introducing eurochem · 2016. 6. 24. · introducing eurochem november 30 - december 2, 2010 2010...

Introducing EuroChem

November 30 - December 2, 2010

2010 Citi Basic Materials Symposium

2

Disclaimer

This presentation has been prepared by OJSC MHK EuroChem (“EuroChem” or the “Company”) for informational purposes, and may include forward-

looking statements or projections. These forward-looking statements or projections include matters that are not historical facts or statements and reflect the

Company’s intentions, beliefs or current expectations concerning, among other things, the Company’s results of operations, financial condition, liquidity,

performance, prospects, growth, strategies, and the industry in which the Company operates. By their nature, forward-looking statements and projections

involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company cautions

you that forward-looking statements and projections are not guarantees of future performance and that the actual results of operations, financial condition

and liquidity of the Company and the development of the industry in which the Company operates may differ materially from those made in or suggested by

the forward-looking statements or projections contained in this presentation. Factors that could cause the actual results to differ materially from those

contained in forward-looking statements or projections in this presentation may include, among other things, general economic conditions in the markets in

which the Company operates, the competitive environment in, and risks associated with operating in, such markets, market change in the fertilizer and

related industries, as well as many other risks affecting the Company and its operations. In addition, even if the Company’s results of operations, financial

condition and liquidity and the development of the industry in which the Company operates are consistent with the forward-looking statements or

projections contained in this presentation, those results or developments may not be indicative of results or developments in future periods. The Company

does not undertake any obligation to review or confirm expectations or estimates or to update any forward-looking statements or projections to reflect

events that occur or circumstances that arise after the date of this presentation.

This document does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue, or any solicitation of any offer to

purchase or subscribe for, any securities of the Company in any jurisdiction, nor shall it or any part of it nor the fact of its presentation, communication or

distribution form the basis of, or be relied on in connection with, any contract or investment decision. No reliance may be placed for any purpose

whatsoever on the information contained in this document or on assumptions made as to its completeness. No representation or warranty, express or

implied, is given by the Company, its subsidiaries or any of their respective advisers, officers, employees or agents, as to the accuracy of the information or

opinions or for any loss howsoever arising, directly or indirectly, from any use of this presentation or its contents.

By participating in this meeting, you agree to be bound by the foregoing.

3

Contents

Nitrogen Segment

Potash Segment

Logistics & Distribution

Phosphate Segment

EuroChem Overview

4

Summary

Top 10 agrochemical company globally by

nutrient capacity:

2 Nitrogen plants in Russia

2 Phosphate plants in Russia and 1 in Lithuania

1 Apatite and iron ore mine in Russia

P2O5-rich (37%-38%) apatite ore (2.7 MMT pa)

covers c.85% of own P production needs

Up to 6MMT of iron ore (Fe content 64%), a

co-product of apatite mining

Construction of own Potash (K) capacity is

well underway (production to start 2013, reaching

up to c.8 MMT pa of product by 2021)

Vertical integration: own raw materials,

production, port terminals, rail stock, repair shops

and distribution in CIS

Privately owned by Andrey Melnichenko (95%)

and CEO Dmitry Strezhnev (5%)

Expected 2010 EBITDA: USD 900m, +70% over

2009

Latest Net Debt / LTM EBITDA: 1.24x

As of 30 September 2010 EuroChem directly

owned 9.998% of K+S AG

1 730

2 392

3 635

2 384

3 104

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

2006 2007 2008 2009 2010E

US

$m

Revenue*

359

726

1 435

535

907

0

200

400

600

800

1 000

1 200

1 400

1 600

2006 2007 2008 2009 2010E

US

$m

EBITDA*

21%

30%

40%

22%

29%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2006 2007 2008 2009 2010E

US

$m

EBITDA margin

23,9%Russia

14,2%CIS

21,5%Asia

17,8%Europe

14,4% LatAm

5,0%N Amer

2,7%Africa

0,4%ROW

Sales by Region

*Revenue and EBITDA translated into US$ using 12 Nov 2010 exch. rate of 30.8612 RUR/US$

0 2 4 6 8 10 12 14

PotashCorp

Mosaic

Silvinit+Uralkali*

CF Industries

Yara

Belaruskali

Agrium

OCP

Israel Chemicals

EuroChem

K+S AG

TogliattiAzot

PhosAgro

Sinopec

UralChem

PRIMARY PRODUCT CAPACITY, MMT OF NUTRIENTS

Ammonia (N)

Phos Acid (P2O5)

Potash (K2O)

5

Position in Sector

Top 10 by nutrient capacity globally

0 2000 4000 6000 8000

Acron

EuroChem

CF Industries

ICL

PotashCorp

K+S

Mosaic*

Yara

Agrium

6M 2010 Revenue (US$m)

0 500 1000 1500

Acron

EuroChem

CF Industries

K+S

ICL

Agrium

Yara

Mosaic*

PotashCorp

6M 2010 EBITDA (US$m)

0 200 400 600 800 1000

Acron

CF Industries

EuroChem

ICL

K+S

Agrium

Mosaic*

Yara

PotashCorp

6M 2010 Net Profit (US$m)

*Data for Mosaic is for FY10 Q3-Q4.

Source: Bloomberg, company reports

6

Vertically Integrated Producer

Kovdor

Kingisepp

Kedaynyay

Moscow

Novomoskovsk

Nevinnomyssk

Perm

Volgograd

Murmansk

Tuapse

Tallinn

Novomoskovsk Azot

Lifosa

Phosphorit

EuroChem-BMU

Kovdorsky GOK

Gremyachinskoe deposit

Verkhnekamskoe deposit

Nevinnomyssk Azot

Potash

Nitrogen

Phosphate

Transhipment terminals

Apatite / iron ore mining

Belorechensk

Ust-Luga

Products Volume

Iron ore 5,700

Apatite 2,700

Baddeleyite 8.9

Products Volume

MAP, DAP, NP 740

Feed phosphates 220

Products Volume

MAP, NP 510

Products Volume

DAP 980

Feed phosphates 150

Products Volume

MOP – Phase I 2,300

MOP – Phases I and II 4,600

Products Volume

MOP - Phase I 2,000

MOP – Phases I and II 3,400

Products Volume

Ammonia 1,164

Urea 861

Ammonium Nitrate 1,313

UAN 1,022

Products Volume

Ammonia 1,627

Urea 1,440


UAN 427

7

Key Competitive Advantages

Low-cost raw materials (natural gas, phosphates

and, in future, potash)

Further cost advantages through vertical

integration (own port terminals, rail stock,

repair/maintenance units)

Distribution in the world’s fastest-growing large

fertilizer market (Russia and CIS)

Iron ore (6 MMT pa) as co-product of apatite

mining adds to profitability

Future global cost leadership in potash

expected at Gremyachinskoye field due to:

Proximity to port (~650 km)

K2O-rich ore

Flatness and thickness of potash layer

Thick protective salt layer

Growing production flexibility allows to quickly

adapt to changes in market demand

8

The EuroChem Story

Growth 2.1% of the world’s nutrient capacity today

Earnings power Sustained competitiveness in N and P in Western Hemisphere

3.0% by 2020

Benefits from iron ore as a co-product of apatite mining

Future global cost leadership in K

Key Risks? Potash construction (mines)

Natural gas cost differential between Russia and Europe/US

Close to zero free cash flow in 2011-2013 on heavy capex

9

EuroChem: Corporate Governance

Andrey Melnichenko–Chairman of the Board of Directors

Beneficiary of a 95 percent interest in EuroChem

Co-founder and former Chairman of the Board of Directors of MDM Bank

In partnership with Sergey Popov, built EuroChem, SUEK and founded TMK

Richard Sheath–Chairman of Audit Committee, Member of Corporate Governance

and Personnel Committees

Prior to Eurochem, worked as risk management consulting partner with PwC

Began professional career with the Bank of England and the Ministry of Finance

George Cardona–Chairman of the Strategy Committee

Founder and CEO of London-based Cardona Lloyd & Co.

Previously worked at HSBC Group, as Head of Strategy, and also as General Manager

responsible for international banking

Vladimir Stolin–Chairman of Corporate Governance and Personnel Committees

Author of various scientific works on management and corporate behavior

Previous work experience includes being a professor at the and working as a consultant at RHR

International

Keith Jackson–Member of the Audit and Strategy Committees

From 1996 to 2005, Senior VP and a divisional CFO of Anglo American

Extensive experience across several sectors and regions. Previous positions held

include Chairman of Cleveland Potash, CFO of Cape plc

Charles Adriaenssen–Member of Corporate Governance and Personnel Committees

Currently, member of the Boards of EPS SA, Green Facts Foundation, Outhere SA., and Sebastien

Holdings, President of VLORO and Chairman of Bastille Investments

Extensive experience in diplomatic affairs

Dmitry Strezhnev–Chairman of the Management Board

Head of EuroChem since August 2003

Co-founder and General Director of RusPromAvto, 1999-2003

Previously worked as Head of Likinskiy Bus Manufacturing Plant

Nikolay Pilipenko–Member of the Audit Committee

CFO of EuroChem from 2006 to 2008

Extensive international experience with trading and industrial companies

Previously worked at ABB Group

Board of Directors

Best-in-class approach to corporate governance

– Management develops and executes strategy

– Board of Directors performs overall oversight

Half of the Board is represented by independent directors with long

standing reputation and experience

Three Board committees: Audit, Governance and Personnel, Strategy

Shareholding structure and influence

Transparent and open ownership structure

Long term shareholder commitment

Prudent dividend policy, consistent with the financial situation of the

company

Transparency and disclosure

IFRS reporting since 2002

Annual reports issued since 2005, audited by PwC

Financial statements and majority of corporate governance documents are

publicly available on website, which is regularly updated

Shareholding structure and influence

EuroChem is a private company implementing the best-in-class corporate governance expected of a public company

10

Main Strategic Objectives

Become top 5 global

agrochemical company by

revenue and profitability

Maintain cost advantage in N

and P through vertical

integration and investment in

efficiency

• Improve existing production efficiency

• Build and launch own potash production

• M&A: opportunistic approach

• Add new capacity for higher-value / lower

gas content products (e.g. melamine, LDAN,

NPK)

• Improve logistics (Baltic port, rail car fleet)

• Enhance distribution in core markets (CIS,

Europe)

• Own natural gas production?

• Improve access to phosphate rock

(Kazakhstan)

11

Nitrogen Segment

Potash Segment


Phosphate Segment

EuroChem Overview

12

Project Overview

License area of 96,9 km2 located in Volgograd

region

Russian reserves (B+C1+C2): 1,146 mmt;

resources (P1): 721 mmt

JORC proven and probable reserves: 492 mmt

measured and indicated resources: 1,337 mmt

Sylvinite ore

KCl average content: 37%

NaCl average content: 54%

MgCl average content: 0.2%

CaSO4 average content: 6-7%

Depth of 1,000–1,250 meters

Mining to start in 2013

Phase I full capacity in 2016

Phase II full capacity in 2018

Total investment for both phases est. US$ 3.4bn

Project Overview: Volgograd region (Gremyachinskoye)

0

500

1 000

1 500

2 000

2 500

3 000

3 500

prior to 2010

2010 2011 2012 2013 2014 2015

US

$ m

Gremyachinskoye cumulative capexPhases I+II (2010-completion)

Phase II cumulative capex Phase I cumulative capex

Phase I: capacity of 2.3 mmt p.a., involves

construction of social infrastructure, cage shaft,

skip shafts and processing facility

Phase II: capacity doubled to 4.6 mmt p.a., involves

construction of additional skip shaft and expansion of

processing facility

Mining starts

Now

13

Project overview: Perm region (Verkhnekamskoye)

Project Overview

0

500

1 000

1 500

2 000

2 500

3 000

priorto 2010

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

US

$ m

Verkhnekamskoye cumulative capexPhases I+II (2010-completion)

Phase II cumulative capex Phase I cumulative capex

License area of 132.9 sq km located in Perm

region, home of Russian potash industry

Russian reserves (A+B+C1): 1,524 mmt

JORC proven and probable reserves: 420 mmt

measured and indicated resources: 1,075 mmt

Sylvinite and carnallite ore

KCl average content: 30%

NaCl average content: 62%

MgCl average content: 0.3%

CaSO4 average content: 2.2%

Insoluble residue: 4.9%

Depth ~500 meters

Mining to start in 2016

Phase I full capacity in 2018

Phase II full capacity in 2021

Total investment for both phases est. US$ 2.7bn

Phase I: capacity of 2.0 mmt p.a., involves

construction of social infrastructure, cage shaft,

skip shafts and processing facility

Phase II: additional capacity of 1.4 mmt p.a., involves

construction of additional skip shaft and expansion of

processing facility

Mining starts

3.4 MMT

2.0 MMT

Now

0

50

100

150

200

250

300

Euro

Chem

V

olg

a-K

ali

Euro

Chem

P

erm

Ura

lkali

Silv

init

ICL (

DS

W)

AP

C

Po

tash

Co

rp

Mosaic

Bela

ruskali*

K+

S K

ali

KCl Delivered Cost to China, 2010

Freight to China Export Duty Delivery to FOB Site Cost

14

Future Cost Position in Potash

Euro

Chem

V

olg

a-K

ali

Euro

Chem

P

erm

Ura

lkali

Silv

init

ICL (

DS

W)

AP

C

Pota

shC

orp

Mosaic

Bela

ruskali*

K+

S K

ali

KCl Delivered Cost to Brazil, 2010

Freight to Brazil Export Duty Delivery to FOB Site Cost

0

50

100

150

200

250

300

Euro

Chem

V

olg

a-K

ali

Euro

Chem

P

erm

Ura

lkali

Silv

init

ICL (

DS

W)

AP

C

Pota

shC

orp

Mosaic

Bela

ruskali*

K+

S K

ali

KCl Delivered Cost to India, 2010

Freight to India Export Duty Delivery to FOB Site Cost

EuroChem’s intended global cost leadership in K

would help withstand prolonged periods of depressed

potash price (<$350 CFR China), if necessary

* export duty for Belaruskali is 50 euro per ton

Source: company reports, British Sulphur, Fertecon, EuroChem estimates

15

Visual Update

Skip shaft construction site and cooling system

Skip shaft pre-sink

Employee housing

Cage shaft construction site

16

Nitrogen Segment

Potash Segment


Phosphate Segment

EuroChem Overview

17

Nitrogen Segment

Kovdor

Kingisepp

Kedaynyay

Moscow

Novomoskovsk

Nevinnomyssk

Perm

Volgograd

Murmansk

Tuapse

Tallinn

Novomoskovsk Azot

Nevinnomyssk Azot

Potash

Nitrogen

Phosphate

Transhipment terminals

Mining operations

Belorechensk

Ust-Luga

Products Volume

Ammonia 1,627

Urea 1,440


UAN 427

Products Volume

Ammonia 1,164

Urea 861


UAN 1,022

EuroChem nitrogen operations

18

Sales by region*, 9M 2010

Sales by Product*, 9M 2010

Key 9M 2010 Results

Nitrogen Phosphate Distribution

*including sales to other segments

Russia and CIS38% (+11)

Asia11% (-8)

Europe22% (+3)

Latin America15% (-4)

North America9% (-1)

Africa4% (-2)

Australasia1% (-1)

(in brackets – change in percentage points relative to 9M 2009)

Urea28% (-3)

Ammonium Nitrate

24% (+1)UAN

8% (-2)

Complex9% (-)

Ammonia11% (+1)

Other10% (+2)

Acetic Acid4% (-1)

Methanol6% (+3)


32,9

29,3

9,9 11,0 12,110,3 9,3

9M 2010 9M 2009 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09

25% 25%

17%

26%

31%

19%21%

9M 2010 9M 2009 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09

Revenue*, RURbn

EBITDA margin

Nitrogen segment includes nitrogen fertilizers and organic synthesis products.

*Revenue and sales volumes include sales to other segments

0 100 200 300 400

Nevinnomyssk Azot

East European producers

Ukrainian producers

Gas costs Other cash costs Delivery costs

19

0 50 100 150 200 250 300 350 400

Novomoskovsk Azot

European producers

Ukrainian producers

Gas costs Other costs Delivery costs Import duty

Illustrative delivered urea costs to Brazil ($/m ton)

Assuming gas price = $150 per 1,000m3

(equivalent to $340 netback price from

Europe)

Assuming gas price = $250 per

1,000m3 (DAF)

Assuming gas price = $250

per 1,000m3 (DAF)

Illustrative delivered urea costs to Europe ($/m ton)

Assuming gas price = $340

per 1,000m3


1,000m3 (spot/contract mix)


1,000m3 (equivalent to $340

netback price from Europe)

Note: ¹ Gas costs for Western Europe as at German border

Impact of Rising Natural Gas Prices in Russia


EuroChem maintains significant cost

advantage over European and

Ukrainian producers in its key

markets even after domestic gas

prices rise to their “netback” level

20

Nitrogen Strategy

Key Objectives Key Investment Projects

Other Ideas

Ensuring energy efficiency improvements and removal of

bottlenecks, leading to lower costs at both plants through

incremental investment;

Achieving product flexibility in order to maximize profit

margins through alignment of production to market

conditions;

Ensuring best possible access to attractive markets (i.e.

markets where EuroChem is most competitive on a “cash

cost delivered to” basis);

Securing access to competitively priced natural gas.

Alternative gas supply:

Buy or build own natural gas supply in Russia;

Contract with independent gas producer in Russia

(Novatek, LUKoil);

Build or buy new N capacity in region with cheap gas.

Additional value added/lower gas content products:

LDAN - 200 kmt p.a.;

AdBlue;

Production of Urea, CAN and UAN with sulphur content.

Deep upgrade of Ammonia plants.

Recently completed:

CAN – 420 kmt p.a.

Granular urea 3 – 2,000 mt p.d.

Granular urea 4 – 1,150 mt p.d.

Under Construction:

Melamine – 50 kmt p.a.

2010 2011 2012 2013 2014

Cumulative N capex 2010-2014 (US$ m)

277

185

127

123

86

Objectives: build capacity in premium products, diversify

and reduce share of natural gas cost in the product price

21

Nitrogen Segment

Potash Segment


Phosphate Segment

EuroChem Overview

Moscow – EuroChem HQ

Taraz

Phosphate and mining operations

Own transhipment terminals

Port facilities rented under

a long-term contract

Russia

KazakhstanUkraine

22

EuroChem phosphate operations

Kovdor

Murmansk

Lifosa

EBMU

Kovdorsky GOK

Klaipeda

Tuapse

Belorechensk

Kedaynyay

Phosphate Operations


Products Volume

Iron ore 5,700

Apatite 2,700

Baddeleyite 8.9

Products Volume

MAP, DAP, NP 740

Feed phosphates 220

Products Volume

MAP, NP 510

Products Volume

DAP 980

Feed phosphates 150

Phosphorit

Kingisepp

23

Key 9M 2010 Results


Sales by product*, H1 2010

Sales by region*, 9M 2010

Russia and CIS35% (-)

Asia32% (-2)

Europe16% (-6)

Latin America14% (+10)

North America2% (+1)

Africa1% (-3)


MAP, DAP54% (-5)

Feed6% (-2)

Apatite2% (-1)

Iron ore31% (+8)

NP, NPK3% (-)

Other4% (-)

*including sales to other segments

(in brackets – change in percentage points relative to H1 2009)

33%

14%

36%39%

19%

14%12%

9M 2010 9M 2009 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09

35,7

23,9

13,9 12,69,2

7,2 8,5

9M 2010 9M 2009 Q3 10 Q2 10 Q1 10 Q4 09 Q3 09

Revenue*, RURbn

EBITDA margin

Phosphate segment includes included iron or and baddeleyite, byproducts of

apatite production at Kovdorskiy GOK mine.

24

293 311

356 334

320

353

EuroChem Morocco US integrated

To Europe To India

Illustrative economics for competing DAP producers Delivered cost to Europe and India (US$/t)

Source: EuroChem information

Assuming “normalized” across-the-cycle ammonia and sulphur costs for US integrated producers

US integrated Morocco EuroChem

US$To

EuropeTo India

To

Europe To India

To

Europe

(Lifosa)

To India

(Phosphorit)

Ammonia cost 470 470 445 445 244 256

Ammonia / tonne DAP 0.22 0.22 0.22 0.22 0.22 0.22

Ammonia cost / tonne

DAP103 103 98 98 54 56

Rock cost / tonne 48 48 49 49 102 80

Rock / tonne DAP 1.73 1.73 1.56 1.56 1.28 1.28

Rock cost / tonne

DAP83 83 76 76 131 102

Sulfur cost / tonne DAP 60 60 34 34 30 30

Other cash costs /

tonne DAP50 50 60 60 50 60

Production costs /

tonne296 296 269 269 264 249

Freight 60 57 43 51 29 85

Total delivered cost /

tonne356 353 311 320 293 334

Cost Comparison


25

Phosphate Strategy

Key Objectives Key Investment Projects

Other Ideas

Increase supply of own raw materials (phosphate rock, apatite);

Reduce conversion cost to improve cost per unit;

Grow capacity to increase the benefits of economies of scale;

Improve cost efficiency through energy-saving technologies;

Enhance product flexibility with capacity to produce at least two products

at each plant (DAP and MCP at Lifosa, DAP/MAP and DFP at

Phosphorit, MAP and NPK at BMU).

Expand phosphate business and with access to low cost phosphate rock

in Kazakhstan;

Discussing development of apatite deposit in Finland close to Russian

border with mine owner Yara;

Opportunities for access to Moroccan rock under discussion.

Feed phosphates at Lifosa: 150 kmt p.a. (completed in mid. 2010);

Increase sulphuric acid capacity: at Phosphorit from 720 to 1,000 kmt

p.a.; at EBMU from 520 to 720 kmt p.a.;

Increase phosphoric acid capacity: at Phosphorit from 350 to 400 kmt

p.a.; at EBMU from 240 to 300 kmt p.a.;

Build NPK production at EBMU: 800 kmt p.a. (to correspond to K

production coming online in Volgograd).

170

91

142

2010 2011 2012 2013 2014

Cumulative P capex 2010-2014 (US$ m)

142

67

Objectives: debottleneck, decrease fixed costs per tonne,

reduce costs through own energy generation, eliminate

reliance on external phosphate rock.

26

Nitrogen Segment

Potash Segment


Phosphate Segment

EuroChem Overview

27

Logistics

Overview and plans

Moscow

TankChem (Sillamae)

Tuapse Bulk Terminal

Assets:

Murmansk: 1.5 mmt p.a., iron ore

Sillamae: 700 kmt p.a., liquid

fertilizers and organic chemicals

Tuapse : 3 mmt p.a., bulk fertilizers

Klaipeda (long-term contract): 3.5m

bulk, 500k tonnes liquid, 1m tonnes

phosphate rock

3 ships in long-term lease

Over 6,700-strong rail stock and 42

locomotives

Own rail stock service depot

Plans:

Ust-Luga (planned): 5 mmt p.a., bulk

fertilizers

Use own rail stock only

Nitrogen plant

Phosphate plant

Phosphate rock and iron ore mine

Own shipping terminals

Long-term contract shipping terminal

Klaipeda

Murmansk Bulk Terminal

Ust-Luga

28

Distribution

Nitrogen Phosphate

Overview and plans

Nitrogen plant

Phosphate plant

Phosphate rock and iron ore mine

Operating distribution centres

Planned distribution centres

Kovdorsky GOK

Lifosa

Phosphorit

Moscow

Novomoskovsky Azot

Nevinnomyssky AzotEBMU

Own shipping terminals

Distribution

Distribution network

Distribution: 39 distribution

centres in the Southern and

Central Russia and Ukraine

Future plans: gradual

development of distribution in

other key markets (Europe, US,

Brazil)

Long-term contract shipping terminal

29

Summary: The EuroChem Story

Growth 2.1% of the world’s nutrient capacity today

Earnings power Sustained competitiveness in N and P in Western Hemisphere

3.0% by 2020

Benefits from iron ore as a co-product of apatite mining

Future global cost leadership in K

Manageable

Risks

Potash construction (mines)

Natural gas cost differential between Russia and Europe/US

Close to zero free cash flow in 2011-2013 on heavy capex

30

THANK YOU

[email protected]

www.eurochem.ru

http://www.eurochem.ru



introducing eurochem · 2016. 6. 24. · introducing eurochem november 30 - december 2, 2010 2010...

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