Uralkali Billionaire Says Potash Price Should Rise by $80 a Ton

30.11.2010 | Bloomberg

Alexander Nesis, the billionaire co-owner of Russian fertilizer maker OAO Uralkali, said potash prices should rise by $80 a ton as producers need to develop mines to meet increased demand.

Nesis, the founder of gold mining company OAO Polymetal, became a partner of billionaire Suleiman Kerimov in acquiring control over Uralkali in June. He was elected to the board in September. Nesis commented in an interview.

I consider potash to be a very promising market. Its also a business with limited number of players.

After the 2008 financial crisis, the potash price slid to a level that makes it possible to pay back investments in so- called brownfield projects.

The price should reflect investment payback on developing greenfield potash mines. Rough calculations based on figures from companies working in Saskatchewan show that this level is about $80 a metric ton higher than to pay back brownfield projects. This price upside and possibility of cutting costs will be the drivers for investments in Uralkali.

Uralkalis board hasnt discussed any possible merger with OAO Silvinit. Both companies have the potential to increase production at their existing mines.

Silvinits Polovodovsky project looks preferable to Uralkalis Ust Yaivin from a geological standpoint, while Ust Yaivin is at a more advanced stage of feasibility study.

In the early 1990s, the worlds potash market was balanced with about 45 million metric tons being traded globally. After the collapse of the USSR, ex-Soviet producers Belaruskali, Uralkali and Silvinit fled to the international market, seeking to earn hard currency.

With aggregate capacity to produce 15 million tons of potash annually, they damped global prices to the level of operating expenses. This discouraged investments in the industry for a decade. Only by 2004 the growing market has absorbed all excess supply volumes, and the price started growing rapidly.

Source:  Bloomberg

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