Uralkali spending $5.8B to boost capacity by 80%

Brownfield projects include 1.5 million tonnes of additional capacity at Berezniki 4, increased efficiencies and removal of bottlenecks at Berezniki-2 and 3, as well as Solikamsk-2 and -3, adding a million tonnes in total, and a two-phase expansion program at Solikamsk-3, increasing its capacity by 2 million tonnes.

Greenfield projects at Ust-Yayvinsky and Polovodovsky will add another 5.3 million tonnes of capacity.

The largest expenditure will go towards the Polovodsky project, at $2.4, billion, followed by the Ust-Yayvinsky mine which will see an expenditure of $1.6 billion. The Solikamsk-3 mine will receive $1 billion.

Uralkali said it expects to finance the expansions through a combination of anticipated free cash flow and loan facilities.

“This program represents an important milestone for Uralkali post the successful combination with Silvinit which will allow us to nearly double our production capacity over the next decade and secure our leadership position,” said CEO Vladislav Baumgertner.

Uralkali surpassed Saskatchewan Potash Corp. (TSE:POT) this year as the largest producer of fertilizer by output after acquiring OAO Silvinit, a competitor, in May.

Full news release below:

Uralkali (LSE: URKA), one of the world’s largest potash producers, announces an extensive strategic investment programme. This programme, demonstrating the Company’s continuing confidence in underlying potash market dynamics, provides for the implementation of a cost effective expansion through both greenfield and brownfield development which anticipates an increase in production capacity by about 80 per cent to 19 million tonnes by 2021.

The programme includes both brownfield andgreenfieldexpansion. As Uralkali has already announced, following the combination with Silvinit, the enlarged Uralkali portfolio benefits from substantial brownfield capacity which provides the company with the ability to add, in aggregate, 4.5 million tonnes of capacity at a highly attractive cost. These brownfield projects include 1.5 million tonnes of additional capacity at Berezniki 4, efficiency increase and debottlenecking at Berezniki-2 and 3, as well as Solikamsk-2 and -3 which will add 1.0 million tonnes in total, and a two-phase expansion programme at Solikamsk-3 increasing its capacity by 2.0 million tonnes.

In addition, the Company believes that the combination of positive factors impacting potash market dynamics over the next ten years provides the opportunity for the Company to move forward with the development of both the Ust-Yayvinsky and Polovodovsky greenfieldprojects which will provide the company with additional capacity of 5.3 million tonnes ¹.

Total investment in Uralkali’s expansion programme will amount to USD 5.8 billion by 2021 including USD 0.7 billion for Berezniki-4 expansion, USD 0.2 billion for efficiency increase and debottlenecking programme, USD 1.0 billion for Solikamsk-3 expansion, USD 1.6 billion for the Ust-Yayvinsky project, and USD 2.4 billion for the Polovodovsky project.

The weighted average cost of the brownfield and greenfield expansion programme will amount to approximately USD 420 per tonne and approximately USD 750 per tonne of additional capacity respectively, which the company believes being the most cost effective in the potash industry. The newgreenfieldprojects are located in the immediate vicinity to Uralkali’s current operations which benefit from attractive geology, allows the company to use the existing infrastructure and leverage existing mining expertise. Uralkali’s mines are situated at moderate depth with potash containing seams developed at the level of 300-450 metres below the ground.

Uralkali expects to finance the strategic investment programme through a combination of anticipated free cash flow and loan facilities, in line with the previously announced medium term goal of keeping net debt to a range of 1.0x – 2.0x LTM EBITDA.

Vladislav Baumgertner, Uralkali CEO:

“The adoption of a carefully structured development programme is integral to the ability of the Company to fulfill its growth potential in the context of attractive market dynamics. This programme represents an important milestone for Uralkali post the successful combination with Silvinit which will allow us to nearly double our production capacity over the next decade and secure our leadership position. Our long-term growth strategy aims to satisfy the constantly growing demand for potash, better serve our customers and increase value for our stakeholders. With our unrivaled expansion programme we offer the fastest and most cost-effective solution to exploit the market opportunity as our brownfield andgreenfieldprojects are, we believe, substantially less expensive than the industry average. Moreover, our long-term commitment to a socially responsible development strategy ensures financial and social prosperity for our employees, local community and in general the region where we operate”.

For more details on Uralkali’s expansion programme see www.uralkali.com/expansion_programme/.

This announcement is not intended to, and does not constitute, or form part of, an offer to sell or an invitation to purchase, exchange or subscribe for any securities in any jurisdiction. This announcement does not constitute a prospectus or a prospectus equivalent document.

The release, publication or distribution of this announcement in jurisdictions other than the United Kingdom may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements. This announcement has been prepared for the purposes of complying with English law and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of England.