Eurochem potash mine
OAO EuroChem, a Russian fertilizer maker building $7.4 billion of potash projects, is gearing up to challenge the dominance of OAO Uralkali with production from its two mines reaching the market in five years.
“We expect we’ll be able to mine the first potash at both mines in late 2017,” Clark Bailey, EuroChem’s mining head, said in an interview. About two more years will be needed to start shipments to external customers, he said.
EuroChem is developing an annual capacity of 8.3 million metric tons of potash, a form of potassium that strengthens plant roots, in two phases at the Verkhnekamskoe deposit in the Perm region and in another two at the Gremyachinskoe deposit in the Volgograd region in western Russia. The company controlled by billionaire Andrey Melnichenko kept its pace even as Uralkali plunged the $20 billion market into turmoil in July last year by ending a marketing venture with Belarus that accounted for 40 percent of worldwide potash exports.
EuroChem, which already produces nitrogen and phosphate nutrients, plans to consume a portion of the potash itself to boost its output of complex fertilizers. Even as it bets on cost advantages such as proximity to a port to take on market leaders, the key to EuroChem’s success in potash could lie in the efficiency of suppliers such as K+S AG (SDF), Europe’s largest.
Source: OAO EuroChem
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Market Share
“While EuroChem’s projects are the only ones at an advanced stage in the industry globally, they’re more likely to take market share from high-cost producers like K+S than from low-cost producers like Uralkali,” ZAO Raiffeisenbank analyst Konstantin Yuminov said by phone.
Uralkali’s press service declined to comment.
Global potash capacities will exceed 90 million tons in 2020, while deliveries will top 60 million tons, Uralkali said in a July presentation.
EuroChem is certain the market will be “at least better, not worse than now” by 2019 as prices are recovering and demand is healthy, said Bailey, who joined EuroChem last year after 16 years at Potash Corp. of Saskatchewan Inc. (POT)
Canpotex Ltd, which exports potash for Potash Corp., Agrium Inc. (AGU) and Mosaic Co., last week agreed on sales to Brazil at $380 per ton for October deliveries, up almost 20 percent from the end of last year, according to researcher Argus FMB.
Three Shafts
Bailey, who hails from Texas, oversaw all four of Saskatoon, Canada-based Potash Corp.’s C$7 billion ($6.4 billion) expansion projects at Cory, Allan, New Brunswick and Rocanville as senior vice president. He took charge after previous contractor Shaft Sinkers Holding Plc (SHFT) failed to properly place the cage at the VolgaKaliy project in Gremyachinskoe, delaying the project for more than two years.
The project is on course now and is progressing at 30 to 45 meters every month at each of the three shafts, Bailey said. The second shaft is at a depth of 773 meters and work is advancing on the main processing mill and other facilities.
At the Usolskiy project in Verkhnekamskoe, EuroChem finished sinking both the first two shafts about two weeks ago, Bailey said. Work on the main process mill has yet to start.
“We have lower cost of construction per ton of potash capacity than is needed to get a return on investments,” Bailey said. “Given that we have a port at the Black Sea, we think that VolgaKaliy will be able to offer a very competitive price. It is well-positioned to ship potash to Europe or Latin America, including Brazil. Probably Uralkali will have to change some of their strategy and revisit their markets.”
Syndicated Loan
EuroChem, which is using its own cash, has last week secured $750 million financing from a group of mostly international banks to develop the project in the Perm region even as the U.S. and Europe promised new penalties to Russia over crisis in Ukraine.
“We are not currently affected by the current geopolitical situation so far in terms of getting funding, although we monitor and watch the events, developments, consequences closely,” Bailey said.
Building mines in Russia is easier than in Canada or the U.S. because the surroundings are also developed for the needs of the workers, Bailey said.
In Kotelnikovo, at the site of VolgaKaliy, EuroChem has built apartments, cinemas, hotels, playgrounds, clinics, gyms and cottages. The area is a three-hour drive from Volgograd.
The Usolskiy project is located in Berezniki, an area where Uralkali has been mining for potash for decades. Social infrastructure is therefore developed in the area, and EuroChem has the added advantage of attracting employees from Uralkali.
“The construction site is on a very hilly area,” Bailey said. “So the site is terraced, and we are now finishing preparation works for this terracing and leveling to begin major building construction.”
Transferring Workers
For VolgaKaliy, EuroChem has transferred workers from its Kovdorskiy GOK phosphate rock mining unit and drawn from various mining companies in Russia. It is also hiring from Belarus and Kazakhstan.
“In Russia, mining companies are literally building cities to attract employees,” he said. “In the U.S. and Canada, miners say: We have the mine, let the rest of it come itself. In Saskatchewan, in the remote areas, you need to build a labor camp.”
To safeguard its position, EuroChem bought a license for the Belopashnenskiy potash area at the Verkhnekamskoe deposit in June, increasing its reserve mining base to 60 years to 70 years from the current 35 years, Bailey said.
To contact the reporter on this story: Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net
To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net
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