Potash prices are headed north and into 'unfamiliar' territory. Grain prices are going to boom but so to are our costs.
------------------------------------------------------------ World famous: From China to Brazil, PCS leading supplier of potash Jeremy Warren
The StarPhoenix Published: Friday, November 03, 2006
One kilometre underground and down a path of 16 kilometres the machines in the PotashCorp Allan mine run 24 hours a day, seven days a week.
It's hot down there -- about 27 C -- and the shifts are long, but the people running the mining machines aren't bothered. It's good to be in the potash business.
The world consumed more than 50 million tonnes of potash last year and the economic growth of countries such as China, India and Brazil is driving the number higher. The Potash Corporation of Saskatchewan produced more than nine million tonnes of potash last year and has capacity for much more.
PotashCorp's estimated share of the world's excess capacity is about 75 per cent, said Garth Moore, president of PCS Potash division. To meet the ever-increasing demand for potash, which is used as a fertilizer, PotashCorp is expanding its operations in Saskatchewan. The Allan mine is in the midst of an expansion that will add 500,000 tonnes of potash to its operation, bringing the total to 1.9 million tonnes.
"The world has more disposable income. The first thing people spend disposable income on is food, and we're in the food business," Moore said during a tour of the Allan mine.
"When people need to grow more food, they come to us."
Indeed, the world in hungry. The growth of the middle class in China, which has seen a doubling of GDP per capita in just five years, is pushing the demand for fertilizer. According to the United States Department of Agriculture, the Chinese consumed about 66 million tonnes of processed poultry, pork and beef in 2005, up from 42 million tonnes in 1995.
Sask potash high quality
China annually uses 10 million tonnes of potash. PotashCorp estimates the country has the potential for 25 million tonnes. Estimates for potash consumption in India and Brazil are also more than double their current rates.
PotashCorp recently bought a 20 per cent stake in Sinofert, China's largest fertilizer distributor.
"We see China as the biggest growing market," Moore said. "It was the right move at the right time (to buy into Sinofert). There are synergies over and above fertilizer. This is a great way to get into the market and share technology."
While business with the world's hottest economy has its pitfalls -- demonstrated during the recent price dispute between China and PotashCorp's off-shore marketing agency Canpotex, which saw some Saskatchewan mines shut down production during negotiations -- PotashCorp is finding a market in the growing ethanol and biodiesel industry.
"Nothing is helping to grow PotashCorp more than ethanol and biodiesel producers," Moore said. "There's only so much corn that can be grown for food and fuel, so each acre has to be maximized for use."
Potash is used as fertilizer in many countries to improve nutrition and strengthen growth of crops. Potash from Saskatchewan is renowned for its high quality and low salt content.
The Lanigan potash mine is also undergoing an expansion, adding 1.5 million tonnes to production.
Also increasing demand for potash is the recent flooding of a mine owned by Russia-based Uralkali, one of the world's largest potash producers. Moore said the flooded mine will take 1.3 million tonnes of potash off the world market. Shares of PotashCorp closed at $150.34 in trading Thursday, up $5.94.
Completion of the Allan mine expansion, which started in May 2005, is scheduled for the spring. Mine officials are quick to point out that "expansion" is a loose term and that the mine is really upgrading to produce potash at its full capacity.
Upgrades to the wet side of the plant, where a water separation process is used to clean potash, should be done by the end of the year and once the new compaction plant is finished in the spring, the expansion will be complete.
"The compaction plant will then be matched to what we can produce from the mine," said Kevin Coombs, the plant and mill superintendent. "We have to have those big compactors working so we can move into full production."
Employees involved in planning
The result of the upgrades will be a potash mine that can keep up with Asia's insatiable appetite for fertilizer.
"This is an absolute radical change from the plant that was running three years ago. It's more streamlined and efficient," said Stewart Brown, general manager of the Allan mine.
The Allan mine employs about 325 people, many of whom live in Saskatoon or Allan and other surrounding towns. One reason the Allan mine has been able to attract enough employees for the mine is its proximity to Saskatoon.
During the $200 million expansion process, however, the availability of skilled labour has been problematic. The mine could have used roughly 35 more pipefitters than it's been working with. On any given day for the last year and a half there have been between 300 and 400 contractors onsite, and more could be hired.
"We've emptied out the union halls in Saskatchewan," Brown said.
"The date for the completion of the expansion has been pushed back by lack of manpower and equipment deliveries."
Metal fabrication shops in B.C. were looked at because shops in Saskatchewan were already booked solid.
Employees at Allan, 50 per cent of whom were hired in the last three or four years, have been involved in project planning and implementation.
As well, the knowledge of employees with 20 or 30 years of experience has been tapped to improve potash extraction, cleaning and shipping processes, Brown said.
"It's important the people working here are making decisions about the project," Brown said. "They're the ones working with the equipment and will be working with the new stuff.
"It's also a good thing for employees who see the company investing in this project. The new hires are more confident about their long-term job prospects at Allan. They're seeing an investment into the future of the company."
