* Says current potash price is “comfortable”
* Says the start of potash mines to make IPO possible
* Says 2013 EBITDA to decline due to weaker demand
By Victoria Andreeva
MOSCOW, Oct 23 (Reuters) - Russia’s EuroChem, one of the world’s top 10 mineral fertiliser producers, will push ahead with plans to develop potash mines in Russia but might shelve other projects if it needs to reduce debt, its chief financial officer Andrey Ilyin said.
EuroChem, controlled by businessman Andrey Melnichenko, is investing heavily in development projects in a bid to become a global player despite fertiliser markets being weak and fears of a future global glut of the soil nutrient potash.
“We have several hundred projects, which together amount to an investment programme of about $1 billion per year,” Ilyin told Reuters. This could be cut to between $150 million and $200 million in case cash flow reaches critical level, he added.
EuroChem, whose total debt is now $3.5 billion, has a $4.5-billion investment programme for the next five years. It raised $1.3 billion to refinance debt in August and has a net debt/EBITDA ratio at between 2.0 and 2.5 now, according to Ilyin.
He declined to say which projects could be put on hold. EuroChem plans to make a final decision on its $1.5 billion project to build an ammonia and urea plant in the United States next year.
The company is sticking to plans to start production at two potash mines in Russia around 2017, he said. The mines are together expected to reach full output capacity of 8.3 million tonnes of potash by 2022.
These mines will diversify the company from its current portfolio of nitrogen and phosphate fertilisers and will open the way for a possible initial public offering (IPO) of up to 25 percent of its shares not earlier than in 2017, Ilyin said.
Russia’s Uralkali, the world’s largest potash miner, rocked the industry when it abandoned an export cartel with Belaruskali in July, seeking to maximise sales volumes. Since then, global potash prices decreased and may fall further this year, according to Uralkali.
“The possibility of potash capacity surplus is a risk which we analyse all the time,” Ilyin said. “But the main condition of the project, that we receive enough return on equity, continues even (when it is tested) at stressed levels.”
Mining giant BHP Billiton mapped out a cautious approach to expanding into potash in August, keeping a $14 billion Canadian project alive but delaying production at the giant deposit until at least 2020.
EuroChem sees the current potash price of around $300 per tonne on Chinese market on a CIF (cost, insurance and freight) basis as “comfortable”, Ilyin said. The company uses a potash price forecast of around $350 per tonne, he added.
The company expects its 2013 earnings before interest, taxation, depreciation and amortisation (EBITDA) to decline from 49 billion roubles ($1.6 billion) a year ago as the sector was hit by weaker demand from key buyers, grain price decreases and the potash row between Russia and Belarus.
A potential core earnings increase in 2014 is in doubt due to new capacity in China which is expected to start in 2014 and 2015, Ilyin said.