eurochem-annual-report-2011

Area
Ref.
code Nature Description Strategic response How do we measure up?
K1 Technical Delays in the launch of potash production due to Involvement of experienced mining sub-contractors. Despite delays at the Gremyachinskoe cage shaft
various issues surrounding logistics, geological Constant monitoring of project management systems and the acceleration of the skip shaft #2 sinking,
conditions, shaft sinking and ore extraction and controls.
overall capex spending remains as planned. More
operations.
Insurance taken out for shafts.
details on potash are available on page 44 of this
report.
K4 Potash prices Decline in price for potash fertilizers may result Achieve the lowest cost-delivered-to-market globally Launched Tuapse transhipment terminal.
in sub-optimal returns from the potash project. Increase own consumption of K by raising NPK We estimate the break-even potash price for our
capacity. Secure own logistics and shipping VolgaKaliy project to be substantially lower than the
channels.
current USD 480/tonne FOB Baltic.
Average FOB Baltic spot potash prices were
USD 445/MT in 2011 (USD 473/MT over the last
five years).
N1 Gas cost Differential in natural gas cost between Russian Own natural gas production/buying gas producer. The purchase of Severneft-Urengoy potentially
increase and European/US producers is decreasing. Deep modernisation of ammonia production, provides EuroChem with 25% of its annual natural
improving ammonia gas efficiency.
gas requirements at lower price.
Launch production of higher-value-added and Launch of Russia’s first melamine production line
premium products (LDAN, NPK, AdBlue).
in March 2012.
Investments in nitrogen fertilizer capacity
See prilled urea delivered to Brazil/Europe cost
in regions of lower gas costs (Saudi Arabia,
North Africa).
advantages on page 54 of this report.
N2 Technical Technical/operational risks relating to the age and Full insurance coverage, including business 2011 capacity utilization at Novomoskovskiy Azot
depreciation of equipment.
interruptions.
and Nevinnomysskiy Azot was 96% and 91%
Unplanned stoppages cam significantly affect cash
flows.
respectively.
N3 New supply New supply from low gas cost areas may cause Cost reduction, modernisation and efficiency As illustrated on page 38, Nevinnomysskiy
unfavourable shift in EuroChem’s position on global of nitrogen production.
Azot and Novomoskovskiy Azot remain comfortably
cost curve.
positioned on the global cost curve.
P1 Iron ore Iron ore price levels are largely a factor of Chinese Adjust debt levels for potential volatility in
Each 10 USD/tonne change in iron ore
economic; risk to EuroChem cash flows.
iron-ore-related cash flows; review hedging CFR China price translated into a USD 17m change
on ongoing basis.
in EBITDA in the nearest quarter and up to USD 40m
in the nearest 12 months
Own vessels for freight and use of Northern Sea
Route to cut transportation costs.
P2 New and more New supply from low cost areas (e.g. Saudi Arabia, Tight cost control; added flexibility at production Our Lifosa and Phosphorit facilities are among
efficient Morocco) may cause unfavourable shift in
plants; increase NPK production in line with own the lowest cost producers globally as illustrated
capacity EuroChem’s position on global cost curve.
potash ramp-up; increase foothold in the domestic
and CIS markets.
Target reductions in logistics costs.
on page 42.
P3 Deficit of own Reliance on third-party supplies may result in margin Increase phosphate rock resource base with We are 80% self-sufficient in phosphate rock.
phosphate rock pressure as a result of our exposure to rising Kazakhstan operations; decrease rock consumption The start of mining at our Kazakhstan operations
phosphate rock prices or its limited availability. by switching to NPK from MAP/DAP at phosphate is expected to gradually take us closer to full
plants; increase phosphate rock storage capacity;
alternate supply options.
self-sufficiency.
L1 Bottlenecks/ Limited fertilizer transhipment capacity in Russia. Build and operate own port terminals and
With our investments in logistics infrastructure,
increasing Growth in the cost of rail and port services. transhipment capacity (Tuapse, Ust Luga); EuroChem’s own or long-term-contracted
costs Limited warehousing capacity within port
warehousing and storage facilities, acquisition transhipment capacity covers 82% of our needs,
infrastructure.
of rolling stock and vessels.
while our wholly-owned 7,000 rail cars and 45
locomotives represent 85% of our total rolling
stock requirements.
E1 Environmental/ Nature of production coupled with age of certain Measure and monitor environmental footprint and Since 2004:
reputational assets dictate additional environmental precautions public perception.
Effluent discharge: -41%
and investments. Reputational risks.
Commit funds to reduce the environmental impact Non-recycled water usage: -28%
of operations.
Emissions: -16%
Rapid response to environmental emergencies – Energy consumption: -11%
real and alleged.
See page 59 for additional information on our
Policy of openness to the public.
environmental investments.
F1 Cash flow/debt EuroChem may not be able to cover all its planned Maintain maximum readiness to tap all possible 2011: operating CF/capex = 1.51.
capacity investments from operating cash flows and new sources of debt and/or equity finance; extend debt Over the next five years, capex is not expected
shortage debt.
maturity profile, implement effective hedging to exceed operating cash flows under base case
strategy, IPO, study of alternative funding options,
review financial covenants, strategic partner, and
project financing.
scenario.
Potash
Nitrogen
Phosphate
Logistics
Environment
Financial
Annual Report and Accounts 2011 EuroChem 65
Business review