in 2011, thanks to record prices,
the fertiliser industry was brought back to pre
financial-crisis levels; however in 2012 it once again began to
feel the effects of the global economic downturn. The European
debt crisis, the slowdown in China and the downgrade of the US
debt caused demand to fall, and consumption in India and China
was lower in 2012 than initially expected as these major
fertiliser end markets postponed purchases in 2012 to put
downwards pressure on prices.
2013 began on a more positive note
as producers in North America and the rest of the world finally
negotiated agreements with Chinese potash buyers, albeit at
steep discounts of around $70/tonne, lowering prices to around
$400/tonne. Despite the drop in both potash and phosphate
prices over the course of the last year, the general outlook
from many producers is that demand is beginning to get back on
track, while the next few years will see a steady growth from
the fertiliser industry.
EuroChem, Russias largest
mineral fertiliser producer, hopes to join a number of other
potash producers who are looking to capitalise on the expanding
fertiliser market by developing its own source of potash, and
by becoming 100% self-sufficient in its own phosphate
production. The company is targeting potassium chloride (KCl)
production of 8m tpa, and its ambitious expansion plans will
help to position it as one of only four companies globally
present in all three macronutrients used in commercial
fertilisers - nitrogen, phosphates and potash - along with
PotashCorp., Agrium and Mosaic.
In terms of potash capacity, the
expansion will position EuroChem as the fifth largest producer
globally, behind PotashCorp. (8m tpa), Uralkali (6.9m tpa),
Mosaic (6.2m tpa) and Belaruskali (5.5m tpa). According to
EuroChem, the current potash market stands at around 55-56m tpa
and is set to grow over coming years, a sentiment shared by
most producers. With plans to target the expanding markets of
China, Brazil and India, production from EuroChems
deposits is expected for 2017. And, with site costs at
$57/tonne, EuroChem stands a good chance of filling at least
part of the expected additional capacity which will be needed
to meet growing demand.
According to the Brazilian National
Fertiliser Association (ANDA), fertiliser consumption in Brazil
has increased by 4.7% per year over the last 25 years - faster
than agricultural production and harvested acreage - and is
expected to continue to grow. The potash compound annual growth
rate of demand for Brazil, China and India is expected to
increase by around 4.6% to 2016, while demand for potash in the
US is expected to increase by 0.9%.
EuroChem currently uses 350,000 tpa
potash, which is mainly bought from Uralkali and K+S and
processed in Antwerp and Russia by EuroChems Western
European and Russian operations. Expanding its facilities in
Russia to produce an additional 4.6m tpa potash will allow
EuroChem to become fully integrated and will give it the
opportunity to produce complex fertilisers.
As of 31 December 2012, EuroChem
had invested $1.5bn on the development of its potash
production, and plans to spend a total of $7bn - which the
company says is the single largest investment in potash during
the last 50 years - on the development of its two potash
Clark Bailey, EuroChems
director of mining, joined the company in February 2013 -
having come from the position of senior vice president for
projects and technical services at PotashCorp. - in a newly
created position to oversee the current development of potash
mining operations, which includes projects in the
Gremyachinskoe and Verkhnekamskoe deposits in Russia. He will
also be overseeing the companys phosphate mining
operations - the Kovdorskiy GOK phosphate rock mine in Russia
and a phosphate rock project in Kazakhstan.
As soon as you walk into the
plant, you see how well organised everything is. Its a
great location and a great place to be, not only because of the
resources, but because I think were doing a great job
here, Bailey told IM.
The capacity expansion will take
place in two phases at two separate locations, Usolskiy and
EuroChem acquired the license for
the 96.9km2 area of VolgaKaliy, or the
Gremyachinskoe deposit, in 2005 for $106m. With JORC proven and
probable reserves of 492m tonnes potash and 1,337m tonnes
measured and indicated resources, with a 39.78% KCl average
content, the deposit is expected to have a 46-year mine life at
All of the processing facilities,
beneficiation plant, storage plant and mine shaft have been
built in close proximity of each other to keep costs low.
The VolgaKaliy potash
development is located 170km from Volgograd, close to existing
infrastructure, and existing oil and gas pipelines, the
company told IM.
At the same time EuroChem is
building power lines and railroad infrastructure. The site has
been levelled in a horizontal distance for 70-100m, and all
sites have been built in terraces to minimise logistics
costs, it added.
The development for both potash
sites will be rolled out in two phases. For VolgaKaliy, the
first phase, with an investment total of $2.6bn, will include
the development of social infrastructure for a permanent
workforce, the building of a cage shaft, skip shaft 1, and a
processing facility, with production set to start at the end of
The second phase will include the
construction of a second skip shaft and expansion of the onsite
processing facility, which will allow for an additional
capacity of 2.3m tpa potash, requiring a further $1.4bn
Over the course of 2013, EuroChem
plans to continue the sinking of its skip shaft, which is
currently at a depth of 572 metres. It also plans to restart
its cage shaft sinking, which reached a depth of 100 metres but
has not been progressed further since EuroChems set-back
with its initial contractor and its technology, in 2011.
In October 2012, EuroChem announced
that it was filing an $800m claim with the Swiss Chambers of
Commerce in Zurich and the International Chamber of Commerce in
Paris against Shaft Sinkers Ltd, a subsidiary of London-listed
Shaft Sinkers Holding Plc. As the initial contractor
commissioned to develop the cage shaft at the Gremyachinskoe
deposit, Shaft Sinkers was using cementation to act as water
proofing to enable the shaft sinking through the layers of
water found above the potash deposit. It was however unable to
fulfil its contractual obligations.
Shaft Sinkers grouting
technology entirely failed, causing in excess of $161m in
direct costs and a delay to the projects completion date,
which was subsequently revised to 2015, EuroChem
The claim seeks compensation
for the costs and substantial lost profits incurred by
EuroChem-VolgaKaliy due to the delay in commencing potash
production as a result of Shaft Sinkers failure to
complete the construction of the cage shaft at the
Gremyachinskoe deposit, it added.
The contract was officially
terminated in April 2012, causing delays as we now have to take
down all the existing equipment, Olivier Harvey,
EuroChems head of investor relations, told
IM. It has caused a two-year delay.
Production is now expected in 2017, instead of 2015. We think
we have an extremely strong case, he added.
Although the date of production has
been pushed back, both shafts are now being prepared for their
final sinking phases. Rather than using grouting technology,
EuroChem is undertaking ground freezing using a number of
freeze plants surrounding the shafts.
We have to go through an
aquifer to get to the potash, so to protect the shaft we use
freeze plants to freeze the water - the shaft is essentially
surrounded by a wall of ice, Bailey explained to
Pre-sink operations for the second
skip shaft, including construction of headgear, will also begin
in 2013, as will the construction of surface infrastructure,
including the potash mill.
Social infrastructure is very
important in the development of the project and has been a very
serious limitation factor. 240,000 square metres of
accommodation space will be developed including the building of
hospitals, schools, leisure centres and hotels. All this will
be provided within the construction of two districts which are
in progress - Oakwood and East District.
New accommodation will be
incorporated into the existing town, but our development will
move it further, the company told IM.
The town is expected to have a total population of 10,000
people. So far we have completed four residential buildings for
200 persons, with six more underway. In Oakwood we will also
build cottages for employees.
In order to provide the towns with
the necessary resources, three projects have been reviewed and
approved in three areas; infrastructure, water supply and
The company chose this
expensive $300m way of doing things. This project is unique for
us and the new history of Russia. We are building everything
from scratch, Oleg Shaitan told IM.
The problem we faced was
attracting personnel, and so we had two options. A less
expensive option was to have staff travel in, or we could make
a permanent town and attract people to live here full time. It
is more expensive, but it has its advantages in developing the
region - it would be great for people to stay here full
time, he added.
EuroChem has taken special measures
to ensure safety and environmental standards remain high.
Safety at the deposit is a
core value, not just a priority. Safety applies to everybody,
it is not just a statistic, and its not just for
employees. Bailey emphasised to IM.
DuPont has already carried out an audit at one of our
facilities, and we want to benchmark ourselves and continually
improve by adding trainers, courses and continuing with audits
across the groups facilities.
The companys beneficiation
plant plans include dryers which will create dust, but control
measures have been put into place to counteract the
We have specified to our
equipment suppliers to give us the best they can make in terms
of environmental standards, Harvey added. We are
starting from scratch, rather than expanding an additional
facility so we can do it right from the start. We dont
have to worry about brownfield specifications.
Tailings from the beneficiation
plants will also be buried after a period of five years, both
for environmental reasons and to protect the mine by helping
with the rock mechanics which will prevent caving.
Located in the Perm region in
Russia, the Usolskiy potash project development, which has JORC
proven and probable reserves of 420m tonnes 30.8% KCl, will
also take place in two phases with production planned for late
2017 or early 2018. The mine life is expected to be 37
With a total investment of $2.5bn,
the first phase will add an additional 2.3m tpa potash to
EuroChems capacity, and will again involve the building
of social infrastructure locally for employees, as well as the
construction of a cage shaft, skip shaft and processing
The second phase will require a
smaller investment of $300m, adding an additional capacity of
1.4m tpa, and will include the expansion of the processing
facility and the construction of an additional skip shaft.
EuroChem tapped the first potash
layer at the Verkhnekamskoe deposit in November 2012. The skip
shaft remains at a depth of 430 metres, 100 metres from first
phase total completion which is scheduled for November 2014,
while full completion of the cage shaft - currently at 306
metres - is scheduled for October 2014.
Although the VolgaKaliy development
is a priority, EuroChem plans to start the excavation of
haulage sections, filling stations and sumps over the course of
2013. Ventilation shaft construction and ground levelling will
also take place, and detailed engineering for the potash mill
will be developed.
Although EuroChem concedes that
there has been medium-term potash price softening in recent
times, with prices hovering around the $380-$400/tonne mark,
the company would still be getting its targeted return on
At the rate were
producing, even if prices stood at $380/tonne wed still
be comfortable, Bailey told IM.
Fertiliser producers, who had
previously announced a positive outlook for the year, had
continued to scale back production and cut forecasts over the
last yea r as uncertainties continue to
linger, including North American potash producer PotashCorp.,
and Russian Uralkali.
However, although some global uncertainties which plagued
the 2012 markets could continue to affect the fertiliser
industry in the short term, the sector has strong long-term
fundamentals, which is why precisely the same producers are
continuing to ramp up capacity. The scenario for fertiliser
minerals is simple: people need food and therefore