Russia to become a force in fertiliser

10.06.2011
Catherine Belton / The Financial Times (UK)

Russia is set to complete the creation of the world’s second-biggest potash producer by capacity next week when the merger of Uralkali with Silvinit, the two potash producers controlled by billionaire Suleiman Kerimov, is expected to be finalised.

The arrival of the big new Russian force on global fertiliser markets comes as the Kremlin seeks to leverage the country’s strong position in the sector, amid expectation of a continued surge in demand for fertiliser products worldwide as populations grow and agricultural land diminishes.

Global mining group BHP Billiton last year led an abortive bid to drive industry consolidation through the acquisition of Canada’s Potash Corp, the world’s biggest producer by capacity, which successfully fought off the takeover.

Vladislav Baumgertner, chief executive of Uralkali, who will continue at the helm of the merged entity, said it would be in a unique position to boost output and supply world demand, which he said could grow by 3 per cent per year over the next decade.

“We’re creating one of the leaders in the potash industry that will be capable of undertaking serious investment projects that smaller players are not able to take on,” Mr Baumgertner told the Financial Times.

Uralkali and Silvinit are sitting on the world’s second-biggest potash deposit and both have greenfield projects that can be developed in line with demand.

“We will be able to increase profits from the synergy effect and build a stronger trade position,” added Mr Baumgertner.

The expected completion of the merger comes amid renewed speculation that Mr Kerimov, the Kremlin-connected Russian tycoon, could also seek to acquire control of Belaruskali, the world’s third-biggest potash producer, as the Belarussian government struggles to raise revenues to stave off economic collapse.

Any consolidation of Belaruskali’s production assets with those of the merged Uralkali would create the world’s biggest producer by far, with a projected output next year of 22m tonnes.

The merged Uralkali with Silvinmit is expected to produce 13m tonnes next year, up from 10.6m tonnes this year.

However, one person close to the situation played down any prospects for such a deal. Uralkali already sells its entire export volumes via a joint venture, the Belarussian Potash Company, in which it owns 50 per cent, with the remaining 45 per cent held by Belaruskali and 5 per cent held by the Belarussian Railways Association, in an arrangement Mr Baumgertner said allows the company to optimise its sales structure.

The company, called BPC, controls 31 per cent of global sales.

Mr Baumgertner said Belaruskali could be an interesting acquisition target but that the management was not involved in any negotiations at present and any deal would depend on the company’s main shareholders.

While global miners such as Rio Tinto have expressed interest in Uralkali in the past, the company for now would concentrate on maximising the synergies from the merger with Silvinit, which should garner a significant boost in profits through expected cost cuts of $100m per annum, said Mr Baumgertner.

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