EuroChem H1 2012 IFRS results conference call Thursday, August 16, - - PowerPoint PPT Presentation

EuroChem H1 2012 IFRS results conference call

Thursday, August 16, 2012

18:00 MSK / 15:00 GMT / 10:00 EST. UK: +44 844 800 3849 / Toll Free 0800 169 0968 North America: +1 7183541176 / Toll Free 18662977327 Russia: +7 495 9810871 / Toll Free 81080024021044 Conference ID: 804 359# Replay available through August 23, 2012. UK + 44 (0) 207 136 9233/ Toll Free 0800 032 9687 Access Code: 62119081

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

• bligation 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

• n 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.

H1 2012 Group Performance Summary Potash Segment Phosphate Segment Summary Overview Nitrogen Segment

Summary

EuroChem today

• 3 Nitrogen plants (2 in Russia, 1 in Europe) - 2.7 MMT1 of

ammonia and c.10 MMT of fertilizer product capacity

• 3 Phosphate plants (2 in Russia and 1 in Lithuania) - 2.0

MMT of MAP/DAP

• Apatite (Russia) - P2O5-rich (37%-38%) and low MER2 content

(0.057) apatite ore (2.7 MMT per year) covers c.75% of own production needs at the 3 phosphate plants and Antwerp.

• Iron ore as a co product of apatite mining : up to 5.7 MMT
• f iron ore (Fe content 64%)
• Construction of own Potash (K) capacity is well underway

(targeted capacity of c.8 MMT of KCl per year)

• Vertical integration: own raw materials, port terminals, rail stock,

construction/repair works, distribution in CIS

• Strong operational track record; all EuroChem production facilities

are OHSAS-8001, ISO 14001 and ISO 9001 certified

• Total employees of >20,000
• Natural gas operator (Russia) - 1.1bn m3 of annual capacity (c.25% of

EuroChem’s annual consumption)

• Logistics in Russia - 3 port facilities, Panamax /Handymax vessels,

and own rail facilities (c. 7,000 rail stock; 45 locomotives)

4

Vertically integrated production

• Privately owned by Andrey Melnichenko (92%) and CEO Dmitry

Strezhnev (8%)

Summary

Latest market developments

5

• U.S : Strong farmer economics and favorable spring weather

drive record acreage; farmers choose corn over soybean and wheat.

• Worst drought in over 50 years threatens U.S. 2012 crop
• CIS and South American crop also taking weather related hits
• South American market resilient throughout the first half on

solid soybean acreage

• Indian subsidy system and currency devaluation felt globally

throughout the fertilizer sector

• Limited Chinese exports from lower-tax window
• Soft iron ore demand coming out of winter

$80 $180 $280 $380 $480 $580 $680 $780

MAP (FOB Baltic) DAP (FOB Baltic) Sulphur (FOB Black Sea, spot) Phosphate rock (FOB Morocco)

$0 $100 $200 $300 $400 $500 $600 $700

Prilled urea (FOB Yuzhniy) Ammonia (FOB Yuzhniy) AN (FOB Black Sea) UAN (FOB Black Sea)

$110 $120 $130 $140 $150 $160 $170 $180 $190 $200

Iron ore (CFR China, 63.5%)

H1 2012 Group Performance Summary Potash Segment Phosphate Segment Summary Overview Nitrogen Segment

Group Performance

Russia 24% (-3) Europe 21% (+5) Asia 17% (+2) Latin America 16% (-) North America 10% (+2) CIS 9% (-5) Africa 2% (-1) Australasia 1% (-)

Key Figures

H1 2012 H1 2011 Y-o-Y Change (H1) FY 2011 Y-o-Y Change (FY) Sales volumes Nitrogen*

KMT

3,388 2,928 +16% 5,647

• Phosphate (excl. iron
• re and baddeleyite)

KMT

1,382 1,254 +10% 2,387

• 1%

Iron ore and baddeleyite KMT 2,791 2,755 +1% 5,480

• 11%

Revenue

RUBm

77,677 62,085 +25% 131,298 +34% Gross margin

%

46% 51%

• 5 p.p.

52% +3 p.p. EBITDA

RUBm

27,216 23,426 +16% 49,656 +66% EBITDA margin

%

35% 38%

• 3 p.p.

38% +7 p.p. Net profit

RUBm

16,687 20,883

• 20%

32,031 +60% 7

*Nitrogen includes organic synthesis products, hydrocarbons, and volumes produced by EuroChem Antwerpen.

Performance Overview

EuroChem Antwerpen Q2 contribution to Group: Revenues: RUB 4.8bn EBITDA: RUB 0.8bn Sales volumes: 408 MMT, mainly comprising 176 MMT of NPK including specialty grades, and 224 MMT of straight-N fertilizers (CAN and AN)

Sales by Segment (H1 2012)

Nitrogen 45% (+6) Phosphates 41% (-6) Distribution 11% (-1) Others 3% (+1)

Sales by Region (H1 2012)

(in brackets – change in percentage points relative to H1 2011)

Group Performance

27,216 22,087 24,065

5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000

H1 2012 EBITDA Taxation Working capital Other Operating cash flow CAPEX Equity investments Aquisitions Other H1 2012 Free Cash Flow

H1 2012 Free Cash Flow Reconciliation

8

Cash flow profile

+20,356

(12,356)

Sale of K+S AG shares See slide 11 Effective tax rate = 20% See slides 16-18

+17,231 : net changed in fixed-term deposits +5,177 : changes in originated loans +876 : interest received +145 : dividend received (62) : other (3,832) (22) (1,275) +20,356 (29,839) +23,367

Group Performance

9 H1 2012 H1 2011 EBITDA (RUBm) 27, 27,216 216 23,426 Depreciation and amortisation (3,417) (2,150) Idle property, plant and equipment write-off (128) (18) Write-off of advances to construction company (495)

• Gains on available-for-sale investments

568 914 Financial fx loss - net (349) 2,588 Interest expense (2,126) (1,174) Other financial income/(loss) - net (409) 1,730 Non-controlling interest (3) (2) Income tax expense (4,170) (4,432) Net profit (RUBm) 16, 16,687 687 20,883

Reconciliation of EBITDA to Net Profit

RUB/USD volatility impacting predominantly USD denominated financial debt Sale of K+S AG shares Re-evaluation of forward contracts (unrealized losses) VolgaKaliy cementation sinking contract with a South African contractor

Group Performance

*Including current portion of restricted cash

Key debt metrics, RUBm Debt maturity profile, US$m Comment

10

H1 2012 RUB Original currency Сlub loan facility (PXF) 42,248 USD 1,300 Sberbank 19,932 USD 333,3 Bank loans 14,823 USD 75 USD 15 Ruble bonds 9,967 ECA-backed facilities 4,108 USD 109.5 EUR 35.9 Gross debt 91,078 Less: cash and cash equivalents* and fixed- term deposits 21,990 Net debt 69,088

Debt

• Debt / LTM EBITDA : 1.23x
• Weighted average cost of debt in dollar terms : ca 2.6%
• Comfortable debt structure and maturity profile, remote refinancing

risk

• September 2011, the Group signed a RUB 20bn 5-year loan

agreement with Sberbank

• financing opportunities:
• RUB / USD bonds
• Bi-lateral credit lines
• Pre-export facility
• ECA-backed facilities
• Project financing options

107 288 693 1,261 563 76

200 400 600 800 1,000 1,200 1,400

2H 12 2013 2014 2015 2016 2017-2023

USDm

PXF Rouble bonds ECA Margin loans Sberbank

Net debt / LTM EBITDA : 1.23x

Group Performance

0.79 1.32 0.65 0.14 0.89 0.48 0.94 0.30 4.16 5.84 1.51 2.65 3.20 3.21 2.69 3.09 2.89 2.00 1.05 1.84 1.71 1.80 0.86 1.13 2.01 3.20 0.64 1.37 0.99 1.68 1.31 1.87

9.85 12.36 3.85 6.00 6.79 7.17 5.79 6.39

H1 11 H1 12 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12

RUB bn

• Melamine at Nevinnomysskiy (launched Q2 12)
• Urea revamp at Nevinnomysskiy
• Granulated urea at Novomoskovskiy
• Environmental monitoring stations and wastewater

treatment programs at Russian N facilities

• Revamp/upgrade of plants to increase efficiency
• Rebuild sulphuric acid production with capacity increase

by 720 KMTp.a.

• Reconstruction of phosphate acid production with

capacity increase by 300 KMTp.a.

• Upgrade of Kovdorskiy wastewater treatment facility
• Revamp/upgrade of P facilities to improve efficiency
• Kazakhstan phosphate rock project
• Shaft sinking at Gremyachinskoe (phases I & II) and

Verkhnekamskoe (phase I)

• Start of beneficiation plant construction at

Gremyachinskoe

• Tuapse
• Panamax and Handymax vessels

Main Projects

P N K O

Capital expenditure

N P K O

Nitrogen Phosphate Potash Other 11

H1 2012 Group Performance Summary Potash Segment Phosphate Segment Summary Overview Nitrogen Segment

Nitrogen

Kovdor Kingisepp Kedaynyay Moscow Novomoskovsk Perm Volgograd Murmansk Tuapse Sillamae Belorechensk Ust-Luga Nevinnomyssk

Capacity by product Natural gas 1,1bn m3 Gas condensate 220 KT Proven and probable reserves Natural gas 50bn m3 Oil 32 MT Capacity by product 2012 AN / CAN 1,025 NPK 1,250

Antwerp Taraz

13

Urengoy

Capacity by product 2012 Ammonia 1,670 Urea 1,480 Ammonium Nitrate 1,290 UAN 427 CAN 420 Capacity by product 2012 Ammonia 1,160 Urea 890 Ammonium Nitrate 1,420 UAN 1,022 NPK 460 Melamine 50

EuroChem Antwerpen Novomoskovskiy Azot Severneft Urengoy Nevinnomysskiy Azot N N N N

T T T T M P P P N N N K K M N

Vertically integrated producer

All capacity volumes are expressed in thousands of tonnes, except where otherwise specified

Nitrogen

40.7 29.5 23.6 17.1 17.0 16.6 14.3 H1 12 H1 11 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11

EBITDA margin Revenue1, RUBbn

39% 37% 42% 36% 42% 45% 35% H1 12 H1 11 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11

Sales1 by region (H1 2012) Sales1 by product (H1 2012)

H1 12 Share (%) Change to H1 11 (PP)

• 1. Russia/CIS

35%

• 5
• 2. Europe

19% +3

• 3. Lat.Am.

19%

• 5
• 4. N.Am.

14% +5

• 5. Asia

7%

• 6. Africa

3%

• 7. Australasia

3% +2

1 2 3 4 5 6 7

H1 12 Share (%) Change to H1 11 (PP)

• 1. Urea

37%

• 2. AN

20%

• 1
• 3. Complex

13% +5

• 4. UAN

7%

• 3
• 5. CAN

6% +2

• 6. Methanol

4%

• 1
• 7. Ammonia

2%

• 3
• 8. Acetic Acid

2%

• 1
• 9. Hydrocarbons

2% +2

1 2 3 4 5 6 7 8 9 10

Performance

14

Nitrogen includes organic synthesis products, hydrocarbons, and volumes produced by EuroChem Antwerpen.

Nitrogen

15.3 11.0 9.2 6.1 7.1 7.4 5.1 6.0

1.7 2.0 0.8 1.0 1.0 0.8 0.9 1.2 1.6 1.8 0.3 1.3 0.4 0.7 0.4 1.4

18.6 14.9 10.2 8.4 8.5 8.9 6.4 8.5

H1 12 H1 11 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11

EuroChem Agro (KSN) EuroChem Antwerpen (BASF) EuroChem (ex BASF/KSN)

15

Pro forma impact of acquisitions on N segment EBITDA (RUBbn)

Performance breakdown

Nitrogen - recent acquisitions

Severneft Urengoy – “back integration” into natural gas(1/2)

Date closed: 20 January 2012 Price paid:

• ca. USD 400 million for 100% cash-free, debt-free

Valuation: EV / EBITDA 2013 of 4.0-4.4x Rationale: partial hedge against rising gas prices in Russia for up to 25% of total gas needs. Synthetic 2013 gas price at Novomoskovsk of c. USD 1.6/mmBtu (vs. USD 3.6 cost today) on the volume

• supplied. IRR on base case gas price scenario (2016: USD

4.6/mmBtu) of 15-17% Synergies: EuroChem’s ability to negotiate better price terms with Gazprom (effectively selling to Novomoskovskiy Azot at regulated domestic gas price while paying only a transportation fee to Gazprom) results in a higher asset value Capex 2012: USD 60-70 million Integration costs: not material

LLC Severneft-Urengoy: Asset Profile

• Set up on the basis of assets of LLC Severneft by its

previous private owners (founders of the company)

• Holds license for Zapando-Yarokhvinskiy deposit area in

the Urengoy region

• New and high-quality installation (constructed in 2000-03)
• Reserves (C1 and C2 categories):
• gas ca.50bn m3
• condensate ca. 8 MMT
• il ca. 150 MMT
• Production at the time of purchase:
• Gas: 0.6bn m3 pa
• Gas condensate: 0.12 MMT pa
• Planned run-rate production by November 2012:
• Gas: 1.1bn m3 pa
• Gas condensate: 0.22 MMT pa
• Total staff: around 400
• Connection to gas main
• From 1 Jul 2012: part of the gas produced by SNU (above

0.6bn m3 pa production level) sold to Novomoskovsk less transport fee

• Planned from 1 Jan 2013: all gas produced by SNU sold to

Novomoskovsk less transport fee

Severneft-Urengoy (SNU)

IRR sensitivity to gas and condensate sales prices at SNU Gas price in 2016, USD/1,000m3 110 130 150 170 Condensate price in 2016, USD/MT 360

11.42% 12.98% 14.63% 16.34%

380

12.46% 14.02% 15.68% 17.48%

400

13.48% 15.08% 16.77% 18.60%

420

14.48% 16.07% 17.79% 19.65%

440

15.45% 17.07% 18.80% 20.69%

16

Expected

• utcome

Nitrogen - recent acquisitions

17

Severneft Urengoy – “back integration” into natural gas (2/2)

Severneft-Urengoy (SNU) / Novomoskovskiy Principles applied to gas assets by EuroChem Long-term goals Cost benefits

• Upstream part of Nitrogen; not a separate business
• Same gas pricing assumptions applied to Nitrogen and Gas

internally

• Stand-alone IRRs for gas need to be > IRRs of other projects
• Current gas cost at Novomoskovskiy: $3.55 /mmBtu*
• Could rise to over $4.5 /mmBtu by 2016

Benefits from SNU acquisition - assuming production of 1.1bn m3 of gas and 220 KMT of gas condensate :

Cost of gas at the well: $1.25 + mineral resource extraction taxes: $1.01** + transportation cost to Novomoskovskiy: $1.31

• revenue from gas condensate: ($2.02)

Delivered cost to Novomoskovskiy: $1.55

** Includes announced mineral resources extraction tax (MET) increase to RUB1,049/1,000m3 from 2015 (calculated using USD/RUB 32.0; 1,000m3 to mmBtu conversion: 32.34)

Agreement with Gazprom on gas transportation from SNU to Novomoskovskiy Azot was reached in 2012

(per mmBtu)

• Seek to fully cover the needs of Nitrogen production through
• wn gas production or long-term contracts with attractive

pricing

• Ability to secure 5-10bn m3 per year of in-house natural gas

capacity is being explored

* RUB 3,676.3 per 1000m3 from 1 July 2012 Total gas consumption pa: 2.6bn m3

Nitrogen - recent acquisitions

EuroChem Antwerpen and EuroChem Agro

Date closed: 31 March 2012 Price paid:

• ca. EUR 832 million 100% cash-free, debt-free.

Valuation: Needs to be looked at in conjunction with the acquisition of K+S Nitrogen (now EuroChem Agro), see below. Rationale: access to European specialty customer base and production (incl. K+S Nitrogen): technology, know-how and intellectual property (fertilizers with inhibitors; Nitrophoska brand). Disadvantages on raw materials costs mostly offset by superior logistics. Future integration into EuroChem’s raw materials chain (phosphate rock, potash and ammonia). Ability to sell specialty products in CIS in the future. In addition, price paid includes the right to distribute over 1 MMT pa of AS/ASN produced by BASF for a commission from 2014 Capex 2012:

• ca. EUR 15 million

Integration costs: up to EUR 5 million

EuroChem Antwerpen: Brief Profile

• Assets acquired include NPK and AN/CAN production, 3 nitric acid

shops, nitrophosphoric acid production and logistics complex including storage (ca. 275 KMT).

• NPK: 1.3 MMT p.a.
• AN/CAN: 1.0 MMT p.a.
• NPK built in 1967; with AN/CAN added in 1980 and nitric acid - in

1980-1990

• Can produce up to 35 grades of NPK
• For comparison: Russian producers – max 3-5 grades
• Ammonia is supplied by both BASF (200 KMT pa) at market price

less a small discount, and EuroChem (400 KMT pa). EuroChem sources ammonia from the market.

• Fixed costs of EuroChem Antwerpen: EUR 85-90m per year (40

EUR per tonne on full capacity load). For comparison:

• Lifosa: EUR 45 per tonne
• Phosphorit: EUR 70 per tonne
• BMU: EUR 80 per tonne

EuroChem Antwerpen (formerly BASF’s fertilizer assets)

18

Date closed: 2 July 2012 Price paid:

• ca. EUR 200 million 100% cash-free, debt-free including EUR 105 million
• f net working capital at cost. Full payment to Seller made in July.

Capex 2012: not material Integration costs: included in up to EUR 5 million for EuroChem Antwerpen

EuroChem Agro (formerly K+S Nitrogen)

EuroChem Agro: Brief Profile

• Assets acquired include exclusive distribution rights for all fertlizers

produced by EuroChem Antwerpen until end of 2014, distribution contracts for other up to 2.0 MMT p.a. of fertilizers (mostly AS and ASN), as well as brands (eg. Nitrophoska) and patents/licenses (eg. ENTEC, UTEC) allowing to produce and sell fertilizers with enhanced performance characteristics.

• Sales force in 10 countries. Deep knowledge of the market and

large diversified customer base (over 400)

• Commodity / specialty products: 60%-40% by sales; 40%-60% by

contribution

• Sales to Europe: approx. 75% of total by value

Synergies: potentially up to USD 50m (EUR 40m) per year starting 2014. Origins: savings on costs of raw materials, logistics costs, application

• f intellectual property to EuroChem’s products, G&A costs.

Long term: supply of owns phosphate rock, ammonia and potash.

***

H1 2012 Group Performance Summary Potash Segment Phosphate Segment Summary Overview Nitrogen Segment

Phosphate

Kovdor Kingisepp Kedaynyay Moscow Novomoskovsk Perm Volgograd Murmansk Tuapse Sillamae

Lifosa Phosphorit EuroChem-BMU

Belorechensk Ust-Luga

Capacity by product 2012 Iron ore 5,700 Apatite (37-38% P2O5) 2,700 Baddeleyite 10 Capacity by product 2012 DAP 990 Feed phosphates 160

All capacity volumes are expressed in thousands of tonnes, except where otherwise specified Nevinnomyssk

EuroChem-Kazakhstan

Antwerp Taraz

20

Urengoy

Capacity by product 2012 MAP, DAP 775 Feed phosphates 220 Capacity by product 2012 MAP, NP 590 Planned Capacity Phase I, phosphate rock 30% P2O5 1,500 Reserves, MMT of P2O5 515

P Kovdorskiy GOK P P M M

T T T T M P P P N N N K K M N

Vertically integrated producer

T Port terminals

20

Phosphate

Segment performance

EBITDA margin

The phosphate segment includes iron ore and baddeleyite (co-products of apatite production)

Sales1 by region (H1 2012) Sales1 by product (H1 2012) Revenue, RUBbn

1 2 3 4 5 6 1 2 3 4 5 6 7 21 34.2 31.0 16.5 17.8 14.9 18.0 15.7 H1 12 H1 11 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11 28% 38% 33% 24% 34% 40% 40% H1 12 H1 11 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11

H1 12 Share (%) Change to H1 11 (PP)

• 1. Asia

30% +6

• 2. Europe

26% +7

• 3. Russia/CIS

26%

• 12
• 4. Lat. Am.

13% +4

• 5. N. America

3%

• 5
• 6. Africa

2%

• H1 12

Share (%) Change to H1 11 (PP)

• 1. MAP/DAP

53%

• 2. Iron ore

30%

• 2
• 3. Feed

7%

• 4. NP

4% +2

• 5. Others

3%

• 6. Apatite

2%

• 7. Baddeleyite

1%

• 21

Phosphate

22

• EuroChem possesses licenses for three phosphate

deposits in South Kazakhstan

• A+B+C1 reserves = 515 MMT
• Mineable through open pit = up to 32.5 MMT
• 25-30% P2O5
• MgO < 2.5%
• Potential local 25% partner has a license for an adjacent

phosphate deposit

• A+B+C1 reserves = 323 MMT
• Mineable through open pit = up to 29 MMT
• 23-27% P2O5
• Other features:
• Customs union with Russia
• Railway: East (China) and West (Russia)
• Abundant local sulphur at refineries
• Competitive natural gas
• Undeveloped local Central Asian market

Project Kazakhstan

E 2012 E 2013 E 2014

CAPEX* (USDm) 55 72 83 Production (KMT/pa)

• 226

690

*including infrastructure

H1 2012 Group Performance Summary Potash Segment Phosphate Segment Summary Overview Nitrogen Segment

Potash

Kovdor Kingisepp Kedaynyay Moscow Novomoskovsk Perm Volgograd Murmansk Tuapse Sillamae Belorechensk Ust-Luga

Planned Capacity Phase I 2,000 Phase II 3,400 Proven and probable reserves MMT KCl (JORC) 420

All capacity volumes are expressed in thousands of tonnes, except where otherwise specified Nevinnomyssk

VolgaKaliy Usolskiy Potash

Antwerp Taraz

24

Urengoy

Planned Capacity Phase I 2,300 Phase II 4,600 Proven and probable reserves MMT KCl (JORC) 492

K K

T T T T M P P P N N N K K M N

Future potash cost leader

24 ~1,600km ~500km

Tuapse Terminal

Transhipment capacity Fertilizers 2.3 MMT

T

Potash

25

VolgaKaliy K

25

Usolskiy K

China APC ICL (EU) Uralkali Belaruskali PCS Agrium ICL (DSW)

• 50

100 150 200 250 300 350

• 50

100 150 200 250 300 350 7 14 21 28 35 42 49 56 63 70 77 84 91 Potash cost on DDP basis, $/t Global potash capacity, KCl MMT

Potash global cost curve in 2017 (KCl, MMT)

Site Cost Delivery to port Export duty Freight Capacity additions

Mosaic SQM K+S Other USA Others

Mosaic PCS China Uralkali Agrium K+S Belaruskali potential consumption 64 MMT (KCl) potential production 67 MMT (KCl)

Future potash cost leader

Key development projects

Phase I

• Capacity of 2.3 MMT p.a., involves the construction of social infrastructure,

cage shaft (C), skip shaft #1 (S1) and processing facility.

• Total investments: USD 2,415m

Phase II:

• Additional capacity of 2.3 MMT p.a., involves the construction of skip shaft

(S2) and expansion of processing facility.

• Total investments: USD 1,368m
• JORC proven and probable reserves: 492 MMT (39.5% KCl

content)

• JORC useful life of mine: 58 years

26

Status (13-AUG-12)

Potash: VolgaKaliy (Volgograd)

S2 S1 C

• 572m
• 100m

VolgaKaliy SWOT analysis Development

Strengths

• Vast reserves
• High nutrient content averaging 39.5% KCl
• Industry estimates rank VolgaKaliy as global

leader on the cash cost delivered to key markets curve

• Close proximity to own transhipment terminal

(Tuapse) approximately 500km away on the Black Sea

• Flat potash layer protected by up to 300m

salt layer Weaknesses

• Limited in-house experience in mining and

lack of potash greenfield mine construction know-how in the global market may lead to higher costs due to the need to engage sub- contractors for planning and construction of mines and processing facilities

• Limited employee/social infrastructure

Opportunities

• Become one of the leading players (Group

capacity of over 8 MMT pa)

• Use advanced technology for shaft sinking

and enrichment, resulting in lower cash cost per tonne of production Threats

• Prolonged, significantly worse-than-expected

market conditions could negatively affect EuroChem’s ability to continue financing these investment projects

• Significant risks involved in sinking shafts to

1,200 meters below surface

• Capacity additions resulting in oversupply in

the industry

Key development projects

S2 S1 C

• 300m
• 190m

Phase I

• Capacity of 2.3 MMT p.a., involves the construction of social infrastructure,

cage shaft (C), skip shaft #1 (S1) and processing facility.

• Total investments: USD 2,129m

Phase II:

• Additional capacity of 1.4 MMT p.a., involves the construction of skip shaft

(S2) and expansion of processing facility.

• Total investments: USD 721m
• JORC proven and probable reserves: 420 MMT (30.8% KCl

content)

• JORC useful life of mine: 37 years

27

Status (13-AUG-12)

Potash: Usolskiy Potash (Perm)

Strengths

• Vast reserves
• Well documented potash deposit located in

Russia's traditional potash region

• Good nutrient content averaging 30.8% KCl
• Industry estimates place Usolskiy Potash

among the leaders on the cash cost delivered to key markets curve Weaknesses

• Limited in-house experience in mining and

lack of potash greenfield mine construction know-how in the global market

• Wavering potash layer within oil and gas field
• Limited employee/social infrastructure
• Distance to port >1,500km

Opportunities

• Become one of the leading players (Group

capacity of over 8 MMT pa)

• Use advanced freezing technology for shaft

sinking and enrichment, resulting in lower cash cost per tonne of production Threats

• Prolonged, significantly worse-than-expected

market conditions could negatively affect EuroChem’s ability to continue financing these investment projects

• Shaft sinking risks
• Capacity additions resulting in oversupply in

the industry

Usolskiy SWOT analysis Development

Outlook

• From Q3, EuroChem Antwerpen – Agro combination to add to Nitrogen

performance

• Effects of Severneft Urengoy production ramp-up and gas main

agreement to mitigate rising gas prices materially from 2013 onwards

• Phosphate rock mining in Kazakhstan expected to start 2013; fully self-

sufficient in terms of P2O5 from 2014/15 onwards

• Sinking of cage shaft to resume at VolgaKaliy in 2013 following
• freezing. Sinking at Usolskiy expected to continue at around 1.5m per

day.

Markets EuroChem

28

• Supply shocks in major grains coupled with below average global stock-

to-use ratios should prove compelling catalysts for increased fertilizer application over the quarters to come

• Nitrogen: urea prices to remain stable to stronger over the next few

months (>USD 380-400/tonne floor price), with possible price upswings as autumn approaches

• Phosphates: market relatively stable on solid demand
• Potash: expected to remain under pressure on high stocks
• India will continue weighting down on both phosphates and potash and

pricing direction will largely reflect producer discipline

• Weaker Chinese industrial activity to keep iron ore prices under

pressure

Strong fundamentals, weak economic background

29

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