Potash and Distribution

POTASH SEGMENT

Once our potash facilities are online, we will be one of only four fertilizer producers globally to have a significant presence in all three primary nutrien segments, and a top five fertilizer producer by total nutrient capacity.

The development of capacity enabling us to mine and supply potash is one of our main strategic priorities. We are constructing mining and processing facilities at two locations in Russia; at the Gremyachinskoe deposit (Eurochem-VolgaKaliy, Volgograd region) and at the Gremyachinskoe deposit (EuroChem Usolskiy, Perm region). While we currently report potash as a separate segment, we will only generate revenues from potash sales once the first phases of our projects are commissioned.

The structural changes in global potash marketing dynamics in 2013 did not alter the pace of our investments nor soften our commitment to potash. Given the fairly advanced development stages of both of our two greenfield potash projects, as well as their projected positions on the global cost curve, the break-even potash price necessary to justify future investments is meaningfully below today’s marginal producer level.

As we begin production and ramp-up our capacity, we currently expect to consume at least 1 MMT pa of KCl to meet our own feedstock requirements for NPK and other downstream premium product lines. While we have no specific marketing plans at the moment, we do expect to enter the seaborne market as we ramp-up our production beyond our feedstock requirements. Nevertheless, despite management estimates and market consultants placing both our projects at the lower end of the global cost curve, we have no intention of being a disruptive force in the market and will rather seek to achieve solid long-term returns on our potash investments.

The most common form of potassium is potash, a salt mined directly from ancient marine deposits. Potassium is measured in units of potassium oxide (K2O). Potash (KCl) typically refers to potassium-based fertilizers (to convert tonnes of KCl to tonnes of K2O, multiply by 0.6). Once our projects are completed, we will have an annual production of over 8 MMT of KCl (or 5 MMT of K2O), which is equivalent to approximately 10% of global capacity in 2013.

  • 1 Post completion of both potash projects, excluding all other investment initiatives.
Key characteristics

VolgaKaliy

Usolskiy

Licence area

96.9 km2

Licence area

132.9 km2

Depth

1,000-1,250m

Depth

Approx 500m

Licence acquired

2005, via auction process

Licence acquired

2008, via auction process

Purchase price

US$ 106m (RUB 3.087bn)

Purchase price

US$ 172m (RUB 4.018bn)

   

Reserves and resources

Reserves and resources

MMT KCl (JORC)

492

MMT KCl (JORC)

420

   

Nutrient content of ore

Nutrient content of ore

KCl average content

39.8%

KCl average content

30.8%

CaSO4 + H.O. average content

7.19%

CaSO4 + H.O. average content

2.20%

MgCl2 average content

0.15%

MgCl2 average content

0.30%

   

Capacity

Capacity

Phase I:

2.3 MMT pa

Phase I:

2.3 MMT pa

Phase II:

2.3 MMT pa

Phase II:

1.4 MMT pa

Total capacity

4.6 MMT pa

Total capacity

3.7 MMT pa

DISTRIBUTION SEGMENT

Our distribution segment comprises the sale of fertilizers and services via a number of retailers located within the CIS, specifically in Russia, Ukraine and Belarus. Our strategy to provide our clients with ‘yields, not just fertilizers’ is there to support our customers improve yields through better crop nutrient balance. In 2013, our distribution segment realized sales of RUB 17.0bn and generated EBITDA of RUB 683m.

RUB bn, or as indicated

2013

2012

Change
2012-2013

2011

Change
2011-2012

Revenue (including sales to other segments)

16.98

17.14

(1%)

13.97

23%

Cost of sales

(15.26)

(15.31)

0%

(12.70)

21%

Gross profit

1.72

1.8

(6%)

1.27

43%

Other expenses

(1.09)

(0.90)

21%

(0.45)

98%

EBIT

0.63

0.93

(32%)

0.82

13%

EBITDA

0.68

0.97

(29%)

0.85

13%

           

Gross profit margin

10%

11%

(1%)

9%

2%

EBIT margin

4%

5%

(1%)

6%

(1%)

EBITDA margin

4%

6%

(2%)

6%

           

CAPEX

0.11

0.09

13%

0.06

47%

           

Net working capital

1.19

0.83

44%

0.83

Fixed assets

0.55

0.48

13%

0.44

11%

Total capital employed

1.74

1.31

33%

1.26

4%

           

ROCE

36%

71%

(35%)

65%

6%

           

Staff

188

186

1%

182

2%

 

Sales (MMT) (top 5)

Urea

0.22

0.15

50%

0.11

38%

Ammonium Nitrate

0.58

0.69

(16%)

0.50

38%

UAN

0.15

0.14

8%

0.08

76%

MAP

0.13

0.15

(15%)

0.12

20%

NP and NPK

0.22

0.21

6%

0.28

(27%)

Reconciliation of segment and external sales volumes (KMT)

2013

Nitrogen

Phosphates

Distribution

Other

Intra-Group sales

External sales

Nitrogen fertilizers

Ammonia

161

2

338

(499)

2

Urea

1,955

219

156

(218)

2,112

AN

1,717

580

(606)

1,691

UAN

1,086

150

125

(164)

1,197

CAN

943

67

0

(89)

921

ANF

307

32

(33)

306

Organic synthesis products

475

14

489

Melamine

25

25

Phosphates

MAP, DAP

1,842

128

(131)

1,839

NP

125

117

57

1

(57)

243

Feed phosphates group

307

8

(8)

307

Complex fertilizers group

1,425

161

8

(24)

1,570

Apatite concentrate

141

(1)

140

Iron ore concentrate

5,851

5,851

Baddeleyite concentrate

7

7

8,219

8,265

1,404

642

(1,830)

16,700