Potash

In 2009 the world consumed 21.9 MMT of K2O in fertilizers, this is set to rise to 35.4 MMT by 2014.*

EuroChem’s strategy is to be a significant global potash producer by 2014, with an annual capacity of 2.3 MMT p.a. (c. 1.4 MMT p.a. of nutrient) after completing the first phase of our Gremyachinskoe greenfield project, increasing to up to 7.7 MMT p.a. (c. 4.6 MMT p.a. of nutrient) upon completion of phase II of Gremyachinskoe and phases I and II of the Verkhnekamskoe project.

The key to growth: our currently planned investment in potash to 2014 is around US$ 3.2bn. This will make us one of the only fertilizer producers in the world with a significant presence in all three of the major nutrient segments, and one of the top five fertilizer producers globally by total nutrient capacity.

*Sources: IFA, BSC, Fertecon, EuroChem estimates.

Key facts

  • Potash is known as the quality nutrient: used as a fertilizer, it helps crops to improve water retention, yield, nutrient value, taste, colour, texture and disease resistance
  • Potash is primarily mined from deposits located deep underground
  • Potash producer margins are historically significantly higher than those of N and P producers
  • Potash reserves are rare, and just three countries, Canada, Russia and Belarus, account for 85% of the world’s known economically viable potash reserves
  • Lead time for potash greenfield projects is typically longer than for other fertilizers: from five to seven years
Top 10 potash producers 2009 by capacity
MMT p.a. of Kcl 2009
Potash Corp (Canada) 11.01
Mosaic (USA/Canada) 10.81
Belaruskaliy (Belarus) 8.99
Silvinit (Russia) 5.70
Uralkali (Russia) 5.55
K+S AG (Germany) 5.20
Dead Sea Works Ltd (Israel) 3.95
QSL Industry Group (China) 2.20
Agrium (Canada) 2.10
Arab Potash Co. (Jordan) 2.10

Sources: BSC, company data.

By 2018, EuroChem currently plans to operate over 8% of global potash capacity.

Application of potassium fertilizers can help increase yield and oil content in sunflowers.
Work at Verkhnekamokoye potash deposit

EuroChem ranks among the top five fertilizer companies in the world by reserves. Our strategy is to start potash production in 2013, reaching an annual capacity of 2.3 MMT p.a. after completing the first phase of development of the Gremyachinskoe deposit.

Through a brownfield expansion of the Gremyachinskoe deposit we plan to double capacity to 4.6 MMT p.a., then we plan to add an additional 1.7 and 1.4 MMT p.a. of capacity through two phases of development of the Verkhnekamskoe deposit, resulting in a total annual capacity of 7.7 MMT p.a.

In 2008 and 2009 EuroChem acquired a significant stake in a leading global potash and salt producer, K+S AG. This has given us economic exposure to the potash sector before our own projects come online, and we are reviewing our strategic options with this investment. As of 15 March 2010, the combined stake in K+S AG held by EuroChem and its parent company was over 15%.

SWOT analysis

Strengths
  • Vast reserves (est. 3.2bn tonnes*): number five globally
  • Close location of Gremyachinskoe deposit to Black Sea ports
  • High nutrient content in reserves in Gremyachinskoe deposit (average 30.8% Kcl)
  • Both deposits – Gremyachinskoe and Verkhnekamskoe – are located in areas with existing infrastructure
  • Preliminary calculations place EuroChem among leaders on cash cost delivered to key markets curve
  • Own transhipment terminal
Weaknesses
  • Limited in-house experience in mining may lead to higher costs due to the need to engage subcontractors for planning and construction of mines and processing facilities
Opportunities
  • Become one of the leading players in potash, with up to 7.7 MMT p.a. production capacity
  • Cooperate with established potash players in potash projects in Russia and abroad
  • Use advanced technology for shaft sinking and enrichment, resulting in lower cash cost per tonne of production
Threats
  • A significant reduction in EuroChem’s operating cash flows due to a sustained period of low fertilizer prices
  • Large number of announced greenfield and brownfield capacity expansions could increase competition on the supply side in the long term and result in lower margins available to EuroChem

* A+B+C1 according to Russian reserves classification.

2013 planned start for EuroChem potash production at Gremyachinskoe deposit

5th largest global player by proved and probable potash reserves