Objective Capital's Industrial Metals, Minerals & Mineable Energy Investment Summit 2011 Ironmongers' Hall, City of London 3 November 2011 Speaker: Steven Markey, CRU Strategies

1. INDUSTRIAL METALS, MINERALS
& MINEABLE ENERGY
INVESTMENT SUMMIT
Feed the world: the global fertiliser market
Steven Markey – CRU Strategies
IRONMONGERS’ HALL, CITY OF LONDON THURSDAY, 3 NOV 2011
www.ObjectiveCapitalConferences.com

2. │
Feed the World: The
Global Fertilizer Market
Steve Markey, CRU Strategies
Objective Capital
November 2011, London
31 Mount Pleasant, London. WC1X 0AD
Tel: +44 20 7903 2132
Fax: +44 20 7833 4973
www.crugroup.com

3. Introduction
Nitrogen
O Nitrogen Overview
Important Trends
U Phosphate
T Phosphate Overview
Important Trends
L
I
Potash
Potash Overview
N
Important Trends
E Fertilizer Outlook
Supply & Demand
Key Points and Conclusions
│

4. ABC’s of Fertilizer – Three Primary Plant Nutrients
N nitrogen a key component of amino acids
which make up plant proteins and chlorophyll
P phosphorus is important in
fruiting, flowering, and root development
K potassium improves crop quality
and increases nitrogen uptake
Fertilizer sector is a combination of mining
industries and chemical industries.
│

5. Nitrogen Overview
Nutrient content is defined in terms of elemental N
China 33% China 43% China 36%
Egypt
Canada Indonesia
Trinidad Russia
Ukraine
Indonesia Russia 7%
Russia 6% USA 6%
USA 6% India 7% The Gulf 10% India 12%
India 9%
The Gulf 8%
Natural Gas is the primary feedstock typically representing 70-80% of ammonia
production cost – 80% of N capacity uses natural gas as feedstock
│

6. Nitrogen trends
Urea: Nitrogen product of choice representing 60% of total N fertilizer use
M Tonnes %
250 30
29
More urea for export – regions with 200
28
cheap natural gas continue to build urea
for export business. 27 Demand
150
25 M tpa between now and 2015 26 Trade
13.7 M tpa in MENA % Trade
100 25
Rising price of Russian gas – expect 24
to see shutdowns in Ukraine and 50
eastern Europe as gas market in 23
Russia is liberalized. Ukraine urea
0 22
exports to fall 35-40% by 2020.
2005201020152020
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7. Phosphate Overview
Nutrient content is defined in terms of P2O5 or BPL
China 33% China 30% China 32%
Brazil
Tunisia
Russia
Russia 6%
Brazil 8%
Morocco 13% USA 20%
USA 16% India 17%
Morocco 10%
USA 10%
62% of identified recoverable phosphate rock reserves are in
Morocco
│

8. Phosphate Trends
DAP and MAP = 65% phosphate fertilizer Advent of Ma’aden – massive integrated
phosphate capacity in Saudi Arabia will weigh
Others include on prices as production is ramped up over
• TSP the next several years.
5.3 m tonnes phosphate rock (Al-Jalamid)
• SSP 3 m tonnes DAP
Decline of Florida – diminishing reserves and
increasingly stringent environmental
regulations will reduce production:
Phosphate rock market stable at 10-15% of 50
total production as established players
106 t phosphate rock capacity
Florida Other states
40
continue to invest in downstream capacity
offsetting new pure play mining entrants: 30
Legend and Minemakers – Australia 20
Bayovar – Peru 10
Sandpiper - Namibia
0
2005 2010 2015 2020 2025 2030
Source: USGS (2005)
│

9. Phosphate Exploration Activity
QUEBEC
Arianne Resources FINLAND
Yara
ONTARIO
PhosCan Chemical Corp.
IDAHO KAZAKHSTAN
Stonegate Agricom EuroChem
TUNISIA Sunkar Resources
Numidia Phosphate
Sra Ouertane IRAQ
Iraq State Company for Phosphate
MALI 9
PERU Great Quest Metals
Cementos Pacasmayo Oklo Uranium
Focus Ventures UGANDA
AUSTRALIA
GrowMax Agri Corp Nilefos Minerals
Stonegate Agricom Arafura Resources
ROC / DRC / ANGOLA Korab Resources
Cominco Resources Krucible Metals
Minbos Resources Minemakers
MOZAMBIQUE Legend
BRAZIL
Oklo Uranium
Aguia Resources Vale
Phosphate Australia
MBAC Fertilizers NAMIBIA Rum Jungle Resources
Redstone Resources Minemakers / Union Resources
Rio Verde Minerals GUINEA-BISSAU
Vale
Amazon Mining Holding Resource Hunter Capital Corp.
Copper Range
│

10. Potash Overview
Nutrient content is defined in terms of K2O – fertilizer-grade MOP
contains 60% K2O
Jordan USA 18%
China
Canada 36%
Israel
Indonesia & China 16%
Germany Malaysia 7%
EU 10%
Belarus 14% Brazil 13%
Russia 17%
India 12%
Very few producers – production capacity concentrated in
Canada, Russia, Belarus
Poor overlap between areas of high production and areas of high demand leading
to 80% of demand is met by imports
│

11. Potash Overview
80% of 2010 sales from 6 companies
2 JVs handle 65% of seaborne trade
QSL Potash Co., Ltd
16% 19%
4% 35%
40%
7%
16%
10%
12% 16% 25%
BPC includes IPC
│

12. Potash Trends
Uralkali/Silvinit merger – two Russian
Arrival of mining conglomerates – higher companies brought together by Suleiman
potash prices have attracted mining majors Kerimov. Creates world’s largest producer.
into the sector. Exports from new company and Belaruskali
BHP Billiton
Vale will be marketed co-operatively. Increases
Rio Tinto (In, out, back IN!) supplier pricing power.
BHP recently failed in a $40bn bid for
PotashCorp., but are progressing a greenfield
project in Saskatchewan.
New Players
EuroChem – Gremiachinskoye 2.3 m 2013
Brownfield expansions
PCS building 7m tonnes new capacity –
42% of worldwide brownfield
expansions 2009-2019
Uralkali 4.5 m tonnes by 2019
│

13. Potash Exploration Activity
A LBERTA SASKATCHEWAN MANITOBA
Grizzly Discoveries Acron / Agracity BHP Billiton
Canasia Industries BHP Billiton Western Potash
Cloudbreak Resources Canada Potash Corp.
First Lithium Devonian Potash RUSSIA (URALS)
Pacific Potash Corp. Encanto Potash Acron
Softrock Minerals Potash One EuroChem
Sidon Resources Karnalyte Resources
Universal Potash Tri-River Ventures KAZAKHSTAN
Western Potash Fortis Mining / Ji’an Resources / Wyot
Vale Satimola
UNITED KINGDOM
York Potash (Sirius Minerals)
MONGOLIA
NEWFOUNDLAND
General Mining Corp.
Altius Resources
Vulcan Minerals RUSSIA (SIBERIA)
UNITED STATES Red Emperor Resources
Transit Holdings TURKMENISTAN
American Potash Turkmenkhimiya
Universal Potash
Mesa Uranium
Dakota Salts (Sirius Minerals) THAILAND & L AOS
BUA (Ringbolt Ventures)
Passport Metals ASEAN Potash Mining
PERU Asia Pacific Potash (Ital-Thai)
Red Metal ERITREA & ETHIOPIA
GrowMax Agri Corp Mingda Thailand
Salmueras Sudamericanas Allana Potash Sinoagri Mining
BHP Billiton Sinohydro Mining
BOLIVIA Ethiopian Potash Corp Viet-Lao Salt & Chemicals
Comibol Sainik / IFFCO Zhongliao Mining
BRAZIL
South Boulder Mines Kaiyuan Potash
Amazon Mining
A RGENTINA CONGO
Atacama Minerals
Allana Potash Brazil Potash Corp. MagMinerals
Dajin Resources Lara Exploration Congo Potash Co. A USTRALIA
Lithium Americas Corp Petrobras Elemental Minerals AusPotash (Sirius Minerals)
Marifil Mines / Oxbow / Sacharrum Potash Atlantico Queensland Potash (Sirius Minerals)
Orocobre Redstone Resources Potash West
PRC (Vale) Rio Verde Minerals Reward Minerals
Rincon Lithium Talon Metals South Boulder Mines
Rondonia Minerals Vale East Coast Minerals
│

14. World Fertilizer Demand
Fivefold growth in half a century Global
aggregate
application ratio
for N:P:K =
1.0 : 0.37 : 0.26
This suggests
growth rates for
P, and
particularly
K, should
outperform N.
│

15. Fertilizer Demand
20
15 USA 50
10 EU
10 40 China
5
5 30
0
0 20
N P K 20
N P K
15 India 10
10
0
5 N P K
10 0
Brazil N P K
5
0
N P K
million tonnes nutrient
│

16. Fertilizer Demand Forecast
200.0
175.0
+3.2% CAGR
150.0
urea
125.0 DAP/MAP As P2O5
million t/y
100.0 MOP
75.0 +4.6% CAGR
50.0
+2.7% CAGR
25.0
0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
│

17. Short-term Demand Drivers
Index of grain and fertilizer prices – 2006=100
Crop prices – international 450
400 Wheat, Corn, Soya
crop prices have a big effect 350 Urea, DAP, K2O
on fertilizer demand and 300
prices 250
200
150
100
Current Price vs Average 50
Benchmark 1990-2005 0
Jan 10
Jan 01
Jan 02
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 11
Jul 01
Jul 02
Jul 03
Jul 04
Jul 05
Jul 06
Jul 07
Jul 08
Jul 09
Jul 10
Jul 11
Urea 390%
DAP 343%
MOP 550%
Fertilizer prices – P&K Holiday without immediate effect on yields
Tactical buying – consumers are less likely to build inventory (more risk averse post 2008)
creating more market volatility and higher prices will stretch financing capacity
│

18. Maize global stocks to use ratio
35%
Historical (USDA)
Forecast (FAPRI)
30%
25%
20%
15%
Shading indicates StU "danger zone"
10%
1990 1995 2000 2005 2010 2015 2020
│

19. Long-term demand drivers
Rising population + Falling arable land per capita  Need to raise crop yields
yield (indexed to USA)
120
Corn Rice Soybeans
100
80
60
40
20
Data: FAO
0
USA China Brazil India
Fertilizer is widely under-applied and inefficiently applied in developing economies 
poor yields
Better nutrient balance – ratio of N : P&K is too high in many developing countries
│

20. Meat & Biofuels are Significant Drivers
Biofuels: the food/feed/fuel 150 Production
debate – many governments
Bln Litres
Consumption
have set biofuel targets, but 100
bio-fuels are today only
50
significant in USA (corn), Brazil
(sugar cane) and Germany 0
(rapeseed).
2005
2000
2010
2015
2020
2025
Future is dependent on political
factors, oil prices, technology
developments (“2nd gen biofuels”). 300
Global Livestock and Poultry
Demand (M tonnes)
Modest direct impact on fertilizer 250
demand, more potential to affect crop
200 Poultry Consumption
prices.
Pork
150
Beef
Changing diets – more 100
protein (1kg meat requires 3- 50
10kg grain), more premium 0
products like fruit
1992
1980
1982
1984
1986
1988
1990
1994
1996
1998
2000
2002
2004
2006
2008
2010
│

21. Key Nitrogen Conclusions
• Chinese exports and trade policy remain a significant
wild card for urea trade China Urea
Exports
• Government decisions have major consequences
(China export tariff, Russia-Ukraine gas 8.0
prices, Indonesia export moratorium) 7.0
6.0
• Substantial volume of new capacity to come on-
5.0
stream, following investments made during the boom
years of 2007-8 4.0
3.0
• Evolving energy prices (and production costs) remain
2.0
fundamental!
1.0
• Shale gas production has changed North America
0.0
2001
2003
2005
2007
2009
│

22. Key Phosphate Conclusions
• Major rock producers are all looking at downstream
integration projects
• Full impact of Ma’aden is yet to be felt by the market
• Some early warning signs of demand destruction in India
• What is the long term solution to the Florida rock problem ?
• How many new projects will get financing in today’s
environment?
│

23. Key Potash Conclusions
• Potash demand is recovering worldwide but some buyer
resistance is still occurring (India)
• Producers continue to push the price envelope but slower
pace may avoid severe demand destruction seen in 2008
• Future ownership of Belaruskali will have significant market
impact
• Multitude of brownfield and prospective greenfield projects
will likely test pricing stability in 2-3 years
│

24. │
Thank you for listening
Available from CRU Fertilizers...
Steve Markey
TEN-YEAR OUTLOOK SERVICES
CRU Strategies Ammonia
the consulting arm of CRU Fertilizers (formerly British Sulphur Urea
Consultants) Phosphate Rock
Phosphoric Acid, DAP, MAP & TSP
 +44 20 7903 2127 Potassium Chloride
Sulphur
 steve.markey@crugroup.com Sulphuric Acid
 www.crugroup.com
COST SERVICES
Available from CRU Strategies...
Market Decisions (e.g. pre-feasibility and BFS) Nitrogen fertilizers
Negotiation Support Potassium chloride
Valuation Phosphate Rock (coming March 2011)
Strategy Development
Performance Improvement
31 Mount Pleasant, London. WC1X 0AD
Tel: +44 20 7903 2132
Fax: +44 20 7833 4973
www.crugroup.com

25. Supplemental Slides
│

26. Fertilizer Overview
Raw materials Intermediates Fertilizers
Urea
Ammonium nitrate (AN)
Urea
60% NITROGEN Ammonium sulphate (AS)
Natural gas Ammonia
FERTILIZERS
(or other fossil fuels) Urea Ammonium Nitrate (UAN)
DAP& Mono-ammonium phosphate (MAP)
Sulphur MAP
Sulphuric acid
PHOSPHATE Di-ammonium phosphate (DAP)
65%
FERTILIZERS
Phosphate rock Single superphosphate (SSP)
Phosphoric acid
POTASH Triple superphosphate (TSP)
MOP
90% FERTILIZERS
Potassium salts Potassium chloride (MOP)
Potassium sulphate (SOP)
Potassium chloride
Potassium nitrate (NOP)
│

27. New Export Urea Capacity (‘000 t/y)
Start-up Plant Country Urea
EASTERN HEMISPHERE
Q4 2011 Qafco V Qatar 1,270
2011 Iran 1,075
NPC – Shiraz
2014 Safco V Saudi Arabia 1,073*
2013 Fertil II UAE (Abu Dhabi) 1,155
Q4 2012 Qafco VI Qatar 1,270
2015 Iran 1,075
NPC – Golestan
2015 Iran 1,075
NPC – Lordegan
2015 Iran 1,075
NPC – Zanjan
2014 Perdaman Australia 2,000
2013 Matix Fertilizers and Chemicals India 1,300
Mid 2014 PT Pupuk Kaltim V Indonesia 1,155
* Based on surplus Ammonia already produced at Al Jubail
│

28. New Export Urea Capacity (‘000 t/y) – continued
Start-up Plant Country Urea
WESTERN HEMISPHERE
Nov/Dec 2011 Sorfert Algeria 1,138
Mid 2012 EAgrium / MOPCO Egypt 1,270
2012 Pequiven – Puerto Moron Venezuela 726
2015 Tatgazinvest Russia 677
2012 JSC Cherepovets Russia 495
Mid 2013 Algeria Oman Fertilizer Company Algeria 2,310
2013/14 Pequiven – Jose Venezuela 1,452
2014 Pequiven – Puerto Nutrias Venezuela 726
2013? CF/Pluspetrol DOESN’T LOOK LIKE Peru 1,073
IT IS GOING AHEAD
2014 Olam Int/ Tata Chemicals/ gov of Gabon Gabon 1,271
JV
Mid 2014 or 2015 Petrobras, Tres Lagoas Brazil 1,188
2014 Tierra Del Fuego Power & Chemical Co. Argentina 800
Mid 2015 Cuvenpeq Cuba 726
Total 26,302
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