|Processing facilities at EuroChem's
Kovdorskiy phosphate and iron ore mine –
the second largest apatite concentrate producer in
Fertiliser producer EuroChem’s presence is
essential to the continued existence of the town of Kovdor,
Located around four hours’
drive south of Murmansk, there is very little in the way of
employment to be found, other than in exploiting the
area’s extensive mineral reserves.
EuroChem’s mine, regional employment
prospects around Kovdor are scarce.
Kovdor’s Kovdorskiy apatite
(phosphate), iron ore and baddeleyite (zirconia) mine, which is
operated by Switzerland-headquartered, EuroChem, is by far the
largest employer in the area.
Of Kovdor’s 18,500 residents,
only approximately 9,000 are "able bodied", and of these,
around 3,600 work at the mine and processing plant, Aleksander
Sovetniy, administrative director at EuroChem’s
Kovdor-based subsidiary, Kovdorskiy GOK, told
All remaining jobs are therefore
essentially service jobs for the mine workers, who are the
impetus behind economic growth in the region, which is too cold
to support large scale agriculture, forestry or other typical
rural economic activities.
Kovdor, like much of Russia, was severely
impacted by the collapse of the Soviet Union (USSR) in 1991,
and was further decayed by the 1998 Russian financial
Olivier Harvey, EuroChem’s
head of investor relations, told IM that part
of EuroChem’s initial story was about turning
neglected and underinvested sites into globally competitive
assets. When these were acquired by EuroChem in in the early
2000s, for the first five years or so the emphasis was on
fixing the assets and bringing them up to global standards.
EuroChem purchased the Kovdorskiy open pit
mine and processing facility in 2002 and the site now produces
2.5m tpa apatite concentrate, 5.6m tpa iron concentrate and
8,000 tpa baddeleyite (zirconia) concentrate, the last of these
being used in advanced ceramics, electronic ceramics, pigments
What became Kovdorskiy was first
discovered as a magnetite-apatite ore body in 1933, Aleksey
Danilkin, Kovdorskiy GOK’s technical director,
told IM. This discovery was quantified in the
late '40s and early '50s he said, while mining of the site
began in 1959.
Chimneys and ore
processing buildings at Eurochem’s
On opening, the site was only
used to produce iron ore. Iron ore concentrate production began
in 1962. At the time, the apatite phosphate component of the
deposit was just transported to tailings and storage facilities
and was not monetised.
This changed in 1975, when Kovdorskiy
began to produce apatite concentrate, a key ingredient for
diammonium phosphate (DAP) and monoammonium phosphate (MAP)
One year later, the production of the
refractory and ceramics mineral, baddeleyite, began. Today,
EuroChem is the sole non-synthetic producer of the mineral. The
company quoted a spot price from mid-2014 of $5,100/tonne and
told IM that 50% of all sales are to Japanese
Processing at the mine begins with rotary
steel rod mills. This is followed by the removal magnetic iron
oxide mineral magnetite with wet magnetic separators and
apatite is then removed via flotation.
|Ore processing at
Kovdorskiy begins with rotary steel rod mills crushing
Having undergone four capacity upgrades in
its 56 years, Kovdorskiy now sees 16m tonnes rock extracted
from its open pit each year and is the second largest source of
apatite concentrate in Russia.
The mine’s future was by no
means certain before EuroChem’s purchase,
"Before EuroChem bought the facility, it
was assumed it would die as the mineralisation is vertical.
Instead, the opposite is happening – expansion," Clark
Bailey, EuroChem’s mining director, told
By pushing back the current open pit
limits and bringing several new areas of the mine with specific
geology into production, the company hopes to increase
production capacity at the site by 948,000 tpa apatite and
130,000 tpa iron ore.
The Kovdorskiy mine is currently 414
metres deep – this can be sustained for another 460
metres until 2049 with changes, when the company would be
forced to shift to underground mining methods. Borehole data
demonstrate that the vertical deposit goes down to more than
2,000 metres below Baltic Sea level.
The Kovdorskiy mine
is 414 metres deep and could go down a further 460
metres before underground operations would be
"To continue with the existing main open
pit, we will have to expand the pit edges to avoid steepening
the walls – that or go underground. With our new
apatite-staffelite deposit we have around 10 years of
production – and this production more than replaces
what we had been processing from the old tailings which is now
finished," Bailey told IM.
"Then, after the apatite-staffelite
deposit, we will be ready to process ore from yet another pit,
which we refer to as our apatite-carbonite pit, to continue to
ramp up and extend our production," Bailey said.
This pit edge expansion will cost the
company $104m in capex, not least because some of the
mine’s older buildings will need to be moved.
"Most of these changes would have been in
our upgrade and renovation programme in any case," said
Harvey told IM that
despite the approximate halving over the past year of sales
prices for iron ore, EuroChem is still making a profit on its
iron operation at Kovdorskiy.
"You have to remember that, if anything,
it is a by-product of apatite production at Kovdorskiy, and a
by-product that can be sold to our advantage," Harvey said.
The price falls for potash that occurred
after the 2013 split of Russian potash producer Uralkali OAO
from the Belarusian Potash Co. (BPC) marketing agreement with
Belarus-based potash miner Belaruskali OAO – and
historically low phosphate prices – may even end up
benefiting EuroChem, Olivier said, owing to the potential for
higher-cost projects to be wound down.
In late April 2015, EuroChem announced the
launch of a new carbonate rich fluorapatite
(staffelite)-apatite ore processing plant at Kovdorskiy, which
will utilise a previously untapped section of the deposit.
This plant is capable of adding 948,000
tpa apatite concentrate and 130,000 tpa iron ore capacity to
Kovdorskiy’s operations and will bring the total
annual apatite concentrate production capacity at the site to
3.4m tpa by 2018.
apatite-staffelite processing building. The plant has a
production capacity of 948,000 tpa apatite concentrate
and 130,000 tpa iron ore
Further developments at the site
– which would see an additional apatite-carbonatite
section of the ore body extracted from 2024, reaching full
production in 2027 – will ultimately see
EuroChem’s apatite concentrate production capacity
at Kovdorskiy reach a projected 4.24m tpa, while iron ore
capacity will increase to approximately 7.75m tpa. These are
respective increases on 2015’s capacity of 49% and
Vertically integrated fertiliser
EuroChem’s CEO, Dmitry
Strezhnev, said: "The launch of the new processing plant at
Kovdorskiy is an important step in the group’s
strategy towards self-sufficiency and the further development
of our vertically integrated business model."
Integrated fertiliser production is
currently dominated by the North American majors in the market,
namely Potash Corp. of Saskatchewan (PotashCorp.), Agrium Inc.
and The Mosaic Co. It could be argued that the fertiliser
industry in particular is one uniquely suited to vertical
integration, as a substantial proportion of fertiliser
deliveries are made in complex fertilisers.
Complex fertilisers contain a mixture of
components – with ingredients like phosphate, potash
and nitrogen or ammonia (NH3) all being mixed in
specific proportions for particular soil types. Producers of
one mineral that wish to enter the complex fertilisers market
then typically have to externally source the extra components
they do not produce themselves.
EuroChem’s drive towards
self-sufficiency is notable also in seemingly unrelated
industries. The Haber process, the dominating chemical process
for nitrogen fixation, or the creation of nitrogen-based
fertilisers, requires an extraordinary heat input. Around 25-30
gigajoules (GJ) energy is required to produce one tonne
NH3, according to Enriching the Earth: Fritz
Haber, Carl Bosch and the Transformation of World Food
Production, a book by Vaclav Smil.
While this is still far lower than the 80
GJ/tonne NH3 required pre-1965, in the early days of
nitrogen fixation, the gas requirement of ammonia plants is
still substantial. The Royal Society of Chemistry states that
this process alone accounts for 1% of global energy
Hence, in early April 2015, EuroChem
internal gas supply to 25% of its needs through the
purchase of Astrakhan Oil and Gas Co. OAO, a Russian gas
company, to ensure costs could be tied down in what has been a
volatile hydrocarbons market in the last 10 years. This
compares to its 75% self-sufficiency in phosphate.
Additionally, EuroChem is looking to enter
the equally disrupted potash market by opening its VolgaKaliy
and Usolskiy potash projects as active mines, the former being
on track for production commencing in 2017 for a total capacity
of 8m tpa, or around 10% of global 2014 capacity.
Potash has been in an oversupply situation
for at least five years, however, with capacity expansions set
to increase the supply to demand ratio over the next five
"We are aiming to be a top four potash
producer, not accounting for any potential mergers and
acquisitions," Harvey said. "We are also aiming to be among
only four companies to produce nitrogen, phosphates and
"Mosaic and PotashCorp. investment
programmes are slowing. Some big mines across the industry are
closing, and replacement mines like Picadilly [in New
Brunswick, Canada,] are not making up for this," Bailey
Harvey said that EuroChem can beat the oversupply situation
because it is projected to sit on the far left of the potash
cost curve. Seeking customers in growth markets with little
internal production is important, he noted, singling out Brazil
and Latin America.
| Haul trucks line
up to take rock material from an excavator at
EuroChem also plans to use much of this production capacity
internally for complex fertiliser production. The company
purchases up to 500,000 tpa potash from third parties to
formulate some of its product, though in the future, it plans
to use 1-1.5m tpa potash in its activities.
China, meanwhile, has some big players,
but they do not appear to be interested in external
competition, Harvey said. Presently, the country is a major net
importer of potash – shipping in around 8m tonnes in
2014 according to Mosaic – consumed in addition to
that produced domestically by Qinghai Salt Lake Industry Co.
Ltd and others.
More than half of these potash imports,
which represent 65% of Chinese potash consumption, are
delivered from Belarus and Russia, Harvey told
It is fair to say that investors have been
spooked by Russian markets in recent months. The value of the
Russian rouble (R) dropped from R 35 per one US dollar to
around R 70 per US dollar over the 2014-2015 winter, before
recovering to around R 50 to the dollar today.
The cumulative effects of European Union
(EU) sanctions, lower oil prices and strong international
rhetoric in the wake of the conflict situation in Crimea and
eastern Ukraine are widely viewed to be the cause of the
However, EuroChem has seen a minimal
impact from the conditions affecting its corporate neighbours,
Harvey told IM.
"It has not really affected us –
one supplier thought they may have some sanction problems, but
we worked that out with the various ministries. A plastic pipe
supplier in Germany took a few more months than expected to
deliver their materials owing to sanction confusion, and some
ropes were delayed for Usolskiy (…) It mainly amounts to
a little more paperwork," Harvey said.
"The biggest cost after equipment is
labour – that will be in cheap, devalued roubles, and
a large part of the equipment for our potash projects was
purchased before the currency devaluation," he added.
|Russia has been subject to diplomatic
disapproval and sanctions over its role in the Ukraine
Harvey said that 75% of
EuroChem’s sales are in dollars, meaning that the
high value of sales can be used to offset any extra costs.
Looking ahead, Bailey told
IM that EuroChem is looking at the potential
a form of potash currently extracted only by Cleveland Potash,
an Israel Chemicals Ltd (ICL) subsidiary operating in the north
of England, UK.
Sirius Minerals, a junior explorer listed
in the UK, also wishes to extract polyhalite in the north of
England, nearby to the existing Cleveland site –
though in more substantial volumes.
"There are polyhalite deposits in the US
and in Russia. If we were to look into it more closely, we
would probably end up converting it to SOP," Bailey said.
Rare earths are also a potential future
source of income at Kovdor. The area is famous for its enriched
geology – the nearby rocks contain an abundance of
rare and often unique minerals.
|Nepheline and other
silica poor rocks and minerals are common throughout the
Kovdor area and the Kola Peninsula.
Silica (SiO2) poor rocks, which are common across
Kovdor and the Kola Peninsula, often contain rare earths in
higher concentrations than more common rocks in the
earth’s crust, owing to specific processes that
take place when the parent magma is formed as a melt. Different
processes may then continue to concentrate rare elements within
the magma as it ascends through the crust towards the
"We have the entire periodic table in the
Kola Peninsula," Harvey mused, while Bailey noted that
Kovdor, a book by Gregory Ivanyuk, lists over 140
confirmed specific mineral types in the region.
Bailey said that China is changing its
entire rare earths industry, and that while EuroChem does not
currently have the appropriate technologies for rare earths
extraction it could be an opportunity for the company to
examine in the future.
Moving to more solid territory, Kazakhstan
is the site of one of the company’s most
substantial new mining projects. EuroChem is currently ramping
up production at its mine in the country, which opened in
Located in the Jambyl Region, the Kok-Djon
phosphate deposit has had around $100m set aside for its
development, which would see 600,000 tpa phosphate rock
produced at 28% P2O5 from 515m tonnes
Around 400 contract construction workers
are presently working on the project, in addition to 107 of
EuroChem’s own employees.
These workers are constructing permanent
administration buildings, crushing and dry milling facilities,
a high voltage electricity line with substations and a finished
products shipment station and storage facility.
|EuroChem’s future looks set
to be defined by its expansion plans.
All image credits James Sean Dickson.
To view all the images from IM's visit to
Kovdorskiy, click here.