Potash |
Construction and launch of potash mines may
be delayed |
Involvement of experienced mining
sub-contractors; possible insurance |
Both projects are on schedule, Volgograd Phase I
is 21% completed and Perm at 10% |
| Decline in price for potash fertilizers may result
in sub-optimal returns from the potash project |
Achieve the lowest cost-delivered-to-market globally among the traditional mining firms. Increase own consumption of K by raising
NPK capacity |
We estimate a break-even potash price of
USD 350/t for the first phase of our Volgograd
project. For the second phase, which is a
brownfield expansion, the break-even price drops
to USD 275/t. FOB Baltic/Black Sea spot potash
prices around USD 380/t (December 2010) |
Nitrogen |
Differential in natural gas cost between Russian and European/US producers may decline |
Launch production of higher-value added
and premium products (LDAN, NPK, AdBlue); investment in gas/energy efficiency; own natural gas production/buying gas producer; sales increase on the domestic and CIS markets |
Natural gas prices
EuroChem USD 3.3/mmBtu vs. United States
USD 4.5/mmBtu = 41%;
EuroChem USD 3.3/mmBtu vs. Europe
USD 8.5/mmBtu = 165% |
| New supply from low gas cost areas may cause unfavorable shift in EuroChem’s position on global cost curve |
|
Although well positioned, further investments at
Nevinnomysskiy Azot and Novomoskovskiy Azot will
continue to keep us at lower-end of the cost curve
(see figure 1) |
| Technical/operational risks relating to the
age and amortization of plant and equipment |
Preventative maintenance and repair; gradual replacement; possible insurance |
Thanks to efficiently planned maintenance
schedules, our nitrogen facilities ran at 99%
of their capacity throughout 2010 |
Phosphate |
New supply from low cost areas (e.g. Saudi Arabia, Morocco) may cause unfavorable shift in EuroChem’s position on global cost curve |
Tight cost control; making production flexible on phosphates plants – production MAP/DAP/feed phosphates; increase of NPK production as
own potash mine starts; sales increase in the domestic and CIS markets |
Our Lifosa and Phosphorit facilities are among the
lowest cost producers globally (see figure 2) |
| Reliance on third-party supplies may result in margin pressures due to rising rock prices or physical supply issues |
Increase of own phosphate rock resource base (Kazakhstan); decrease rock consumption by switching to NPK from MAP/DAP at phosphate plants; increase of rock storage capacities; looking for supply from different sources for increasing flexibility |
We are 80% self-sufficient in phosphate rock.
In 2010, the acquisition of phosphate rock mining
licenses in Kazakhstan took us closer to being fully
self-sufficient |
| Deceleration of growth in China may cause correction of iron ore prices with a negative
impact on EuroChem’s cash flows |
Adjust debt levels for potential volatility in iron ore-related cash flows; review hedging on ongoing basis |
Each 10 USD/tonne change in iron ore CFR China
price means immediate USD 17m change in EBITDA
(1.7 MMT annum delivery to China is projected) |
