Thank you for standing by, and welcome to the Orica Limited half-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 one on your telephone keypad. Representatives of the media who are on the conference call are reminded that this call is listen-only mode for media. The question and answer time is for investors and analysts only. Should media representatives have any questions at the conclusion of the call, please contact Orica Corporate Communications. I must advise you that this conference is being recorded today, Tuesday, 13th of May, 2014. I'd now like to hand the conference over to your speaker today, Mr. Ian Smith, Managing Director and CEO. Please go ahead, sir.
Thank you very much for that introduction, and welcome everyone. Thank you very much for affording us some of your time. Without any further ado, we will go straight into the presentation, kicking off with the slide on safety. We're particularly proud of what we've achieved over the last little while, and this is an independent report from the city that places us towards the best performers when it comes to safety. In fact, year-to-date this financial year, we've actually pushed that number down to two or just below two. We're further improving our lagging indicators on safety. Most importantly, when you look at all the leading indicators, we have improved across the whole of the organization. That we have our risk profiles in place and an aligned approach on safety, we're confident that that will further improve into the future.
Moving on to environment at Yarwun. I thought it important that I give you an update as to what we've achieved at Yarwun over the last 18 months or so. We've now completed seven major projects looking at stormwater and the removal of legacy waste. We've undertaken an independent review and acted on all points that came out of that independent review. As a result of that, we've renegotiated the site environmental license to a profile that is more in accordance with the way that we'll be operating into the future. This is really a demonstration of our collaborative partnership and approach with regulators across all of our sites, what has been achieved at Yarwun is particularly outstanding. Moving on to the results overall. What you see today in our results is a good demonstration that we are progressing with our strategy and that is delivering results.
The differentiation of products and services continues on. The capital light approach you're seeing in the bottom line and the growth in new markets where we grew our African market by 44%, CIS by 22% and the Pilbara by 40%, attests to not only that we are consolidating our homeland positioning, but also opening up those growth points for the future. One of the most pleasing points in the whole of the results presentation and grouping of documents to do with that is the improvement in net operating cash flow and our gearing. We're putting the company into a better and better position as to cash generation, that should further improve as our strategy kicks in over time. We've now integrated the ground support, and we're seeing benefits out of that integration.
Unfortunately, the markets in ground support are still challenging, but if we hadn't gone ahead with the integration the way we did last year, then we would be in a far more precarious position. We're really well positioned in ground support, and that integration is flowing through to improvements. Unfortunately, lower volumes across all of our product groups in mining services, that's ground support, cyanide, and explosives, have manifested in the first half. We're expecting a far better second half when it comes to volumes. This is a manifestation of what we're seeing around the world with some of the commodity prices pushing down, especially in the coal markets, where a lot of our customers are trying to cut their costs by looking at the way they go forward with their overburden removal, et cetera.
You've got to remember when it comes to coal, we make far more money out of the moving of the waste or the material around coal than the actual coal itself. The total tonnage being moved in coal is going down, so the amount of volume of explosives is reducing as well. On top of that, we had a reduced contribution from chemicals business year on year. Again, in the second half, we expect that to come back with Latin America now being rationalized in the profile that we want Latin America to look like in the overall review of chemicals. Lower caustic prices should continue in the second half, or our expectation is for that to continue, the volumes of acid should improve. Some of those customers that had one-off issues, one customer is already back onto their full production.
The second is expected in the next month or so. A better second half for chemicals as well. With that brief introduction, I'd like to hand over to Craig Elkington, who's our CFO, to run you through the financial performance.
Thanks, Ian, and good morning, everyone. This morning, I'll provide details of the company's financial performance for the first half of the year, with particular emphasis on the operating and cash flow elements that underpin these results.
Our profit report and analyst compendium contain more detail, these have been posted to our website and lodged with the Australian Securities Exchange earlier today. From a headline perspective, statutory net profit after tax for the six months to March 2014 was AUD 242 million, this was down 8% on the comparative 2013 result. In terms of comparatives, I should mention that due to several changes in accounting standards adopted this year, principally around the accounting treatment for subsidiaries and joint arrangements, as well as the treatment of returns on defined benefit superannuation fund assets, 2013 comparative figures have been required to be restated. Full details are available in note one of the Appendix 4D lodged with the ASX this morning, as I said.
The headline impact of these changes is that the restated 2013 statutory net profit after tax has been restated from AUD 266.8 million to AUD 262.5 million for the half-year, from AUD 601.6 million to AUD 592.5 million for the full year. Turning back to 2014, EBITDA declined 3% to AUD 553 million, with lower demand across mining services and chemicals markets, combined with rationalization and write-off costs in the Latin American chemicals business mentioned by Ian there. These were more than offsetting our favorable foreign currency movements and ground support optimization benefits. Higher depreciation charges resulted in an overall reduction in EBIT of 7% to AUD 402 million. A pleasing result was the increasing in operating cash flow, up 11% on last year's result to AUD 313 million. From a shareholder's point of view, earnings per share moved generally in line with the profit result, this was down AUD 0.06 to AUD 0.66 per share.
In keeping with the company's progressive dividend policy, directors have declared an interim ordinary dividend of AUD 0.40 per share. This has been franked at AUD 0.16 or 40%. As far as future franking is concerned, we expect dividends in the near future are unlikely to be franked at more than 50%. Moving on to the group EBIT waterfall. As I mentioned earlier, group EBIT was down 7% or AUD 32 million over the period. The first six months of fiscal 2014 has provided challenges in terms of lower market demand for both mining services and chemicals products, in addition to some costs in repositioning their Latin American chemicals business. Despite these challenges, it is pleasing to note the continuing margin resilience of our explosives sector to date.
Starting from the left of the chart on a comparative basis, earnings this period were impacted by volume reductions across all mining services product lines, being explosives, sodium cyanide, and ground support. This resulted in a AUD 32 million decline. Net pricing and mix impacts across the mining services portfolio saw a slight favorable impact. I'll provide more granularity on these mining services market points in later slides. The first half result was positively impacted by the ground support integration program, with year-on-year benefits of AUD 12 million. When you combine that with the AUD 6 million of integration costs for the prior period, the resulting EBIT uplift was AUD 18 million for the period.
Excluding FX, depreciation was AUD 7 million higher, and this was primarily due to the full-period run rate of the Bontang plant in Indonesia and higher depreciation generally across our major plants, including the Karratha Ammonium Nitrate plant and the Antofagasta Initiating Systems facility in Chile. Contribution from the chemicals business was AUD 18 million lower. This was impacted by lower demand in Australian chemicals markets and rationalization and write-off costs of AUD 11 million in the Latin American operations, and some temporary shutdowns at mine customers that impacted sale of acid. Finally, the weaker Australian dollar lifted earnings by AUD 20 million. While additional costs associated with scheduled plant shutdowns at Curraghinalt and Yarwun, industrial action at the Curraghinalt site, and redundancy costs across the company impacted EBIT by AUD 17 million. Now, a little more detail on explosives volumes.
Overall volumes were down 2% on the prior period, with Australia, Africa, CIS, and Europe being the stronger performing regions across our portfolio, as other regions experienced lower demand for explosives products. Australia Pacific volumes were up 5% overall on the back of continued market share growth in the Pilbara, delivering 40% growth, whereas the Northeast region was relatively flat half on half, and a slight decline of 2% in the Southeast region as customers focused on the efficiency of their operations. In North America, volumes were down 7% due to weak demand from coal markets throughout this traditionally low volume period, and this was further impacted by a more severe winter period than normal. Overall coal volumes were off 15%, with Eastern U.S. coal down 23% and Powder River volumes off 5%.
U.S. coal stockpiles have decreased sharply over this period as a consequence and currently stand at historically low levels. As far as other markets go, volumes across metal markets were generally flat, while quarry and construction volumes continued to recover, with volumes up 4% this period. In Latin America, volumes were down 6% due to weaker demand generally across the region, with the larger metals mining markets of Peru and Chile most affected. Offsetting this to some extent, we saw new business in Brazil and higher volumes in Colombia during the period as operational issues were alleviated to an extent. In EMEA, volumes were up 22%, driven by continued strong growth in our focus growth markets of Africa and CIS. As Ian said, up 44% and 22% respectively.
In this case, a favorable winter weather conditions in Western Europe and Nordics compared to the prior period, combined with a recovery in the quarry and construction markets, lifted volumes in these regions by 17% and 13% respectively. Finally, volumes in Asia were down 20%, mainly due to a 29% reduction in Indonesian domestic volumes, as weaker coal markets were combined with specific customer operational issues at several major mining sites, and these affected explosives volumes being sold. A feature of this period's result was the continued resilience of explosives margins in the face of increased pricing pressure across the board. This has been achieved by a combination of expanded product and technical service offerings and a sustained focus on margin and costs.
From a pricing perspective, we saw modest price improvements in North America and various European countries, while pricing pressure was experienced to some extent across Australian, Latin American, and Indonesian markets. From a mix perspective, we continue to see improved returns from the progress of our differentiation strategy. This is largely in the area of increased service delivery. The shift to higher value products was slightly positive during the period, with a shift to emulsions across most regions. Globally, emulsion products comprise 55% of total explosives volumes versus 54% in the corresponding period. The graph on this slide provides a snapshot of the changes in contribution from explosives product and services and has been normalized for the impact of FX movements. On a per ton basis, explosives returns have improved globally half on half. This profile is being replicated across Asia and EMEA.
Asia benefited from increased production rates and therefore contribution at the Bontang ammonium nitrate plant, while EMEA's improved contribution was driven by price increases in some countries, improved products and services mix, combined with higher returns from Africa. Across the Americas, again, after normalizing for currency, both North America and Latin American contribution per ton was down by 7% and 1%, respectively. North America's reduction was attributable to the negative operating leverage impact of low first half U.S. coal volumes, while in Latin America, the slight reduction was due to a change in product mix. In Australia, the contribution per ton was slightly down period on period, due mainly to a change in product and overall business mix. Turning now to ground support and mining chemicals products. These sales were impacted by softer mining markets and customer destocking programs during the period.
Market conditions for ground support products continued to be challenging throughout the period, with reduced demand from the coal sector and increased competition impacting volumes. Steel volumes were down 11%, with weaker product demand in Australia, North America and European markets. On the other hand, resin volumes were up 1% with increases in Australia and Africa, more than offsetting reductions in North America and Europe. Competitive pricing pressure continued across all key markets during the period. sodium cyanide volumes were down 17% for the period, with the most significant volume reductions coming from Latin American and African customers. A lower gold price environment has forced miners to be more focused in their use of sodium cyanide and to actively reduce their inventory holdings. Pricing began to reflect the weaker overall environment for this product line and is expected to continue in the second half.
On the upside, volumes in the second half are expected to recover as customer demand profiles return to more normal levels. Chemicals EBIT declined 32% to AUD 38.6 million, a significant portion of this decline was due to non-recurring factors. As mentioned earlier, AUD 11 million was related to rationalization and write-off costs in Latin America. These were identified as part of the strategic review of the chemicals business, these costs were mainly related to inventory and data write-offs and costs incurred to reposition these operations for more success in going forward. On top of this, general chemical volumes were down due to subdued market conditions generally, combined with temporary shutdowns at key mining customers affecting acid sales. Lower caustic soda prices and volumes adversely impacted water care sales. New Zealand earnings continued to increase.
This has been driven by higher demand from the dairy and pulp and paper sectors, in addition to favorable currency benefits. The strategic reviewing of the chemicals business is expected to be completed during 2014, we'll be in a position to appraise the market at that point. During the period, we spent AUD 211 million on capital expenditure, this is about half of the spend in the corresponding period of 2013. This really demonstrates the application of our capital light strategy. AUD 89 million was spent on sustaining capital, with the main expenditure being on plant turnaround programs at Kooragang Island, as well as other programs across major plants such as Kooragang Island, Bontang, Yarwun, and Carseland in Canada. AUD 32 million was spent on the key category of customer-facing contract capital.
A reminder, this capital typically involves spending on mobile delivery equipment, small bulk emulsion plants, and on-site storage requirements in line with our customer contracts. This further boosts our already extensive delivery network. The most significant expenditure during this period was at the Apatit mine in Northwest Russia. Overall, we anticipate a ramp-up in spending on this category over the second half of the year. AUD 33 million was spent on growth capital, this included AUD 7 million on the Nanling detonator project in China and IT systems projects. Finally, AUD 57 million was spent on the Burrup AN project in the Pilbara region. The full-year spend on capital has been revised down from our original budget spend shared with the market last year of AUD 589 million, this is now at a level under our previous guidance at around AUD 572 million. Moving on to our balance sheet.
Net debt of AUD 2.37 billion, this represents a decrease from the prior period of just under AUD 200 million, reducing company gearing from 43.1% to 36.5% at the end of March. At this level, gearing is at the lower end of the target range of 35%-45%. Net interest expense was lowered by AUD 6 million to AUD 60 million. This is due to lower average interest rates over the period and higher capitalized interest associated with the Burrup Ammonium Nitrate project. Capitalized interest was up AUD 4 million to AUD 13 million. Interest cover remains healthy at 6.7 times. This is well above banking covenant requirements of 2 times and above the company's internal target of at least 5 times. Average funding costs for the period were 4.4%, inclusive of commitment and other fees, this level is lower than the previous period of 4.8%.
Pleasingly, operating cash performance has again improved during the period, with a strong focus across all areas of cash flow management. Trade working capital of AUD 753 million was around AUD 80 million lower than the same time last year. The improvement in inventory management and overdue debtor collections drove an underlying AUD 180 million improvement across all categories, this more than offset the AUD 95 million increase from foreign currency translation. The company had total debt facilities of AUD 4.4 billion at the end of the period. While total facilities have been reduced since year-end, headroom flexibility still exists, with around AUD 1.9 billion remaining undrawn at the end of March. This will continue to be reassessed as cash flow performance continues to improve.
From a maturity perspective, drawn debt levels show an improved tenor, as the average duration increased from 4.5 years at March 2013 to 6.3 years at the end of this period. The company remains in a strong liquidity position, with significant facility headroom and with relatively low refinancing risk. Finally, just turning to our environmental remediation program. At the end of March, total environmental provisions have reduced from AUD 188 million at the end of last financial year to AUD 176 million. This has been a result of remediation programs continuing to progress. The major provision reduction has been due to spending on agreed mercury remediation activities at Botany. As an update, we've submitted a remediation action plan to the EPA, and this has been agreed to in principle. Remediation has commenced and is proceeding to schedule.
Soil remediation is complete, the installation of barrier walls will commence in upcoming period. When this is complete, permanent capping layers will be installed. In terms of the other Botany-related programs, groundwater remediation and hexachlorobenzene waste treatment, these provisions continue to be maintained at levels consistent with last year, both programs evolve. The groundwater treatment plant at Botany continues to operate at the level required to contain the plume, full-year cash spend on this program is expected to remain at around AUD 13 million, which, in maintaining a provision in the order of AUD 60 million, means a similar amount is charged to full-year earnings. In terms of our HCB stockpile at Botany, Orica continues to safely store the waste in fully licensed and secure storage facilities while we continue to assess options for the safe and environmentally sound destruction of the waste.
The main items included in the other environmental provision of AUD 70 million are for remediation work at various sites, these include Yarraville, Villawood, and Deer Park in Australia, Seneca in the U.S., and Engene in Norway, amongst others. Good progress being made in remediating all of these sites. Thanks for that. I'll just hand you over back to Ian.
Thank you very much, Craig. We'll move on with the business update. Firstly, the Burrup Ammonium Nitrate project in the northwest of Australia. That's now at a stage where the on-site construction is 46% complete and the overall project is 76% complete. The module fabrication is 80% complete, basically, those modules in the plants in Asia are just about finished. One of the most important things to note out of this project is that those last of the large modules will be shipped in, barged in, and delivered into Northwest Australia before the next cyclone season. Basically, we're not expecting any interruptions to the project schedule, and that will be finished and starting commissioning mid to late 2015. On track, on schedule, on budget. On Apatit emulsion plant in Russia, we've just signed a 10-year contract for sophisticated rock on ground delivery.
On the back of that, we're putting in place a 40,000 tons emulsion plant and eight of our specialized MMU units to deliver explosives to the hole. This is synonymous and portrays what we're doing in Africa and the CIS. The vast majority of all expansion in that area is on the back of the IP that we have in emulsion and the way that we can deliver emulsion for a varied blasting output. This really attests to where we're going with our research and development and what we can deliver to our customers, which is quite unique compared to others. The commissioning of the plant in Russia will be starting in October of this year and finish commissioning and ready for production in December. Just attests to our footprint of how we're expanding in those growth markets on top of our home markets.
Integration of ground support. As Craig was saying, the steel volumes were down 11%, resin was up 1%. They're still challenging markets, especially in the eastern side of the U.S. The underground coal market in Australia is challenged as well, and we're starting to see some improvement coming through in Europe. We picked up AUD 12 million out of the integration benefits that were delivered during the course of last year and this year, and avoided the AUD 6 million that was spent on those integration activities last year. We expect that to be duplicated in the second half of the year, so that a further AUD 11 million-AUD 13 million of integration and optimization benefits will be delivered in the second half.
Just an update, and we've spoken about this in public before about the North American AN agreement that really puts in place a foundation in North America for the supply of up to 800,000 tons a year from CF Industries. That will commence in January 2017 and go for 10 years with an option on our part of extending that for a further five. Basically, we've established a base out to 2030 or beyond, where we can have equivalence in the cost base, where we have a preferable position in the North American market. If that market was to move on the back of gas or overall pricing of ammonium nitrate, we're in a position to benefit from that as well.
We've really established a long-term base point in conjunction with Carseland, our production facility, to supply the North American market in the next 10-15 years. Looking at our East Coast Australia gas supply. On the back of what we've done with Strike and the arrangements we have with Santos BHP, we have continuity of supply out to at least 2030 or thereabouts of the full 17.5 PJs that we need for our Eastern Australian plants. We've really put a footprint in a fairly challenged area where some people are talking about not having access to gas, let alone competitively priced gas. I think we're well ahead of the market here, and we've positioned ourselves well for the long term.
We're really in a position where we may even end up with an excess of gas, but the agreements are structured that we can sell into markets if we don't avail ourselves of all the gas available to us. Well-positioned. North America, we've got a long-term position on ammonium nitrate. In Australia, we've positioned ourselves for long-term supply of competitively priced gas in a challenged market. Moving on to strategy update. We've delivered the first phase of those three boxes of leveraging our new operating model, disciplined capital allocation, and value in use. You can see that continuing point coming through in our strategic delivery. You can see it in these results as to our cash flow continuing to improve, which we think is a thematic going forward.
What we have done in the differentiation of our products and what we're talking to customers about is that we are the only company that has access to the leading systems in all five pathways of help for our customers when it comes to explosive application. We lead in data for optimization, the collection and the modeling of how we go about our blasts and how we can do that in a more productive fashion for the mining industry. Lots of products and lots of modeling opportunities that we can share with our customers to help them mitigate their noise, vibration, and fume from their blasts. We have been helping people in high-speed development and extending the length of each round that they fire underground, and also the vertical firing of openings on top of the horizontal development.
We've been demonstrating, in the Hunter Valley and other areas around the world, that we can optimize and help lift soft rock recovery, especially as applied to coal. We've been picking up contracts and talking to people about how we can dial up for them a better size distribution to give hard rock fragmentation better suited to their installed processing plants. Right across the field for all our customers, that approach is getting more and more ground. We're having more and more test sites, and people are getting in contact with us on the back of what we're demonstrating in the field. That part of strategic delivery is certainly consolidated and ongoing. On cost and productivity initiatives, there's a whole range of outcomes that we've already delivered in this regard.
In light of that subdued mining market that we're seeing, we have a requirement to enhance our approach on margins and cost discipline, so we have various reviews underway. What we've delivered to date with our initial outcomes is that integration of ground support that we talked about. Craig mentioned that we did have some industrial disputation during the half that was on the back of the finalization of the Kooragang Island Enterprise Agreement, which has now been voted up and is in the process of being ratified. That agreement changes the basis of how we operate Kooragang Island and will lead to greater productivity on that site now that we have one approach to our shift roster for the whole of the site.
The functional structure is in place that we need to, in these reviews, check how that functional structure is being applied at all levels and all regions throughout the company. Manufacturing excellence is delivering to the point where each of our plants is now setting records, and as we go forward, we'll be able to lift those records further as to the output we can achieve from those plants. We've reduced our headcount by 1,000 people. This is 12 months to 12-month point, and we'll continue to reduce headcount as we move forward. That capital light strategy, as you can see in our numbers and cash flow, is really coming together with the delivery of services and product differentiation to give strategic delivery. What we're doing at the moment is looking at the optimization of our geographic footprint.
Some of the markets that we're in, we have a fairly high overhead structure to support some volumes that have to be questioned as to whether it's a rational positioning point. We're not talking about the fundamental ways that we grow or where we'll be in the future. Some of our smaller markets, we will be looking at whether that geographic location is worthwhile for us in the future. We're looking at procurement value delivery program right across the whole organization. Now that we have a centralized approach to procurement, how can we use our size instead of taking a regional approach to procurement that delivers better value? We're looking at all of our costs right across the whole of the company. We're looking at our initiating systems plants in North America, and we're in the course of rationalizing those as well.
We're removing the duplicated functional support in the regions. The application of the full functional structure throughout the whole company. In the area of procurement and cost review, we're using external resources that are focusing on these particular areas as the second wave of review. We envisage that out of those reviews, we'll be using some external resource in conjunction with Orica personnel to deliver on the range of projects that are being highlighted. At the end of this year, I'll be able to outline, this is the end of the financial year, the benefits and costs that will come out of those two exhaustive reviews. The aim of them is to be more efficient and effective as an organization and a structure in how we footprint around the world and to improve our returns and our earnings profile going forward.
Basically, in light of subdued mining markets, we have to reposition. We're seeing initial indications that those markets are starting to lift, but this is the opportunity of applying our strategy in the second wave to put ourselves into a position where we can offer our customers something that no one else can and reset our cost structure for all points of the cycle. That leaves us on to outlook, which is the last part of the official presentation before questions. What we're saying in outlook is that our group net profit after tax before individually material items in 2014, is expected to be in line with or exceed the restated 2013 NPAT of AUD 592.5 million, influenced by a range of assumptions, and they cover the whole of the mining services area and chemicals.
The most important point to note in this outlook statement is that the uplift in explosive volumes that we are expecting in the second half of this financial year is the most influential factor in the full year results. In the first half, we saw a 2% volume decrease, mostly on the back of what is continuing to be pressured coal markets. If the pricing of coal continues to decrease, then we could see some volumetric reaction to that, both in Australia and Indonesia, especially. In the U.S., we don't expect as much reaction if the price continued to go down, because basically, that is a domestic market. As Craig outlined, they've already reset their stockpiles down to 35 year lows.
They had the reaction last year to what happened with gas, we are seeing some subdued activity in the coal markets, and people availing themselves of the opportunity to back off their strip ratios in the light of these prices that they are getting for both thermal and metallurgical coal. It will be the main determinant of volume growth in the second half. As it stands at this particular point in time, we are expecting volumes to increase in the second half. That really finishes the formal presentation, I would like to throw the forum open to questions.
We will now begin the question and answer session. If you wish to ask a question, please press Star, followed by the number 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the Star key followed by the number 2. We will now go to our first question in queue from the line of Michael Ward from the Commonwealth Bank. Please go ahead.
Hi, guys. Just a question around explosives. You made the comment that the contribution was pretty much flat, margins were improved and it was offset by scheduled plant shutdowns, redundancy costs, also it sounds like KI. Can you sort of elaborate on the extent or maybe the quantum of those three negative factors?
I won't give you the exact numbers on the contribution of each of them. What you see when our volumes are down is you set your production points up and your distribution systems and whatever to cater for a certain volume profile. You can't just turn those plants down afterwards and the cost structures that go with those. When they're spread across a smaller volume of material than what you expected, that has some impact. In the cyanide area, the Yarwun production plant, basically, we experienced a lot of destocking that went on in the gold industry, but the cost structure of that plant continues on.
As the volumes appreciably pick up for cyanide in the second half, we expect the cost of production for each ton to improve, that contribution margin coming out of cyanide will feed back into mining services. Same on ground support. As those markets pick up gradually over time, that contribution margin will kick in. On explosives, we've seen some movement around on the amount of emulsion that's been demanded within Australia on the back of what's been going on in strip ratios in the coal industry. That feeds into contribution margin as well. A whole range of points that each fed into contribution margins improving, but not being stellar during this particular half. As the volumes pick up, we would expect the contribution margins to pick up with it.
I guess, look, I was just focusing purely on the explosives business where you've said the margins were better and the contribution was better, it seems like there's some pretty specific one-off costs. I was just trying to get a sense of what those one-off costs were.
As we went through some industrial disputation in Kooragang Island, any industrial disputation and our flexibility in supply, we had to truck more tons down from Queensland into New South Wales, that contributes to costs. All of those one-offs all contributed into our performance in the first half, which you won't see in the second half.
Okay. Just also on Minova, I just want to try and understand, I guess, your comments around that business where you've said the benefits that have come through from integration optimization have been about AUD 18 million. Is that a net benefit or is the actual earnings improvement of the ground support business actually lower than that given the weakness that we've actually seen coming through in the business?
Yeah. The volumes are down further than what we expected them to be. That 18 is made up of AUD 6 million, which wasn't duplicated in this half, but we were spending in the first half of last year to get the improvement in integration. We saw AUD 12 million Direct benefit in the half from the integration activities we undertook last year. We expect in the second half to go on and improve those even further. The volumes are down in ground support to a greater extent.
Earnings is less than AUD 18 million in the half.
Yeah, Craig here. The AUD 12 million benefit is separately tracked benefits coming out of the specific-
Okay. I don't dispute that the benefits have come through and the costs have been avoided, I'm just trying to understand if the net improvement, i.e., X volume pressure, pricing pressure is lower than AUD 18 million.
It is lower.
Just the AUD 11 million-AUD 13 million that you've outlined for the second half, that doesn't include the cost avoidance, does it, for Minova?
No, it does not.
No. That's just straight improvement.
What's the cost avoidance number of the second half?
About AUD 22 million, AUD 23 million, I think it was.
Thank you.
Your next question comes from the line of Mark Wilson from Deutsche Bank. Please go ahead.
Thanks very much. Ian, I was just wondering if you could elaborate on what you're seeing in the markets at the moment that gives you the confidence to say that you expect mining services volumes to improve in the second half and also if you could cover off on chemicals as well. Thanks.
Okay. With mining services markets, well, North America had a particularly cold winter, we are seeing volumes pick up in North America. As Craig alluded to, Europe didn't have as harsh a winter as they had the year before, we are seeing quarries and construction come back fairly strongly in Europe, and we're also starting to see those volumes come back in North America as well. Change in weather, stabilization of stockpiles for coal, and overall demand coming out of Q&C, we've seen the copper industry in North America hold up pretty well. Latin America, we're starting to see improvements in coal volumes go through because there was a fair bit of industrial disputation, et cetera, in the first half. Copper industry lifting its volumes as well in Latin America.
In Africa, we'll continue to expand our volumes on the back of new contracts that are just winding up, they're starting to contribute. On top of that, what we're doing at Apatit and CIS will give us improved volumes. In Australia, we'll continue to expand volumes in the Pilbara, and that really leaves the East Coast and coal as the only area that we expect to be flat. At some stage, we would expect some of those strip ratios to come back, and if they come back anywhere towards a normalization point, that will improve volumes on the East Coast as well. That's really a rundown of our confidence that we'll see higher volumes in the second half. In chemicals, AUD 11 million of that AUD 18 million came out of the rationalization of what we're doing with Orica or our Latin American chemicals business.
We've been through that phase. That's now been done. We've reset that as part of the overall review of chemicals. For acid volumes, we're already seeing one of the major customers that wasn't taking hydrochloric off us back in production. In the next month or so, the overall volume of sulfuric will pick up as the other major customer that took a lot of sulfuric off us comes back into production as well. They're specifically related points that we can have confidence will lift volumes going forward.
Okay, thanks. Just if we look at the coal price decline, particularly, more recently in Indonesia and Australia, what has been the reaction of customers thus far? Are they readjusting their production profiles once again? Are we seeing a second wave or a second round effect?
What we're seeing is the overall volumes of coal is going up, so people are wanting to produce their way out of it. As a point I made earlier in the presentation, we make far more out of moving the waste than we do out of what is moved in coal. The other thing we're seeing right across Indonesia and Australia is the average strip ratios have dropped, but people are avoiding moving their overburden or the normal amount of waste that needs to be moved. They're trying to reduce their costs, which is a normal reaction to this type of thing, through moving less tons, and those less tons are the waste tons.
Thanks very much.
Your next question comes from the line of Stuart Jackson from J.P. Morgan. Please go ahead.
Hi, guys. Just with regards to pricing and pricing dynamics in the marketplace, you've alluded to, obviously, that's going to remain difficult for the second half of the year. Can you give us an idea of how that's sort of going to evolve over the next sort of 6 to 12 months, given that the contract expiries that come through? If we look back sort of two or three years ago, prices were higher on the basis of higher input prices and how that outlook looks from you guys' perspective.
Pricing in most parts of the world has held up really well. In Africa, we're getting very good prices and very good margins, and that's on the back of some of our technology, so we can go in and set up faster than anyone else. The same through most of Europe into the CIS. In Latin America, the pricing and actually the thirst for our more sophisticated offering of fragmentation blasts, et cetera. We're seeing more and more demand for that. That feeds through to overall pricing and margin holding up quite well. In North America, pricing's holding up pretty well. We haven't seen too much pressure. It's mainly on a volume basis. You get to Australia and Indonesia, which is where we're starting to see pricing pressure come in on the East Coast and in Indonesia.
We just renewed a major contract in Indonesia for one of our major customers there, and that was at the trail of that pricing pressure. Because we have now got up to full production out of Bontang, we were able to change our pricing there, and we've actually put ourselves in a position in Indonesia where we could expect greater market percentage ownership out of where we're repositioning out of prices on the back of reducing our costs because of Bontang production, et cetera. Yeah, we're seeing some pricing pressure as contracts come up for renewal. We saw some pricing pressure come through on cyanide. We've actually repositioned on cyanide, dropped our prices very slightly, picked up a lot of market share, and you'll see that come back in the second half of the year.
We're using this whole market profile as an opportunity, number one, to move people into more sophisticated products that help their productivity. You get out of this straight comparison on ammonium nitrate prices, and also to reset our percentage share in markets and to fray our costs across a greater volume in a particular market. There is some pricing pressure, especially around coal in Eastern Australia and Indonesia. We're using that as an opportunity rather than a threat.
Okay, just on Indonesia, just feeding into that, your volume's down sort of 20% or so. The IPL's volumes were fairly flat. I know they're a much smaller player, but can you talk about the competitive dynamics in that? Given that ability to actually price lower with lower costs with Bontang running at full capacity utilization, when you actually see that, you expect your market share to actually stabilize or maybe even improve? What's the timing on that sort of thing?
Well, we've actually stabilized our market share there. Like you say, Incitec Pivot's share of Indonesia's portfolio compared to our share, we've seen our market share stabilize, and we would expect that market share to improve from this point on. As I said, we just went through a major negotiation with probably our biggest customer there, where we kept our contract in place.
Okay. Thanks, Mark.
Your next question comes from the line of Simon Thackray from Citigroup. Please go ahead.
Thanks very much. Ian, actually just following on from Mark's earlier question in terms of volumes. April, May, I know you've talked about the markets and where you're seeing some confidence about volume growth and really East Coast Australia seems to be the variable. Looking at your mix of explosive volumes on page 35 of your slide pack, the growth in AN versus the fall in emulsion. What's the expectation for the mix between AN and emulsion? What's that gonna mean for margin, I guess, going forward? Particularly as we've got ongoing volume pressure on the East Coast.
Yeah, look, the East Coast of Australia really was responsible for a bit of pressure coming on the emulsion volumes. That really played out with the weather that we saw, especially in Queensland this year compared to last year. There was less wet weather effect on that market, and that changes the percentages of emulsion and the normal prill going forward. We still see an overall movement and the introduction of new products from us in emulsion, which gives a greater range of blasting outcomes based around emulsion strength. Gives us the confidence that we'll see emulsion percentages go on and improve over time. Of course, you'll always get some weather effect coming through, which you saw in the first half, especially in Northeast Australia, but the overall trend is still to move people onto emulsions, which gives us better margins.
Simon, I was just saying, Craig here. I was just going to say, another part of our emerging growth strategy is, you've seen this on that same chart with the EMEA volumes, is that as we push down harder into emerging regions, our ability, particularly Africa and CIS, the ability for us to mobilize on site and offer a more full-service emulsion package is enhanced.
Appreciate that, Craig. I'm just wondering in terms of the outlook, notwithstanding the note on volume, the sensitivity to volume, is there an expectation in terms of the EBIT outcome for the full year that you will have a shift back somewhat to a higher mix of emulsion on the East Coast?
It's our expectation going forward. Yep.
Okay, terrific. Then just very quickly, in terms of your cost and productivity review, you made the point, Ian, that this is an opportunity given what's happening with volumes and the pressure on volumes and price to look more closely at cost and productivity review. You note in your release you've appointed external consultants. I'm just interested in terms of who those consultants are?
There's some degree of confidentiality, I'll share with you, it's A.T. Kearney and McKinsey.
Thank you.
Your next question comes from the line of Ramoun Lazar from UBS. Please go ahead.
Good morning. Just a follow-up from Simon's question on Indonesia. Ian, you mentioned Indonesian volumes are down 29%. Just wondering on a more normalized basis, I understand your two customers, there was some temporary issues with production there as you are renewing contracts and so on. Just wondering what would be the normalized sort of market rate of growth for Indonesia excluding these two factors?
There's a third one I will throw into the mix as well. Bontang, if you compare first half this year to first half last year, Bontang did not have any production at all. It had some production in the first half last year. That's one point. Two is that the Indonesian pits have more chance of playing with their strip ratio as to a greater extent than the average pit in Australia, and we have seen that play out. To the extent that some of our customers have actually been going for as much free dig as they can. You can do that for a short while, but over time, you have got to catch up on your waste stripping and whatever. The combination of Indonesia.
The fourth point is that I would expect that the Indonesian total tonnage sold has been under a fair bit of pressure as well. You've got the total tonnage under pressure. You've got the overburden stripping putting a pressure point on our explosive sales. You've got free dig on top of that, and then you've got the one-offs of Bontang half year on half year, all contributing to that drop of 29%.
Right. Does this impact how much product you look to sort of send offshore from Indonesia or the amount of product you're selling into Indonesia at the moment is the right sort of number for the remainder of the year?
Well, our expectation of mix in Indonesia is 220,000-230,000 tons in Indonesia, and about 60,000-70,000 tons from Indonesia coming into Western Australia. That gives us that 300,000 profile for Bontang going forward. We want to build up on our contractual base in Indonesia. As Burrup starts to be commissioned next year, we want an overlap so that the Bontang tonnage smoothly transfers into Indonesia as Burrup ramps up to supply the northwest of Australia. The relief point for both of those areas is we can transship tonnage down into Africa, and we're starting to pick up more tonnage in East Africa, especially in Mozambique. That wouldn't give us the best margins compared to selling it in northwest Australia and in Indonesia.
We're fairly confident we can grow our Indonesian market point over time to dovetail into what we're doing with Burrup.
Okay, that is great. Just while we are on Burrup, can you give us an update as to what extent the plant is loaded? Has there been any change there?
Yeah, we have picked up a couple of contracts of a size of 40,000 tons or thereabouts. We are in discussion with other people to pick up further contracts as well. Are continuing to pick up. We have got until the end of 2016 to get it fully loaded and in line with what the expectation for iron ore output is. We are fairly confident we will hit that point in advance of where we need to be in the commissioning of Burrup.
Okay. Does that take you, just correct me if I am wrong, does that take you to 240,000 loaded at the moment?
Around that point. Yeah.
Okay. Thanks very much.
Your next question comes from the line of Andrew Scott from CIMB. Please go ahead.
Thanks, guys. Good morning. Ian, this one might be more appropriate for Craig, but I'll leave it up to you guys. You indicated headcount's down around 1,000. I presume we'll see a similar outcome to Minova where the costs of redundancy and restructure come through first, then the benefits sort of come through a year later. I guess with that in mind, can you step us through the timing of that 1,000? We know about the 400 Minova all being done, if you like, within FY 2013. How much more was in FY 2013? Were there redundancies there that weren't necessarily called out? Then similarly, if you can step through the timing and magnitude of the benefits, can we sort of extrapolate the Minova experience, or is there a reason this would be different?
Yeah. A fair proportion of that AUD 17 million negative BAR you saw under "other" in the half came from redundancy costs that were incurred in the half. I can't say that those redundancy costs will reduce going forward, that's why I'm going to give you a profile at the full year results when we finish our cost reviews. Those cost reviews could result in further redundancies going forward as we optimize our functional structure and our geographic footprint around the world. Yeah, one of the worst things about restructure is that you take your cost before you get your payback. As we move forward, those payback points will all build into our results over the upcoming years.
Was there anything in the second half of 2013 outside of Minova that we should be thinking about?
A little bit, but most of it came out of the restructure of ground support. The result in the first half of this year is more general across the whole organization. We're starting to apply our functional structure to push down on our overheads and whatever. As you do that, you take the redundancy costs as they occur.
Can we use the ongoing benefits that we saw from Minova as a similar sort of guide? If we got the AUD 23 million-AUD 25 million for 400 heads there, can we extrapolate that across the rest of the group?
At the end of the year, I'll give you some granularity as to what you can expect and when you can expect it. Look, we're undertaking this whole review with McKinsey, et cetera, to get to a fundamentally different cost structure going forward. The magnitude of that, I'll share with you at the end of the year.
Sure. I had to try. Just one other one. You talked about, with Stuart's question, about pricing on contract rollover. Just interested whether you've seen any pricing adjustments with existing contracts that are still a number of years away from rollover. Obviously, the mining contractors are seeing a lot of that, and I think the market's interested to see whether we'll see that in the explosives sector.
Yeah, we've had certain of our customers come and talk to us about, "Is there any opportunity to move your price?" We've gone back to them on the basis, "Yeah. Is there any opportunity for us to pick up a bigger percentage of your explosive supply and to extend the length of the contract?" That's really the basis that we're exhibiting to our customers. If they're open to talk about the length of the contract, the type of products and services that we supply, and the total percentage of their supply that they're talking about, we're more than happy to sit down and talk about price. It has to be in that context. We haven't moved once just on price. It's about that profile I just described.
Great. Thank you both.
Yeah. Next question comes to the line of Scott Hudson from CLSA. Please go ahead.
Yeah, good morning. I was just wondering if your expectations for flat volumes across the East Coast, is that assuming no shift in the coal price going forward?
Yeah. Well, minimal shift. That's why I'm saying that the main determinant on the volumes in the second half is really around what happens with coal. I'll talk about hypotheticals here. Let's say the coal price, thermal coal price, went down by another AUD 10 a ton. I think you'd see a reaction in the Australian market. I'm not predicting that we'll see pit closures, but I'm sure that parts of pits would be closed, and those preferential strip ratio parts of the pits would be operating and other parts wouldn't. Let's hope for all concerned, ourselves included, that what we're seeing now in the pricing of coal is the bottom of the trough. Another AUD 10 bucks would really put this industry under pressure.
I guess just thinking about that longer term, how much longer can the miners continue to, I guess, defer overburden removal?
Look, you've got to look through what everyone has been doing on cost avoidance and cost downs. If it's fundamental in their total cost structure that they've been able to push their sustainable cost structure down to the extent everyone's talking about, a lot of them can withstand. If a lot of that cost constraint is coming out of just avoidance of strip, et cetera, then at some point in time, those costs will come back.
There's no, I guess, there's no sort of rule of thumb as to when that cost should come back. It's just a wait-and-see game. Is that the way to think about it?
Yeah. That's what we're seeing in the market as well. This is a pit-by-pit exercise and customer by customer, and we're seeing various customers react in different ways and run individual pits slightly differently to others. One of the advantages of what we have as a profile is that we get to see the whole industry and the whole contextualization of how people react to situations like this.
Just in relation to Indonesia, I know the first half volumes were down. You've obviously talked about some of those one-off issues. Taking your comments into account, I would assume that the comps in the second half of the year are easier than the first half. Is that the right way to think about it?
Yeah. Again, it's contingent on that coal price. As you know, the average price realized in Indonesia is less than the price that people get in Eastern Australia, but the cost of production in Indonesia is lower than Eastern Australia as well.
lastly, your report talked about some significant contraction in PNG in terms of explosives volumes. Can you just comment on that quickly?
We had a particular project-related contract there in PNG that no longer exists. That project was completed and was not present in the first half 2014.
That is the second half
That's correct.
Going to be down some amount?
That's correct.
Your next question comes from the line of Paul Jensz from PAC Partners. Please go ahead.
Thank you. Just two questions. To clarify slide 11, maybe Craig, this change in explosives contribution per ton. I'm just trying to do quick math, and I can't get to that total being up, Craig. Maybe there's some definitions in there to show that you're getting a higher contribution per ton. I would have thought Australia, North America, Latin America have a lot of volumes, and the other two are quite small.
You can't get to that amount, you're saying?
Yeah. I just think with Australia, North America, and Latin America basically being down in contribution per ton, it's difficult to work it out such that EMEA and Asia drag that back to a positive contribution. I'm just wondering what we're doing wrong. Obviously, this is a new term, contribution per ton. Maybe that's the issue.
I think the main thing to remember is this graph is trying to give you a year-on-year change in contribution. It's not that we aren't improving the contribution, but the change in contribution across each area is different. When you look at the overall effect of a year-on-year change in contribution, it's the relative tonnage that comes out of the area, plus the overall amount of contribution that comes out of the area as well. Look, we're trying to give you more granularity in result. If this doesn't provide you enough detail to actually understand, we're just saying that our contributions per ton are still positive, and the changes in contribution per ton are continuing to go up. That's the main message.
How we represent that, it gets rather complicated because the contributions are still positive, but the change relative year-on-year in some areas is less than what we saw last year, even though the contributions overall are positive.
What we've tried to do is provide the more regional granularity there. What we've done with the Americas is to strip out any currency benefit that would have arisen this year in order to provide that visibility to you.
I like what you're doing because this is the core of what Orica is trying to do. I'm just thinking if we're going to do this going forward, it's an incredibly critical chart, and it would be good to get some of the definitional bit behind it, because if this is going to be put out every half year.
Last year was the first year we introduced it because it is absolutely integral to our strategy. When you consider the environment we operate around volume and potential price pressure and so forth, it is fundamental that we focus on margin and cost accordingly in order to drive returns there. We will continue to prepare this chart and share it with the market.
The other thing is we'll take this feedback on board. If it's not clearly getting the message across that our contributions continue to improve and are positive year-on-year, we'll go back and have a look at whether we can add a better dimension to that.
Just the final thing, if I can, is around the North American AN gas agreement there. Can you go through the pricing impacts around that? Because my understanding is that this agreement up until now has forced the AN explosive grade to be at a discount to agricultural grade AN, and this new agreement may mean that this is going to be at what it should be a premium to the ag grade AN. Is that some of your understanding, Craig or Ian?
Well, it's the first time I've heard the first part of that statement, comparative to fertilizer. We have a differential price in North America, which puts us at a comparatively better place than other suppliers into the North American market. The point of this slide is trying to say that we can continue that advantage going forward because we've got some pretty good prices out to 2030, at least, for the volumes that we require in North America. Carseland is exceptionally low-cost plant, and that produces 500,000 or more tons. Then on top of that, we can get another 800,000 tons at comparative prices to what we're paying now. We're basically saying that we can keep our competitive position in North America out to at least 2030 on the back of this agreement.
To your point about fertilizer, whatever, I don't think that is the case because CF is using this agreement with us to expand their plant going into fertilizer. All the feedback we get is that the explosive market is better for them than the fertilizer market.
That would suggest that they're getting a premium for the AN in this contract.
Well, the cost of getting explosive grade ammonium nitrate produced is higher than fertilizer grade on average. I don't know whether that equates to a premium, but the pricing should be higher than fertilizer grade as well.
The other benefit, Paul, of supplying into an industrial grade market like ours is you remove some extent of seasonality around working capital and other factors that impact fertilizer sales.
It doesn't look as though that's come through to your price waterfall yet, so this must be quite a recent contract?
Contract doesn't kick in until 2017-2018.
Thank you.
Your next question comes from the line of John Purtell from Macquarie. Please go ahead.
Morning, guys. Look, two questions. Just the first one, obviously, there has been a slight change in your 2014 guidance. I'm just exploring the drivers for that. Obviously, you are still expecting a recovery in second half volumes, which was the prior assumption. Is it more a case of the extent of that now has been moderated, as well as sort of the flow-through of some of the price pressure you have mentioned? Are they the main drivers here?
It is mainly driven by volume and saying that because we had that 2% down in the first half, that reflects on the total experience or outcome over the full year. If we were to see continuing pressure on volumes rather than the expectation we currently have that volumes will increase in the second half, that will push down on the full result for the year as well.
Thank you. Just the second question, just in terms of what you're seeing in U.S. coal-related markets. Obviously, we've seen inventories clear out over there. Is your expectation that should see a pretty robust improvement in demand for both ground support and explosives? Or are you expecting only a modest improvement overall, given, I guess, ongoing tough conditions in the Appalachian sort of dragging down on any improvement in the West?
Yeah, unfortunately, some of the recovery in volumes that we're seeing is patchy. You get Powder River is coming back fairly strongly. Illinois Basin's picking up in tonnage, certain parts of the Appalachians aren't moving much at all. The expectation is, as time goes on, that they won't come back anywhere near the level that they were previously. There is a lot of underground production in the Appalachians, you get a double hit that those volumes aren't coming back. The underground mines in the Appalachians aren't coming back as a contributing point into volume growth for coal production in the U.S. We're not seeing ground support pick up to the extent we expected because of that differential impact on the Appalachian area.
Thank you.
Your next question comes from the line of Matthew Trivett from Patersons Securities. Please go ahead.
Just a question on the Pilbara. You're obviously looking to that area to help you out considerably for the second half. Yesterday, Incitec Pivot Limited highlighted that that area is going to be fairly oversupplied with AN, I was wondering, the contracts that you're looking to negotiate at the moment, are they more about establishing your market share, and are your margins potentially coming under pressure in that region? Do you have the same thought as Incitec Pivot Limited on the future of AN in that area?
When Burrup comes in, we expect that market to be oversupplied to the tune of around 150,000 tons. That's in year one, which is 2017-2018. That's on the assumption that all of the CSBP expansion goes into explosives. If that expansion for CSBP goes into fertilizer, then that comes off the 150,000 of oversupply. As you saw in this half-on-half, our Pilbara volumes went up by 40%. We're still seeing those increase. They'll increase further in the second half. We're talking about additional contracts. When you get into strip ratios for Pilbara, it's interesting that as that capital tap gets turned off from 2017-2018 on, the existing pits will pick up more waste to be removed, and that will absorb explosives fairly quickly.
For a 40, 50-year plant, I think we're positioning quite well from year one on what we see as the profile over the next five or six years for overall demand. Point 2, the reason that we're talking to miners about additional contracts at the moment is I think some of the events of the last year reinforced to them that having another plant that's far closer to their mines means that they should be spreading their risk profile, if you like. We're in a differential position of coming into the market where we will pick up some of that risk mitigation, i.e., by a second plant supplying in to what is, for the companies, a very significant earnings point for them.
Yeah, the overall market may well be oversupplied by 150,000 tons or thereabouts in 2017-2018, but we're seeing demand because people appreciate that we do bring a slightly different risk profile to their current production.
I'm sure that's the case, I imagine that'd also be putting a fair bit of pressure on the margins under those contracts, especially with the iron ore price that's come off sort of from AUD 130 down towards AUD 100 now.
On top of that, we're talking to people about how we can apply our range of blasting techniques to actually change their productivity, et cetera, which puts us in a slightly different place from other people just supplying raw ammonium nitrate prill.
Thank you.
Your remaining question in queue comes from the line of Scott Hudson from CLSA. Please go ahead.
Yeah. I just had a follow-up question on the U.S. supply agreement. Once that contract kicks in, I'm presuming your existing supplier will be looking to place a product in their market. How will that play out in terms of any potential excess supply in the markets and impact on pricing?
Look, we can't speak on others' behalf. A couple of our current suppliers have talked about moving out of this market altogether. We'll just see how that plays out over time.
Great. Thanks.
We do have another follow-up question from the line of Ramoun Lazar from UBS. Please go ahead.
Oh, hi. Just one for Craig, just some housekeeping questions, if that's okay. Craig, what do you expect the tax rate to be year-end this year?
Well, the tax rate at the moment in the first half of around 25.5%, we've generally predicted that to be relatively stable.
When you mention D&A and interest costs as well, where do you expect those to trend?
Interest costs will obviously depend on FX, so we have to take that into account. Typically, D&A, as you've seen in the first half, we have had more depreciation coming from our major plants. We'd see that continuing. As we pull back off capital, we'll probably see that rate of increase reduce to some extent. We've typically been guiding still at around 10%-15% up, but that'll remain to be seen. It does swing around with FX though, Ramon.
Okay, great. That's helpful.
You have another follow-up from the line of Michael Ward from Commonwealth Bank. Please go ahead.
Sorry, just following on from some of those questions around the West. Obviously, you noted the 40% uplift in volumes in the Pilbara in the first half. To what extent did you benefit at all from the CSBP shut in the first half?
Our customers benefited even more. It reinforced to our customers that we can step in and cover any shortfall in that market if you do have hiccups.
Can you give us a sense of what maybe that underlying number may have been, ex the CSBP benefit?
The contracts I'm talking about that we're negotiating at the moment for tonnage are a direct result of us stepping in and helping that market. It's a trend line and a point of reinforcement to people that they probably need another source of supply. We expect to pick up increased tonnage going forward on the back of those discussions that we're in at the moment.
Sorry, the overall market or the explosives market in the West is obviously not growing at 40%. Do you have a sense of what the market's actually growing at in the West?
No. Just take the strip ratio and the rate at which you expect the iron ore tonnage to go up. We have projections on all of that. I can't quote it off the top of my head. That's how I can make that statement about we expect the market to be 150,000 tons or thereabout, over supply in 2017.
Thank you.
We track the tonnage fairly closely, as you'd expect.
There are no further questions in queue, Mr. Smith. Please continue.
Thank you very much for your time today. I hope you take these results as an indication that we are moving in a positive direction as regards our strategic delivery. This is affirmation that our positioning in the market is to not only give ourselves long-term continuity and security of supply in our main markets of North America and Australia, and we are under negotiation in Latin America to give us long-term continuity and security. Those growth markets of Africa, Russia, and the Pilbara are starting to deliver. We are further undertaking cost reviews right across the range to optimize the structure that we're going forward with around the world. We are moving down the strategic path we've outlined. We are delivering a better result. Even though volumes were down in the half, we are generating more cash than we had in previous periods.
You'll see that trend continue. These reviews that we're undertaking at the moment are to reposition ourselves so our overall rate of return improves irrespective of what part of the cycle we're in. Thank you very much for your participation, and we'll share with you events as they unfold. Thank you.
That's all for today. Thank you for participating. You may all disconnect.