VOLGAKALIY PROJECT feature EuroChem widens its sights

Fertilizer Focus discusses EuroChem’s potash capacity with Clark Bailey, Head of , and future plans with Olivier Harvey, Head of Investor Relations

Fertilizer Focus (FF): I understand in - the start of its potash (from source to solution) and as such, EuroChem are looking to offer N, P operations will add another dimension also enjoys many key partnerships and K nutrients to the market, which to its international presence, and and market relationships, which would make you a one-stop shop undoubtedly increase the Group’s remain valuable for our continuing for all . How do you plan focus on the Asian, South American market penetration. This applies for to market these products and are and African markets. Needless to say all nutrients and will be particularly you looking at any joint marketing that with its global reach, the Group’s important in growth markets like Asia opportunities? premium products and distribution and , where we see business (EuroChem Agro), offers a EuroChem (EC): EuroChem is known the need for more balanced nutrient natural platform to leverage potash to be an ambitious company, whether sales. application. by its intensive value creating projects in or growing M&A track- Still, due to internal potash In essence, with so many opportunities record. While today the Group has a requirements the Group’s potash available, it is probably still early solid presence in Europe, the CIS and market entry is expected to be rather to imagine what shape or form the the US - and recently announced the gradual, which also means flexible. Group’s K marketing function will acquisition of a fertilizer distributor EuroChem is an integrated company ultimately take.

Volgakaliy potash - mine rescue building

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VolgaKaliy potash project - electrical substation and three shafts

FF: Which markets are you looking at The VolgaKaliy project is targeting? EC: EuroChem’s potash ‘market’ will focused on producing by the initially be internal for application at middle of 2018 our NPK facilities. Already today the Group sources up to 500 000 tonnes of potash from the market. These volumes will be fulfilled by our mines with our internal potash requirements measuring standards (B+C1+C2) bearing levels and protective freeze potentially increasing above 1 million and the anticipated life of the mine walls. Today, those plans are being tonnes per year as we grow our NPK/ is c.45 years. It is an excellent deposit implemented, but the effect of the complex production capacity. with KCl percentage of 39.8%. The cage shaft will create an additional six project was originally planned to begin month delay to the plans put together As we mentioned, a key focus for operating back in 2014, however, in in 2013 following the first sinking our potash product will be Asia late 2011 issues developed with the issues. Currently, first production is Pacific and Latin America, which are technique chosen to sink one of the scheduled for mid-2018 and a 5-year growth markets and where potash site’s three shafts. As a result, the entire ramp up period is envisaged to get will be needed to provide balanced cage shaft sinking effort was put on us to full capacity, during which time nutrition and maximized agricultural hold – and so was the construction other surface facilities will be built. productivity. of the main mill on the surface - but With this modified plan, it puts the We also plan to convert KCl to SOP for to our good fortune today, other production back on our original track specialty agriculture sales for those infrastructure continued, although within this time frame. crops which are sensitive to chlorides at a slower pace while awaiting the such as fruits and tobacco. outcome of the cage shaft sinking issues. In 2013 the sinking of the FF: What are the specific timescales cage shaft was resumed and in 2014 you are working to? FF: Argus FMB recently visited the sinking began on the third shaft, EC: The VolgaKaliy project is focused new VolgaKaliy mine in Russia. the site’s second skip shaft. In 2013, on producing the first product by the Could you give me some background surface construction was restarted middle of 2018. In 2018, with mine on this project? (and the status is as noted below). development being the throttle, EC: The VolgaKaliy project was With the recent issues in the cage approximately 280K tonnes of MOP, conceived when EuroChem shaft (see below), yet another plan red standard, will be produced during purchased a license area, named was organized to change the services the first six months. EuroChem’s Gremyachinskoe, for the development of the two shafts which have now other potash project, Usolskiy Potash, of potash in 2005. The site’s reserves reached depths well into the and will come online shortly before the are 1.613 million tonnes by Russian are far past the bottom of the water VolgaKaliy site. We currently expect to

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Volgakaliy potash - product storage

start mining operations at Usolskiy in EuroChem is long-term focused the fourth quarter of 2017. and enjoys advantageous cost

FF: To which depths will you be positions across nutrients mining? EC: Mining depths vary slightly, but the ore, being an ‘evaporate’ and without electrical substation, the rail system 2.3 million tonnes per year of MOP geological uplifts or major faults, is and rail station including the loading produced in two grades, both of relatively flat. The bottom of our two systems for the entire plant, the gas which are identified as being a ‘Red skip shafts will be at -1147 metres below pipeline and metering systems, the Product’ 95% KCl grade, one of which the shaft collar or ‘Zero’ reference water wells inlet and water treating is referenced as ‘Standard Grade –Pale elevation point. The top of the upper facilities, the tailings management area Pink’ and the other as ‘Compacted’ salt zone happens to be at an elevation and ponds, roads, fences, parking lots, or ‘Granular-Pale Pink’. The ‘pale of roughly -1004 metres (varies slightly). canteen and administration buildings, pink’ designation comes from the The shaft stations for loading the skips mine rescue building plus the site’s fact that the raw ore material in this will be at the elevations -1072 metres. fire protection facilities. It also involves potash zone has fewer elements and The main ore body of the potash zone sinking all three mine shafts, building minerals in the 5% which is not KCl lays generally between -1085 metres all three headframes, shaft service and that give the MOP its ‘red color’ and and -1100 metres. hoist buildings, as well as building the consequently it will be pale in color. offices and shops for maintenance. The next capacities are a little more The distinction between Phase 1 and complicated to describe, call them 2a FF: The mine is being developed in 2 is basically, that each phase has its and 2b or Phase 2 and 3, but will be two phases – could you explain these own surface beneficiation plant which built following completion of Phase phases? includes crushing, screening, floatation, 1 and its startup and commissioning. We will be able to construct both a EC: Yes, the project has been proposed compaction, drying and a separate Red Plant of approximately 1.3 million to be developed in two phases. The storage building. For the underground, the near shaft services facilities, shops, tonnes per year and a small white project’s first phase which we name storage areas and bins will all be done plant of 1.25 million tonnes per year. as Phase 1, is defined simply by the during the Phase 1 work while both This affords us a wider range of client work and facilities that are required to phases have mine development and or markets, some of which are for our bring this stage of development into ramp up work to enable the surface own internal use and expansions into the initial operations. This involves facilities to reach their nameplates. higher-grade fertilizers. almost the entire surface facilities and infrastructure for the plant, less the Phase 2 Beneficiation Plant and some FF: Could you confirm that the FF: One of the shafts flooded recently additional storage facilities. So, this capacity of the mine is 4.6-4.85 – how did this happen and what is Phase 1 includes removing and storage million tonnes of MOP once both the current status? of the top from the site, leveling phases are completed? the site to the engineered elevations EC: The shaft did not flood. There and grades, building the high voltage EC: Phase 1 will be a plant whose was a water inflow that prevented (220 Kv) power lines and the main operational capacity is essentially us from continuing to sink. The

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amount was managed simply by use system for this mine. The design takes mill with Renaissance, the contractor. of our buckets and we initiated a into consideration several cases and Additional focus on installation of grouting program which was partially its construction will progress over steel and equipment continues. successful. However, after extensive time, meaning the location and size of Renaissance started the installation grouting efforts at the shaft bottom, dewatering gets revised as the shaft/ of process equipment for the grinding it was finally understood the actual mine development progresses. The main and flotation departments, the first path and profiles of the water flow. sizing basis comes from the time when large elements of the mills have now Further, with more analysis at shaft the mine is backfilling the old rooms and been installed. bottom it became clear that the water must decant or remove the water from Monolit-Group (Belarussian bearing sandstone dipped downward those rooms and recycle it back to the company) was selected to construct much further on one side and has surface. Dewatering at the current stage the mine administration building. allowed water to essentially flow is handled shaft by shaft, until these VIPS (architectural firm in beneath and then through the initial are all connected and the sizing basis St. Petersburg) provided the last details protective freeze wall deteriorating comes from information provided by for designs of the mine administration the freeze wall sufficiently to call for the geologist and hydro-geologist who building and canteen. UralEnergoStroi a revised plan. Consequently, as of provide the potential water flow rates (UES) started the construction of the the beginning of August the plant that may be encountered. has allowed water to fill the shaft and boiler house. StroiGasEngineering is pumping water into the shaft to continues with the construction of the Reagents building, this contractor stabilize and stop this flow such that FF: EuroChem are also developing showed good progress and was also the freeze wall can be reestablished. the Usolskiy mine - another MOP awarded the compressor station and Several additional, deeper freeze holes project – how is this progressing? will be added at the location where is Reagents pipelines gallery projects. EC: The Usolskiy mine, which is has been concluded water was able to The construction of the product located in the Berezniki area, known undermine the initial wall. By the 12th storage and raw ore storage buildings as the Verkhnekamskoe deposit, of September, surface rigs will be in is driven by the fabrication schedule of place and the water will be equalized is progressing very well. We have the large glulam (wooden) beams. The to begin this programme. over 4000 people on this project raw ore storages are assigned to one now, including EuroChem and contractor – Timber. our maintenance company (Ural- FF: Do you have new plans for water RemStroyService) as well as various Storage building #1 should be finished management? contractors. in December 2016, storage building #2 will be finished at a later date. Each EC: The Plant and Project Institute In Usolskiy, the site continues with building has a capacity of 135 000 have designed a proper dewatering construction of the main beneficiation tonnes of product. UES continues with the construction of the main substation (220 kV). The construction progressed well and construction was completed in August. UES also started constructing the water treatment facilities. Shaft No.3: As of 25 July 2016, all 45 holes (freeze holes and temperature monitoring moles) were drilled to the designed depth and cased. The pump building, constructed for the freeze station by Thyssen, is essentially complete. Freezing operations will begin this fall and US30 is already signed to be the shaft-sinking contractor. In summary, the project is proceeding at a fast pace, although there is a great amount of work left to do on many fronts. The schedule remains to have ore to surface and begin Volgakaliy potash project - transfer tower to/from storage commissioning in late 2017.

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Volgakaliy potash project - site overview

FF: How do you think the oversupply Agriculture can adjust regionally situation for potash should be addressed? each year, capacity projects are EC: We currently see capacity harder to modify overhang in all nutrients, not only potash. We are now in a supply driven situation where some marginal capacities will be affected – but moving higher, has not grown as much FF: Does EuroChem have any other EuroChem is long-term focused and as anticipated 10 years ago, while future developments that you would driven, and enjoys advantageous cost total cultivated land acreage and soft like to talk about? positions across nutrients. commodity prices have. While some EC: EuroChem has the good fortune Specifically on potash though, of the lacklustre demand growth can to have implemented a strategy depending on whom you ask, there are be attributed to one-off economic/ that strives for vertical integration likely various expectations as to how political situations in key markets, the within the company. That includes EuroChem should react or address the fact remains that improper fertilizer other related aspects, meaning to market with its own potash capacity application or nutrient imbalances improve our independence. Other as it prepares to enter what is today remain as fertilizer spending remains than this ‘vertical integration’ perceived as an oversupplied market. modest. In Russia, current fertilizer application rates are at approximately concept, a company can grow by At the very top, the situation is really 39 kg/hectare while in , expanding into new markets, grow or the supply demand balance, which application is approximately 168 kg/ develop new regions, or create new currently is at a low simply due to hectare and both are considered products, not simply by looking at demand. The supply side is extremely inadequate to provide optimal yields. new developments that have the same slow to develop on account of the Farmers are both extremely frugal and theme, products or potential clients. significant capital and work required intelligent. So much of today’s market to bring new capacity online. It is EuroChem´s upstream strength in has simply been the rationalization easy to recite examples, just as with all key nutrients fits well with the of the end user to the economy and EuroChem’s potash projects, whether active development of its global their returns for their own capital and we look at PotashCorp’s or Mosaic’s distribution network. Consequently, labour in the field. Agriculture can brown field expansions or K+S’ Legacy we have continued to develop and adjust regionally each year, capacity project - all required multi-billion expand with such items as you have projects are harder to modify. dollar investments – and all were seen announced in the last year, conceived when supply was clearly Regardless of the market situation - both including the acquisition of Bentrei, short. New potash mining assets EuroChem sites will be amongst the a distribution company in the USA, require millions of working hours lowest cost potash mining assets in the Tocantins, a distributor in Brazil, and years to develop - at least 7 years world, and while this should guarantee and the acquisition of an interest on average with EuroChem’s closer adequate returns even at today’s prices, in Agrinos, which specializes in the to 10 for the first tonnes. However, EuroChem does not intend to, as we like development of microbiological the demand side of the ratio, while to say, ‘ the boat’. fertilizer additives.

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