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Orica (ASX:ORI) share price implodes 20% on updates

asx iron ore share price crash represented by meteor speeding through space
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Orica Ltd (ASX: ORI) shares are crashing today following two updates from the explosives manufacturer. At the time of writing, the Orica share price has slumped 20.08% to $12.26. In earlier trade, Orica shares had fallen by as much as 27% before making a partial recovery.

Let’s take a look at what the company announced.

What’s driving the Orica share price lower?

The Orica share price is on the slide today after the company released an earnings update to the market this morning.

In the announcement, Orica informed investors that key factors have reduced its earnings before interest and tax (EBIT) for the first half of FY21.   

Firstly, Orica highlighted that trade tensions between Australia and China had hit demand in the company’s higher-margin Australian thermal coal market. As a result, Orica flagged that lower mining activity could cost the group between $70 million and $80 million.

The company noted that demand from affected mines was expected to fall by approximately 60,000 tonnes of ammonium nitrate compared with the prior corresponding period.

In addition, Orica highlighted the impact of COVID-19 on mining activity. The company noted that mining activity in South America, Europe and Africa was reduced due to disruptions by the pandemic.

Orica also cited foreign exchange factors as possibly hampering its earnings. According to the announcement, foreign exchange is expected to cost the company between $20 million and $25 million.

In other news dragging the Orica share price lower, the company also cited extra costs of $15 million to $20 million relating to arbitration costs at its Burrup plant.

Overall, Orica flagged that these factors could see its half-year earnings hit by up to $125 million.

Orica is expected to report its earnings in May.

New CEO

In addition to its earnings guidance, Orica also informed the market that a new managing director and CEO has been appointed.

After six years in the role, Orica announced that Alberto Calderon will step down as chief executive and managing director. The company noted that the role will be succeeded by Orica’s group executive and president of Australia Pacific Asia, Sanjeev Gandhi.

Orica noted that Mr Ghandi has been with the company since July 2020 after spending 26 years with German chemical company BASF.

Despite planning to leave earlier, Mr Calderon had stayed on with Orica to help steer it through the pandemic.

Foolish takeaway

Orica is one of the world’s leading suppliers of commercial explosives. Over the past year, the Orica share price has fallen by nearly 41% after being hammered in the March 2020 bear market. Orica shares are also trading more than 13% lower than this time five years ago.

Based on the current Orica share price, the company has a market capitalisation of around $6.1 billion.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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