Potassium is the seventh-most
abundant element in the earth’s crust, and most of the
world’s potash resources are amenable to low-cost mining
and beneficiation - owing to their high-yield grades and
large-tonnage ore bodies.
But Russia’s Uralkali has vast
growth plans for the coming years and has set its sights on
moving from the world’s second-largest potash producer to
the number one spot.
Uralkali hopes to produce 19m tpa
potash by 2021 - increasing its current capacity by some 80%
during the coming 10 years. If successful, this expansion will
firmly establish the company as the world’s largest potash
producer.
But such ambitions may well be thwarted by the uncertain global
economy. The European debt crisis, the slowdown in China and
the devaluation of the Indian rupee combined to darken what was
a very bright picture for fertiliser producers at the start of
2012.
The new year saw Uralkali suffering
as China stockpiled its inventories, while negotiations with
Indian buyers hit difficulties over price. The Russian producer
was forced to cut its production to 60% for a period in Q1
2012, a bad omen for a company looking to near double its
capacity.
However, business has recently
stabilised, as the company told IM in
Moscow.
“As of May, the company
returned to full production The reason is that both
Chinese and Indian markets and contracts have returned. Demand
in China fell in Q1 2012 as the country stockpiled late last
year, expecting prices to continue their rapid rise,” it
said.
The expansion plan - a closer look
Uralkali’s audacious expansion plan is multifaceted,
requiring significant investment at many of both the
company’s greenfield and brownfield operations.
Uralkali owns two greenfield
licences in Berezniki and Solikamsk, adjacent to its five
potash mines, and seven processing plants in the Ural mountains
of the Perm region. The company’s total JORC-compliant
resource is 8.7bn tonnes of potash ore, including 4.4bn tonnes
from the greenfield Ust-Yayvinsky and Polovodovsky blocks
combined.
The Berezniki-2 plant and mine and
the Berezniki-3 plant produce granular potash, while the
Berezniki-4 plant and mine produce standard potash.
Capacity increases yielded from
brownfield projects include 1.5m tonnes of additional capacity
at Berezniki 4, while increased efficiency and debottlenecking
at Berezniki-2 and 3, in addition to Solikamsk-2 and -3, will
add 1m tonnes in total. A two-phase expansion programme at
Solikamsk-3 will add a further 2m tonnes capacity.
The company plans to develop its
two greenfield licences in Berezniki and Solikamsk - adjacent
to its existing operations - which should bring an additional
5.3m tonnes capacity.
Uralkali puts total Capex
investment for the expansion at $5.8bn. $0.3bn was invested in
2011, while $1.2bn will be invested in 2012-2014, $2.3bn
between 2015-2017, and $1.9bn between 2018-2021.
Debottlenecking
The company will begin its debottlenecking plans in 2013. This
project will encompass Berezniki-2, Berezniki-3, Solikamsk-2
and Solikamsk-3. It aims to increase the extraction of potash
from the sylvine ore, while increasing the load on the existing
technological sections by between 15-25%, the company said.
Increasing efficiency is key here,
which the company will achieve through modernisation. Existing
equipment, including mills, vacuum filters, flotation machines
and thickeners, will be updated and partially substituted with
more high-tech models.
The debottlenecking process, plus
planned increases in efficiency, will raise the company’s
total production capacity by 1m tonnes by 2017. The break-even
potash price to justify debottlenecking will be
$130/tonne.
Greenfield expansion: Ust-Yayvinsky
IM saw Uralkali’s greenfield Ust-Yayvinsky
construction site on a visit to Russia in June. The field -
based on a JORC estimate as of 1 January 2012 - has a resource
of 1.3bn tonnes ore and a projected capacity of 2.8m tpa
capacity in 2020.
This project is being developed to
offset the decreasing ore reserves at the company’s
Berezniki-2 mine, which will be depleted in 2025.
Ore from the Ust-Yayvinsky project
will be processed at the company’s Berezniki-3 plant,
where capacity will be expanded, enabling it to process 2.8m
tonnes of ore, up from 2.2m.
During the site visit, it was
suggested that given the Ust-Yayvinsky field’s early stage
of development, the company’s 2020 target might be over
ambitious. The company explained that that weather conditions
could play a factor in the site’s development.
“The shafts are to be drilled
by December 2016, but this is not taking into account weather
conditions,” a spokesperson told IM.
“It’s not like Africa, where you have a season of
heat, and then a season of rain.”
“The mine will be launched in
2020. It will have a life of mine of approximately 50 years,
based on reserves of 1.13bn tonnes ore,” the spokesperson
added.
“The schedule of project
capacity achievement will be confirmed in the course of the
project realisation,” the company said.
The break-even potash price to
justify the Ust-Yayvinsky expansion will be $302/tonne,
significantly higher than that required for the Brezeniki-4
debottlenecking and Solikamsk-3 expansions.
Greenfield expansion: Polovodovsky
Construction for the Polovodovsky greenfield expansion, the
final phase of the company’s expansion plan, will involve
the construction of a new two-shaft mine and processing site,
yielding a capacity of 11m tpa.
Production is targeted for 2021,
with a project capacity for the new mine and processing plant
set at 2.5m tpa KCI.
The break-even potash price to
justify the Polovodovsky project will need to be at $327/tonne,
the highest of any of the company’s expansions.
Solikamsk-3 expansion
The Solikamsk-3 expansion, forecast to add an additional 2.3m
tonnes capacity and scheduled to take place between 2015-2017,
will be in two phases.
A ventilation shaft (shaft four)
will be installed, along with one hoist machine. Shaft four
previously reached a depth of 356 metres during the Soviet era,
but now the company intends to further develop it to a depth of
481 metres. The construction will include a pit-bottom paddock,
as well as the installation of a system of conveyers in the
mine and on the surface.
Phase two of the expansion will
involve the launch of a second hoist machine and the main
ventilation unit, as well as an expansion of ore-treatment
capacities. The project will also include the construction of a
granulation unit, with a capacity of 2m tpa, the company
said.
The break-even potash price to
justify phase one of the Solikamsk-3 expansion will be
$110/tonne, and $192/tonne for phase two.
Market must hold strong
To be economically justifiable, Uralkali’s average potash
price will have to remain above $240/tonne in the coming years.
While substantially lower than current selling prices -
Uralkali settled its Q2 2012 contract with China at CFR
$470/tonne - the market remains unpredictable, with 2012 in
particular experiencing a bumpy start.
Vladislav Baumgertner, Uralkali
CEO, forecast last December that the company would produce
11.8m tonnes in 2012. With sufficient capacity, this potential
was set to be realised, but falling fertiliser prices saw the
company revise its forecast to 10.5-11m tonnes.
This figure was further revised,
with Baumgertner earmarking the production of just 10m tonnes
for 2012.
Baumgertner does not expect demand
to pick up considerably in the coming years, explaining that
the company does not see considerable growth in the potash
market in 2012 and 2013, as customers are reluctant to
accumulate considerable inventories, he told
IM.
The production revisions seem out
of line with a company looking to nearly double ouput in the
coming years, but they do not in themselves tell the full
story.
India delays
One of the greatest issues Uralkali has faced in recent months
has been contract negotiations with Indian buyers, with the
latter threatening last year to stop all potash exports if
producers refused to cut prices.
Uralkali, though, insisted that
prices could not be cut.
“We cannot offer discounts for
individual markets while global demand is high and our plants
are working at full capacity,” Baumgertner said last
November.
The delayed contract negotiations
ultimately played a significant part in the reduced production
in Q1 this year.
“Our strategy in India is to
keep customers on an annual basis. Technically, it is difficult
to move to a quarterly basis,” Baumgertner told
IM in June.
“India is the only market that
has underperformed this year: the country will not be able to
return to its maximum level of consumption,” he added.
The company is still delivering to
Indian markets, Baumgertner said at the time, adding that the
company expected new negotiations to be discussed in July, with
contracts signed in August.
Price forecasts
Uralkali was quite bullish on prices this January, and did not
expect them to slip in 2012.
“Soft commodity prices are at
very healthy levels,” it said. “Farmers earn very
good margins, they can actually afford to pay more.”
In June, though, the company
announced that it would reduce its domestic potash prices for
Q3 2012 for Russian compound fertiliser
(nitrogen-phosphorus-potassium, NPK) producers and industrial
consumers.
Potash prices for Russian NPK
producers will be Russian rouble (R) 8,662/tonne without
discount ($271.66/tonne) during Q3, down from R9,318/tonne
($292.20/tonne) in Q2, and R9,768/tonne ($306.23) in Q1.
Potash prices for industrial
producers will be R9,468/tonne ($296.82/tonne) at 95% KCl and
R9,768/ tonne ($306.16/tonne) at 98% KCl.
This is a fall from 10,214/tonne
($320.48/tonne) and R10,514 respectively during the previous
quarter. Prices were at R10,528/ tonne ($330.33/tonne) and
R10,828/tonne ($339.79/tonne) in Q1 2012.
“The decrease in the price for
NPK producers and industrial customers is mostly driven by the
decreasing dollar exchange rate,” the company said.
These were in line with
Baumgertner’s forecasts. He explained in June that he did
not expect “any material price increases this
year”.
Cools on UK-listing
Uralkali has been long-tipped to list on the London Stock
Exchange, with the company saying last October that it would
consider a listing in order to banish concerns about its
standards of corporate governance.
However, in June, Baumgertner
suggested that this is not likely to happen at least before the
end of the year.
Demand forecasts strong
Despite negations complications with Indian buyers, and the
late stockpiling of inventories in China last year, global
agricultural fundamentals strengthened in Q1 2012 and demand is
projected to remain robust, driven by a long-term favourable
market outlook. Uralkali estimates that potash demand will
continue its rise of about 3% per year.
In a recent report -
Medium-Term Fertilizer Outlook 2012-2016 - the
International Fertilizer Industry Association (IFA) anticipated
that global fertiliser demand will increase by 2.8% in 2011/12
and by another 2.5% to 181.4m tonnes nutrients (NPK) in
2012/13.
By 2016/17, it is expected to reach
193m tonnes, corresponding to a compound annual growth rate of
2.1% over the average of the 2009/10 to 2011/12 campaigns.
“When compared to 2007/08 -
the last campaign before the economic downturn - world
fertiliser demand is anticipated to have fully recovered by
2012/13, including for potash,” the IFA said.
However, the IFA suggested in its
forecasts that a surplus in potash production is not
inconceivable. The association expects that world capacity may
increase by 42%, while demand expands by 14%.
“A potential imbalance of
close to 16m tonnes K2O may emerge in 2016, assuming
all planned projects are completed on schedule,” the IFA
forecast.
If this is the case, Uralkali will have to set itself apart
by not simply plugging a gap in demand, but by offering a
higher-quality product at a competitive price. Something which,
given its long-established part of Russia’s mining
history, strong customer base and large resource, it should be
well able to do.