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Uralkali Watching Vale, BHP, Others To Determine Greenfield Project Timing-CEO

25.05.2012
Alex MacDonald / Dow Jones (UK)

Russian potash producer Uralkali (URKA.RS) is keenly watching the development of its peers' projects to determine when to develop a new potash mine in Russia, the company’s Chief Executive told Dow Jones Newswires in an interview.

"We know that in the [next] five to six years, no new incomers will be able to bring a [greenfield] project to the full capacity which means that existing potash producers have excellent opportunity to increase both volume and prices," Vladislav Baumgertner said in an interview.

The company plans to invest $5.8 billion in several brownfield projects and greenfield projects to boost its potash production capacity by 65% to 19 million tons in 2021 from 11.5 million tons in 2011.

The timeline for developing its greenfield Polovodovsky mine in Russia, however, is contingent on the degree to which mining titans BHP Billiton Ltd (BHP), Vale SA (VALE), potash producer Belaruski and other large players develop their own projects on time. "It depends on the timing," Baumgertner said.

Signs are already emerging that some large diversified mining companies are considering deferring billions of dollars in capital expenditure in response to falling commodity prices. BHP Billiton’s CEO Marius Kloppers said last week that BHP is adjusting the sequence of its multi-billion-dollar capital-expenditure plan but didn’t want to signal whether BHP might delay its potash project.

BHP has already spent almost $2 billion to purchase and prepare its Canadian Jansen potash project for board approval. The project is expected to produce its first potash in 2015 and expand to a total annual production capacity of 8 million tons. Meanwhile, Vale has earmarked $5.9 billion to develop its 4.3-million-tons-a-year Argentine Rio Colorado potash project in two phases. The mine is expected to start production in 2014.

"To be honest, we don’t believe that all those large-scale [potash] projects will be realized according to the plans that were announced," Baumgertner said.

"If…not all of those mining companies are able to expand before…2018, most probably we would then try to accelerate our Polovodovsky project because it would be demanded by the market," he added.

Uralkali estimates that it takes a minimum of seven years to build a potash mine from scratch.

Baumgertner didn’t disclose which projects he thinks may be delayed but said that Uralkali’s capital-expenditure program already takes into account that not all the major projects will be built, meaning that Uralkali will likely remain on course to build its $2.4 billion, 2.5-million-tons-a-year greenfield Polovodovsky potash project in time to commission the mine in 2021.

On the other hand, if Brazil’s Vale, Belarus' Belaruskali, and Anglo-Australian mining major BHP go ahead with their projects, "then it seems that too much capacity will come to the market during a very short period of time," Baumgertner said. "In this case we will reconsider the timing for…our greenfield project, Polovodovsky, and we would postpone this project," he added.

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