Annual Report 2012

Phosphates

A new stage: commissioning of the Oleniy Ruchey mine

Overview

USD 500m

total capex since commencement of the deposit development

 

In May 2012, NWPC started mining apatite-nepheline ore at the Oleniy Ruchey open-pit mine.

In December 2012, the mine started regular shipments of apatite concentrate to the Group’s Russian processing facilities.

Apatite-nepheline ore balance reserves increased 5% following additional exploration of the deposit; open-pit reserves (B+C1+C2) increased 75%.

In September 2012, Acron and Dorogobuzh CEO Vladimir Kunitsky was appointed CEO of NWPC.

Key trends in the phosphate fertiliser market

In 2012, aggregate consumption of phosphate fertilisers was down 1.5% to 40.7 million tonnes of P2O5 due to reduced import of phosphate fertilisers by India and weak domestic demand in China. In Q1 2012, Ma’aden Phosphate Company (Saudi Arabia) brought on stream a 3 mtpa MAP/DAP facility, which had a significant effect on global prices.

Brazil remains a major importer of phosphate fertilisers and continues to escalate MAP/DAP acquisition, which positively influences the global phosphates market. No major projects that could result in excessive supply are expected to come on stream in the near future.

Development plans

By June 2013, the Oleniy Ruchey mine will supply all of the apatite concentrate required by Acron and Dorogobuzh (given total demand of 750 ktpa).

By the end of 2013, the mine is scheduled to reach its design capacity of 1 mtpa of apatite concentrate.

Construction of the underground mine and expansion of the processing facility's capacity will increase the apatite concentrate output by 2017.

Construction investments in 2013-2017 are planned in the amount of USD 650 million.

Production performance (‘000 t)

  Apatite-nepheline ore Apatite concentrate
NWPC 1,239 21

Operating performance and investments

Oleniy Ruchey

In 2012, North-Western Phosphorous Company completed construction of the first stage of its mining and processing facility at the Oleniy Ruchey deposit in Murmansk region.

Key features of the Oleniy Ruchey deposit

Confirmed reserves according to State Reserves Committee (Rosnedra) (2012)

Balance reserves of P2O5 (B+C1+C2): 63.7 million tonnes.

JORC resources and reserves (2011)

P2O5 resources (measured, indicated and inferred): 43.6 million tonnes.

P2O5 reserves (proved and probable): 34.4 million tonnes.

In 2012, the Oleniy Ruchey mine extracted 6.5 million tonnes of rock, yielding 1.239 million tonnes of apatite-nepheline ore with an average P2O5 grade of 10.7%. The reporting year coincided with the initial stage of the mine’s operation, which explains the considerable amount of stripping work (the stripping ratio was 4.9 tonnes of overburden to 1 tonne of ore). The lower grade is due to the fact that the mine is developing upper layers, which, as expected, contain less ore. The key task for 2013 is to enhance the efficiency of mining operations, cutting the stripping ratio by more than half and improving the average P2O5 grade to 12.6%.

The processing facility produced 21,000 tonnes of concentrate during start-up operations. In 2013, the Group’s efforts will be focused on achieving design capacity and decreasing costs by optimising the production process and reaching design performance in terms of consumption indices and commercial concentrate recovery.

Start of implementation

Obtaining subsoil licence for the Oleniy Ruchey deposit

2006

Products release

Start of apatite concentrate production

2012

Interim goal: mine commissioning

1 mtpa of apatite concentrate: raw material independence

2013

Main goal

Construction of the mine’s second stage and underground mine commissioning

2017

2006–2008: Preparations for the Oleniy Ruchey mine construction project and passing state examination.

2009–2012: Construction of the mine’s facilities, open-pit and infrastructure.

Principal achievements in 2012

  • In May the Group obtained a commissioning certificate for the open-pit. In 2012, 675,000 tonnes of ore were used for start-up and commissioning operations and apatite concentrate production, and 564,000 tonnes were processed at Apatit’s facilities with subsequent sale to Acron and Dorogobuzh.
  • In July-November, the processing facility carried out start-up operations and exercised process modes to bring the manufacturing process and product in compliance with the established parameters. The Group completed construction of auxiliary facilities and transport infrastructure.
  • Apatite concentrate shipments to Acron and Dorogobuzh started in December 2012.

Principal plans for 2013

  • By June, mine capacity will reach 60–65 ktpm (750 ktpa).
  • In July-December, the Group shall continue to ramp up mine capacity to the design level: 80–85 ktpm (1 mtpa).

Construction of the mine’s second stage

Underground mine

In late 2011, construction of the underground mine started. By the end of 2012, the miners had tunnelled 3.5 km, meeting the annual average plan for underground operations.

By 2017, the Group will construct three tunnels (transport, conveyor and ventilation) and four vertical shafts (main, downcast, auxiliary and ventilation). The total length of capital mining operations is 17.8 km.

Processing plant

In 2013–2017, plant capacity will be expanded on the back of construction of the second stage of the filtration and drying shop and silo warehouse for apatite and nepheline concentrates. The Group will construct a railroad branch from the mine site to Titan station (roughly 30 km).

op-review-phosphates.jpg

Partomchorr deposit development

Key features of the Partomchorr deposit

Confirmed reserves according to State Reserves Committee (Rosnedra) (2011)

Balance reserves of P2O5 (A+B+C1+C2): 65.7 million tonnes.

JORC resources (2011)

P2O5 measured and indicated resources: 33.5 million tonnes.

P2O5 inferred resources: 9.3 million tonnes.

In December 2011, the Group obtained approval from Russian Glavgosexpertiza for its design for an underground mine at the Partomchorr apatite-nepheline ore deposit.

The deposit is in close proximity to a national park that is currently under construction in Khibiny, so the Group resolved to refrain from constructing the processing plant and transport ore to the Oleniy Ruchey mine for further conversion.

The optimal ore transportation route will be chosen by an ad hoc committee established by the Murmansk regional administration and including representatives of relevant authorities, NWPC, the Kola Science Centre of the Russian Academy of Sciences and environmental organisations.

Four routing options have been elaborated, and engineering environmental research has been performed for one of them.

Given the importance of creating the Khibiny national park, the requirement to observe environmental legislation and the rights of the subsoil user, the Ministry of Natural Resources and Environment of the Russian Federation has established a working group conducted independent environment and geographic inspection of the project. It is expected that an acceptable routing option will be selected in 2013 after consideration of the survey and inspection findings.

Market overview

Global consumption of phosphate fertilisers was down 1.5% to 40.7 million tonnes of P2O5 in 2012. Annual MAP output was down 5% in China, the US and Russia; DAP output, on the other hand, was up 7% on the back of China and Saudi Arabia; TSP output did not change year-on-year. In the reporting year, MAP/DAP and TSP trans-border sales totalled 11.5 million tonnes of P2O5, down 4% year-on-year. Major exporters: Morocco, Tunisia, the US and China. According to an IFA forecast, global consumption in 2013 will be up 0.5% to 40.9 million tonnes of P2O5.

Negative factors affecting the market in 2012

In the reporting year, the phosphate fertiliser market faced a number of difficulties that affected sales and pricing. India, the world’s largest consumer of phosphate fertilisers, pulled back on imports due to rupee depreciation and reductions to a farm subsidy programme. China saw lower output of phosphate fertilisers due to sluggish domestic demand (higher prices for sulphur, sulphuric acid and phosphate ore resulted in higher cost of fertilisers) and reduced exports resulting from higher NP and TSP export duties. Ma’aden Phosphate Company’s commissioning of a 3-mtpa MAP/DAP facility caused significant pressure on global prices. The project is expected to reach design capacity in Q1 2013.

Positive factors driving the market in 2012

In the reporting year, Brazil was the only country that dramatically boosted its phosphate consumption: up 8.8% to 4.2 million tonnes of P2O5. Brazilian phosphate fertiliser production only covers half of growing domestic demand, and it is therefore likely that imports will further expand, thereby supporting global prices.

In 2013, no material pressure is expected on the global balance of supply and demand, since no new phosphate fertiliser capacity is scheduled to come on stream.

DAP global prices (USD/t)

750
700
650
600
550
500
450
400
350
04/02/2010 01/07/2010 02/12/2010 05/05/2011 06/10/2011 01/03/2012 02/08/2012 01/01/2013

.DAP, FOB Baltic Sea

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