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While the company does plan to eventually list its shares on a stock exchange, it is currently focused on developing its organic growth potential with strategic investments in its potash, nitrogen and phsopahtes segments.
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Igor Nechaev, Head of the Logistics Division – A first consideration is that any new capacity comes online gradually and mining operations the size of VolgaKaliy or Usolskiy will typically require two to three years to reach their nameplate annual production capacity. We have constructed trunk lines and stations at both of our sites. At our Usolskiy facility in the Perm region, the majority of the Perm-Ust Luga (Baltic) line is not an issue as it is comprised of multiple routes which together account for approximately half of the country’s rail capacity. The current capacity on that line is around 35-37 million tonnes per year and Russian Railways have announced that this will be raised to 57 million tonnes.
As for VolgaKaliy, with around 600km to our port and our NPK facilities, the transportation issue is not as complex. The capacity in the area is quite enough to accommodate shipments of potash from VolgaKaliy. As well, whether at our Baltic Sea or Black Sea terminals, we plan to have sufficient storage capacity to ensure good rail car turnaround times.
Igor Schelkunov, Administrative Director, Head of the Oil and Gas Division – EuroChem has made the strategic decision to become an HSE exemplar by 2018. In 2013 the Board approved our new HSE Policy and Framework which underpin our commitment to HSE leadership and the continuous improvement of our performance. These apply to all of EuroChem’s production plants and are monitored by the Board of Directors and the Executive Board. Also in 2013 we established a dedicated HSE Department. Based in Moscow, it heads up and integrates the work of more than 120 HSE professionals who ensure the effective and consistent execution of the HSE Policy and Framework across the Group’s assets.
We also launched a company-wide project aimed at strengthening our HSE culture and systems. It is the result of a detailed baseline review of our health and safety performance conducted by DuPont Sustainability Solutions in 2012, and is being piloted at Novomoskovskiy Azot, one of our largest operations, throughout 2014. The project draws on recognized HSE best practices and focuses upon HSE leadership and operational excellence, over and above compliance with statutory requirements.
Alexander Tugolukov, Head of the Fertilizers Division – The key input for ammonia is natural gas and while it is fairly abundant in the world, its price and proximity to fertilizer markets varies considerably. Fortunately for EuroChem, our ammonia assets are located in Russia, which is blessed with natural gas. Our cost per mmBtu of gas remains among the lowest in the world. As for distance to market, Russia happens to be the fastest growing large agriculture market in the world. On the export side, our ammonia facilities are strategically located in Western Russia and benefit from our own logistics chain which unlocks inefficiencies and bottlenecks on both the raw material and finished product streams. Additionally, our partial upstream integration into natural gas has strengthened our position on the cost curve. As well, we look to further improve our competitiveness with the launch of up to 1.0 MMT of new state-of-the-art ammonia capacity in Russia in 2018. This will not only improve our gas to ammonia consumption ratio but also bring us to full self-sufficiency in ammonia production.
Clark Bailey, Head of the Mining Division – Despite the market taking a breather, we ran various scenarios, and given our time frame, we remain very confident in our potash projects and view the timing of our entry as potentially ideal. Sensitivity analyses have confirmed EuroChem remains on firm ground to continue. At either one of our sites, once fully operational our cash costs to produce are on the lower end, allowing us to move our products into the market with considerable flexibility. We currently expect first raw ore and production to start in 2017 and recognize that EuroChem will absorb most of its initial output to meet the requirements of internal potassium-based fertilizer production. We are aware and anticipate our operations to require two to three years of ramping-up before reaching their designated capacity, making our market entry very gradual and soft.
Andrey Ilyin, Chief Financial Officer – The sharp contraction in fertilizer prices surprised many – and left a considerable portion of global production in loss making territory. While today we see some recovery in prices for fertilizers and iron ore, which we also produce, they are far from levels which most industry players would view as ‘normal’ just over a year ago. Nonetheless, a combination of resilient operating cash flow generation, attractive financing instruments and shareholder support allows EuroChem to continue with its ongoing major investments.
If we look specifically at some of our main capital projects, our Usolskiy (potash) and Northwest (ammonia) projects both benefit from non-recourse project financing facilities, which cover 35% and 64% of total estimated project costs until production, respectively. For 2017, we expect over 40% of total capex to come from project finance facilities, which lessens the burden on our cash flow. With Usolskiy slated to begin production shortly, the resulting gradually reducing capex requirements and the start of potash production will together lead to higher free cash flow generation. We nonetheless reshuffled certain project items that were not crucial to the start of first phase operations, such as the construction of second phase storage capacity.
Still, the lower prices did push the Group’s leverage higher. With the Group’s Net debt/EBITDA ratio moving closer to 3.0x, we formulated plans to reduce covenant debt through a combination of capex and net working capital optimization exercises – as well as through capital support from the shareholders. As a first step, in the fourth quarter we released close to US$100 million from working capital. We also entered into a facility agreement with the Group’s principal shareholder for a zero-interest, non-callable, perpetual financing facility, of which we had utilized US$250 by year-end. Other than that, rather modest maintenance capex requirements of US$150-200 million leave us with significant room for maneuver should it be needed.
Dmitry Strezhnev, Chief Executive Officer – Our initial strategy was rather simple use our cash flow to overhaul equipment and improve the efficiency of our production units. Phase two involved the expansion of our product range to provide us with added stability and resilience throughout the business cycle. This included the launch of granular urea and melamine units and marked the beginning of our path to potash. With encouraging progress at our two potash projects and following the successful integration of newly acquired assets, the time has come to look even further ahead. Accordingly our strategic horizon has grown from five to eight years. Over this period, we will continue working hard to further minimize our environmental footprint across our business. Our potash projects are the major catalysts of our next growth phase and we remain deeply aware of the importance of retaining and attracting key talent. We are driven by growth and it has positioned us to capture the next emerging opportunities in our industry.