Uralkali Announces 3Q and 9M 2014 Key Figures, Operations and Market Update

Uralkali Announces 3Q and 9M 2014 Key Figures, Operations and Market Update

Uralkali (LSE: URKA, “the Company”), one of the world’s largest potash producers, announces its unaudited IFRS key figures for the third quarter and nine months ended 30 September 2014.

3Q 2014 top line and operational highlights:

  • Production up 19% y-o-y to 3.2 million tonnes of potassium chloride (KCl)
  • Sales volumes up 19% y-o-y to 3.1 million tonnes of KCl
  • Revenue up 5% y-o-y to US$ 896 million
  • Net revenue1 up 3% y-o-y to US$ 715 million
  • Average export price, FCA, down 14% y-o-y to US$ 233 per tonne of KCl

9M 2014 top line and operational highlights:

  • Production up 28% y-o-y to 9.2 million tonnes of potassium chloride (KCl)
  • Sales volumes up 33% y-o-y to 9.2 million tonnes of KCl
  • Revenue up 6% y-o-y to US$ 2,622 million
  • Net revenue down 1% y-o-y to US$ 2,031 million
  • Cash COGS at US$ 49 per tonne
  • Average FCA export price down 25% y-o-y to US$ 224 per tonne of KCl

Corporate highlights:

  • In July, the Company obtained a licence to develop a new block of the Verkhnekamskoye deposit
  • In July, Uralkaliís EGM approved the reorganisation of the Company in the form of a merger with Uralkali-Technology, a wholly owned subsidiary of the Company. At a meeting of the Board of Directors held on 18 December, the CEO informed the Board that completion of reorganisation would be postponed
  • In October, the Board recommended an interim dividend payment for 2014 in the amount of RUB 2.96 per share (approximately US$ 0.22 per 1 GDR2), subject to approval by the EGM on 26 December 2014
  • In November, Uralkali detected higher brine inflow at the Solikamsk-2 mine and suspended works at the Solikamsk-2 mine and plant


In November 2014, Uralkali detected a higher level of brine inflow and hydrogen sulphide in its Solikamsk-2 mine, as well as a sinkhole to the east of the Solikamsk-2 production site. In order to ensure employee safety, Solikamsk-2 mine and plant, which represent 17.7% of Uralkaliís annual KCl capacity, were suspended. Uralkali set up comprehensive monitoring of the Solikamsk-2 mine site and engaged with a number of scientific institutes. It has commenced implementation of a plan designed to address the consequences of the accident and mitigate the potential negative impact. Among other measures, the Company has restarted backfilling of the worked-out areas of the mine.

Dmitry Osipov, Uralkali CEO, commented:

Activities of every mining company are associated with geological risks. I would like to thank all Uralkali employees, as well as third-party organisations and Solikamskís local authorities for their professionalism and well-coordinated actions at the time of the accident at the Solikamsk-2 mine and in the following weeks. We continue to monitor the situation and implement the accident management plan and measures to minimise the consequences of the flooding. We are doing our best to save the Solikamsk-2 mine.
We expect the accident to have an insignificant†impact on our 2014 full-year output target. With increased capacity utilisation at other mines, we intend to produce 12 million tonnes of potash this year to meet strong demand from our customers. Potash market fundamentals remain attractive and in order to maintain our leadership position in the sector we are controlling costs, growing our distribution network and, if necessary, may consider bringing forward the commissioning of new production capacities.

The key 3Q and 9 months figures are as follows:

3Q 2014

3Q 2013

9M 2014

9M 2013

Revenue (US$ million)





Net revenue (US$ million)





Average FCA export potash price, US$





Production (KCl, million tonnes)





Sales volume (KCl, million tonnes)


— Export

ó Domestic













Anton Vishanenko, Uralkali CFO, commented:

We are pleased to report a strong set of results supported by robust potash demand. This continued global trend, in combination with limited supply, enabled Uralkali to achieve a 5% year-on-year increase in revenue in the third quarter despite weaker year-on-year prices. Moreover, we saw growth in the average export price, which rose by 6% to US$ 233 per tonne in the third quarter compared to the first half of 2014; this supports our positive full-year outlook.

Financial Review

Due to robust demand in 3Q 2014, the Companyís sales volumes in July-September increased by 19% to 3.1 million tonnes of KCl, which led to a 5% increase in revenue. The overall January-September revenue rose by 6% y-o-y to US$ 2,622 million, with cash COGS decreasing to US$ 49 per tonne.

Uralkali continued to optimise its loan portfolio, prolonging its average tenure and decreasing the effective interest rate. Thus, in August, Uralkali signed an agreement with Promsvyazbank to open a US$ 250 million unsecured credit line with a 10-year repayment period. The new loan will be used primarily for refinancing to further improve the characteristics of the credit portfolio. At the end of September 2014, the effective interest rate for the whole credit portfolio was 3.6%; the Companyís net debt decreased to US$ 3,616 million.

In October 2014, Uralkaliís Board of Directors recommended an interim dividend payment of RUB 2.96 per share and approximately US$ 0.22 per GDR3, subject to approval by the extraordinary shareholders meeting on 26 December 2014.

Business Review

Solid demand in key markets enabled Uralkali to produce 9.2 million tonnes of KCl in January-September 2014, up 28% y-o-y.

At the same time, the Company proceeded with its capacity development programme. At the Ust-Yayvinsky mine, shaft construction is in progress. Next year, the Company plans to start the construction of permanent facilities for the above-ground complex. Debottlenecking is continuing on schedule.

In July, Uralkali obtained a licence to develop the Romanovsky block of the Verkhnekamskoye deposit of potassium and magnesium salts. The terms of the licence allow the Company to conduct geological exploration of subsurface resources, as well as the exploration and extraction of potash, magnesium and mixed chloride salts. The new block has preliminarily estimated reserves of 385 million tonnes of sylvinite4.

In July, Uralkaliís EGM approved the reorganisation of the Company in the form of a merger with Uralkali-Technology, a wholly owned subsidiary of the Company. At a meeting of the Board of Directors held on 18 December, the CEO informed the Board that completion of reorganisation that was previously planned to be finalised by the end of the year would be postponed.

Market Review and Outlook

3Q 2014 continued the positive trend of this year and was characterised by solid global potash demand. Supply tightness continued to be apparent globally with a number of producers fully committed through July-September at the start of the quarter. A combination of strong demand and restricted supply pushed prices higher in major markets.

In China, potash demand has been stronger than previously anticipated due to higher volumes of seaborne imports in the second half of the year. As a result, in August, China started fullfilling additional potash requirements through exercising optional volumes on existing contracts. Annual deliveries are projected to total 12.0-12.2 million tonnes in 2014, the highest level since 2008.

In India, demand for potash was quite strong in 3Q due to high levels of NPK application and profitable import economics. A total of 3 million tonnes was imported during the first nine months of this year, representing a y-o-y increase of 42%. In 2014, the country is expected to import 4.0 million tonnes.

In Southeast Asian markets, the demand growth continues to be driven by profitable palm oil economics (despite lower y-o-y crude palm oil prices) and affordable potash prices. Demand in the region is expected to increase from 8.1 million tonnes in 2013 to approximately 8.6-8.7 million tonnes in 2014.

Brazil was the most active market in 3Q 2014. The country imported 7 million tonnes from January to September, representing a y-o-y increase of 18%. The tight supply of granular potash persisted. Potash prices were firming backed by robust demand. Full-year imports are expected to top 8.5 million tonnes, which suggests total deliveries will reach 9 million tonnes.

In the US, demand was healthy, with price levels remaining above other markets. Canadian suppliers continued to struggle with delayed deliveries due to a shortage in transportation options. Full-year demand is expected to return to the record high levels seen in 2010 (10.3 million tonnes).

In 3Q, the European and FSU markets were fairly quiet. In these markets, demand is expected to increase from 10.1 million tonnes in 2013 to approximately 10.7-10.8 million metric tonnes this year. Demand growth is driven by increases in NPK production as well as higher levels of application at the farms.

The Russian market remains stable in 2014. 3Q saw an 8% y-o-y increase in sales due to high consumption levels by agricultural producers and industrial consumers. 2014 demand is expected to grow by 3% y-o-y.

Oleg Petrov, Uralkali Director of Sales and Marketing, said:

Global potash deliveries in 2014 are estimated to reach a record 59-60 million tonnes, aided by restocking needs and affordable potash prices. Potash demand is estimated to have increased in all regions this year, but stronger growth was seen in the USA, South East Asia and India. As of the end of 2014, the potash industry is in reasonably good shape with healthy inventory levels.

You can find more information about the potash market in a video interview with Oleg Petrov, Uralkali Director of Sales and Marketing, at http://www.uralkali.com/investors/results/.

Uralkali (www.uralkali.com) is one of the worldís largest potash producers and exporters. The Companyís assets consist of 5 mines and 7 ore-treatment mills situated in the towns of Berezniki and Solikamsk (Perm Region, Russia). Uralkali employs ca.11,300 people (in the main production unit). Uralkaliís shares and GDRs are traded on the Moscow Exchange and London Stock Exchange, respectively.

1 Net revenue represents adjusted revenue (sales net of freight, railway tariff and transshipment cost)

2 According to the exchange rate of the RF Central Bank as of 18 December 2014, 1 USD= 67.7851 RUB

3 According to the exchange rate of the RF Central Bank as of 18 December 2014, 1 USD= 67.7851 RUB

4 According to Uralkaliís estimates

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Cardinal rules

Smoking in mines is prohibited.
Work at heights without wearing a safety harness is prohibited.
Work in electrical installations under voltage is prohibited.
It is forbidden to perform work and stay in the bottomhole zone during the operation of the mining machine.
Loading and unloading operations when people are in the danger zone are prohibited.
Working in underground mines with unsecured and/or unassembled roofing is prohibited.
It is forbidden to carry out repairs and maintenance of conveyors without disconnecting from energy sources, use of conveyors for transfer of people and goods (materials and/or equipment), crossing (either above or under) operating conveyors by employees are not allowed.
It is forbidden to carry out welding and flame work in underground mines and mine buildings without the necessary safety measures preventing fire.