chris. First question, can you please provide a bit more insight around the softness in EBIT per ton in APAC and Asia? I guess besides for the gas prices, what other additional costs were incurred during the period, and when do you expect both the gas prices and any of these other costs increases to start falling away?
We had in Australia, the first one just was a pure accounting issue. That was a China JV. That was AUD 7 million that is not accounted anymore in the Australian numbers. That's the first one. We did have the gas increases, and those contracts, you don't have an immediate passthrough. We have flagged that, but that hit us in about AUD 10 million in increases in gas that we have not been able to pass them through. That is a second one. We had the bushfires and the East Coast high-margin tons, about 30,000-40,000 tons. That you will see that reciprocated probably in the reports of the miners and all the heavy rains. That was January, February, basically January and February.
When you factor all of this, let's say we try to look at it, but to see through margins of all of this, and we would have actually increased the EBIT margin. Probably one thing that is important, when you see the gas costs go up, let's say that we remain EBIT is the same in the long term, but revenues go up because of the pass-through. The EBIT margin will go down even though the EBIT is unaltered. That's just a factor of the very sizable component of the gas cost in the formula. That's not necessarily a bad thing, it's just how it's calculated.
Understand. Just wanting to clarify the guidance. When you're guiding for second half 2020 volumes to be 10%-15% below your pre-COVID expectations, is it fair that your previous expectations were 5% growth? We should be expecting group second half 2020 volumes to be down between 5%-10%?
Look, in numbers, it is about north of 300,000 tons that we expect to lose versus a 5% increase.
Got it. Great. Kind of more of a medium to long-term question. Just how are you thinking around trading off volumes versus price over the medium to long term, given you probably have joint goals of market share but also profit?
Look, we have a very rigorous sort of view on what the next best alternative is, and we are market leaders. We will privilege, obviously, profits over anything else. We will lose a contract if it's just not the right thing. Up to now, I would say that our track record in the last six months and contracts is probably on standard, way north of 90% of contract retention. I'm pretty happy how that has been. That contract retention has been not a price sort of issues, but more based on technology and others. We did have, as I flagged, the only place where we had issues was with the big gold miners, and that's just because of the clout that they have in those. They did worldwide renegotiations.
We did lose a little bit of that in come, but it's part of business as usual. I said a long time ago that if that happens, we just have to swallow it.
Got it. Thank you.
Your next question comes from Nathan Reilly from UBS. Please go ahead.
Good morning. Quick one around the, I guess, the updated second half volume guidance. I am curious to try and understand, I guess, the implied narrative there around Australia, particularly just in terms of what level of demand disruption you would be anticipating in Australia in the second half, and I guess also in the broader APAC region. Also in the context of Australia, the extent to which you would be sort of comping those weaker or weather-related volume disruptions from the first half.
Just to be clear, Australia, you have the Australia, Asia. If you take only Australia, we have seen no disruption because of COVID. We have seen costs going somewhat up, just logistics costs, supply chain, and all of that. Our volumes in April and in May are expected to be on plan pre-COVID. United States, it is the same thing. We are on plan in April and May pre-COVID. That is quite good. What it tells you is that the volumes in other places are much more than our. The 10% or 15% is an average. Those 300,000 tons that I said before are being lost, obviously, in many other places that are not those two. You take Asia, for example. Asia is roughly 25% of the EBIT of the Australia Pacific, Asia region. There we have today India closed.
We have our operations in Limay going at 30%. We have Oyu Tolgoi. Even though it's open, it's not at the level it was. Actually, our crew in Oyu Tolgoi has been four weeks stranded over there. There's a lot, even though we sort of have a relatively calm demeanor, there's a lot of mad sort of paddling underneath like the swan. There's a lot of very good work done by our teams in Asia under very difficult situations. You go then to EMEA, and then you have Africa also we're facing significant issues in many of the places. In Europe, April first two weeks was very bad, then it started to get better. We have in North America, Mexico continuing to be bad. South America starting to get better in Colombia, in Peru. Argentina still pretty much closed.
We thought it would be very difficult to give a forecast region per region. It becomes impossible. I think by the loss of large numbers, I'm sort of confident that we will end up between that 10% and 15% volumes. We thought that was just a better way of dealing with it, and we sort of have learned to understand how you guys model things. I think that I would put not too much science into that, except 300,000 tons, our average EBIT margins, and then maybe AUD 20 million in terms of supply costs.
Okay. Thank you. Thanks for the feedback there. Just also picking up the comment in relation to slowing down the plants just to manage the inventory build. Can you just give us a bit more detail around what the plan is around those plants, how long you think you'll be needing to slow those down for, and whether there's any opportunity to bring forward any shuts or maintenance?
This is more around initiating systems and not around continuous manufacturing. In initiating systems, we have some plants that were operating at capacities of around 60%, 65%. When we see the demand go down, there's probably an opportunity to ramp up some plants and then ramp down some others and then furlough people. That our unit costs may go up in some places, but our cash, it's sort of a perverse thing that we reduce inventory, but our unit costs go down. From a cash perspective, it's good, but our EBIT goes slightly down. Right now, we are privileging, in that scenario, probably cash preservation over anything else. We think it's in the best interest of the company. It's not massive, but that's what we're trying to do. The other thing that is happening is with Exsa coming in.
That is also coming into play. This may accelerate part of the synergies in the sense of some plants being permanently closed. That was factored in and spoken about the synergies on Exsa. There are opportunities, but this is just work that we are just starting to do.
Okay. Picking up that point around cash management, just in the context of the interim dividend, with the payout ratio coming in below your typical sort of target range. Appreciating the logic behind that, just given the uncertainty with what we are sort of facing at the moment. If that level of uncertainty does subside through the balance of the year, is there potential from a full-year perspective for that payout ratio to normalize towards your typical payout ratio for that to be a bit more of a catch-up coming through on the final dividend?
That is absolutely the intention and the plan. We debated this long and hard. It was an interesting discussion. I have to say, we got a bit worried when we saw all the big banks canceling the dividend. We thought, well, they have a strong balance sheet, and they are canceling the dividend, and what should we do? We were confident, as we said before, in the strength of our balance sheet and the strength of our cash flows. We recognized that this was uncertainty, the message we wanted to send, just and to send it explicitly to our shareholders, is we understand how important the dividend is. We just wanted to continue to pay this dividend.
If things go as we are forecasting, that means a normalization of mining, yes, the plan would be to get back to the levels of normality and much higher payout ratios in the month of November.
Okay. Thanks for taking my questions.
Your next question comes from Scott Ryle from Rimor Equity Research. Please go ahead.
Hi. Thank you very much. Alberto, you commented on some of the lost volume was with respect to gold companies doing global contracts. Have I heard that correctly?
It wasn't lost volumes. It was lost prices in the contracts.
Price. Okay. No, that's fine. That answers my question then. The second one I had is on the SAP implementation. You've obviously highlighted there's a fair bit of capital that has gone into that project internally. Where will we see the benefit come through? You mentioned a number of things in a qualitative sense. In a quantitative sense, and maybe this is a question for Chris, but where will I see it come through in your P&L, your cash flow, those sorts of things? Can you just give me some color, please?
Look, I've said before, I prefer to talk about things when we have done them. I can tell you the following, which is we will spend around AUD 300 million in that system. Like any investment, it needs to make other returns. The returns, let's say, will be north of 15%. In 2 to 3 years, we should be seeing that returns in the EBIT. We expect to see some of that returns already in 2021. For some reasons, obvious reasons, maybe they're not so obvious, I don't want to give more color at this stage. I can give you the magnitudes and our commitment
Okay
to get that return.
All right. Yeah. That's not so obvious. If I look at your major two, just on a consolidated basis, on your major two cost items, raw materials and inventories, I wouldn't expect a huge impact there. Your employee benefits expenses is around about half of that amount. They're the big two cost items by quite some way. Presumably, to get anywhere near a 15% return, you have to be hitting one or both of those cost lines. Just thinking at it from a high level, is that a fair assumption to make that your revenue productivity ratios or something like that should be getting better over time as you become more efficient utilizing the systems that you're putting in place?
The big benefits will be, obviously, there are benefits on supply chain, there are benefits on procurement, there are benefits on plant maintenance. Our systems are from the 1990s. They are 40 years old. There is a lot of manual work across the world in our reporting. Our reporting is pretty poor. The level of productivity and efficiency that we will get into how we do things will increase significantly. We will probably do more with less. At this stage, I can only probably tell you that we have a lot of detailed understanding of how we will get those numbers, and we have a commitment to the board to deliver them.
Okay. Great. Thank you. That is all I had.
Your final question comes from John Purtell from Macquarie Group. Please go ahead.
Good morning. Just had a few quick questions. Alberto, just to clarify Barrick production in terms of the second half of 2020. I think you said greater than 100,000 tons for the second half. Just wanted to clarify that.
Yes. That's what I said. John, it just came in at the beginning of May. As I said before, it produces between 20 and 23, north of 100 for five months.
Thank you. Again, just your comment on, you probably answered this, on APA, are you seeing any underlying slowdown in demand due to lower coal prices?
No, I'm sorry. That was not the meant. Thank you. Let me clarify. No. We are seeing no reduction in demand. We're actually seeing increases in demand. In the U.S., there's an impact. Not in Australia. We are seeing up to now, no reduction in demand. Australia, actually, as I said, in April, our expectations of May are slightly above what we call our S&OP, which is our forecast for the month.
Okay. Just following on APA, you've talked in the past around the potential for price improvement as your book opens up in fiscal 2022. Do you still see an opportunity to improve net price realization locally in light of where IPP is?
We do. We definitely do. As we renew contracts, the current price where it is, it's much higher than our average contracts. Yes, we do. As I said, it's got to be only relatively small % in 2021 and a much higher % in 2022.
Thank you. Just the last one. You've obviously outlined the volume impacts you expect in the second half. How should we think about potential offsets in terms of additional cost down or other mitigating factors? You've obviously called out some overhead reduction in the past. Is that being accelerated? Shall we expect to see some form of mitigation there?
Chris will help us with this one.
John, as I said, we would have some impact from the lower recoveries in manufacturing. Then we've got some increased supply chain costs, as you'll appreciate. A lot of the stuff that we're putting on hold is really stuff like discretionary spend, putting people on furloughs, pushing leave forward, those kind of things. Those are temporary in nature because they're short-term. What you should expect is about half of the negative impact through manufacturing and through supply chain is offset by those benefits, if that makes sense.
Got it. Thanks very much.
Thank you, John.
Erin, is there
All, for your time today