Population growth bodes well for potash
Major expansions underway to help feed a hungry world
Saskatchewan potash producers have two billion reasons to feel secure.
They don’t have to worry too much about the spot price of the fertilizer ingredient in 2015, or the outcome of the recently announced provincial royalty review, or even the machinations of competitors flooding the market with product to grab market share.
Those two billion reasons represent the expected increase in world population in the next 35 years, so the major expansions underway at Saskatchewan potash mines appear to be safe bets, according to industry representatives.
“Food security is a defining issue of our time; and for the next century, demand for food will only accelerate,” says Walt Precourt, senior vice-president of potash for The Mosaic Company.
Precourt noted those two billion new mouths to feed are equivalent to the entire world population in 1940. Today there are seven billion people on Earth, with some forecasts putting the population at more than 10 billion in 2050.
“The investments we have made in expanding our potash operations in Saskatchewan will ensure we have the capacity to meet the demand for potash and help the world grow the food it needs,” says Precourt.
Potash is used in the creation of fertilizer, which greatly increases the productivity of land used to grow food.
Mosaic has been upgrading its facilities in a multiyear, multibillion- dollar project since 2008, including its sites in Belle Plaine, Colonsay and Esterhazy.
Esterhazy was Saskatchewan’s first potash mine, with its K1 and K2 shafts producing potash over the past 50 years.
In March, Mosaic announced it would be investing another $1.7 billion developing its new site at its mine in Esterhazy. The K3 site promises to begin delivering potash in 2017. The sinking of two new shafts at the K3 site began in 2013 and will continue through 2016, employing an average of 300, and as many as 600, skilled tradespeople.
“The recent addition to the scope of the K3 development builds on the long-term plan that was developed when the project was first approved,” says Precourt.
“This next stage will include an additional investment of approximately $1.7 billion to develop the mine to its full capacity. This brings Mosaic’s total commitment in K3 to $3.2 billion.”
He said when the K3 project is completed, it will be the largest and most competitive potash mine in the world.
“The quality of the ore reserves here are some of the best in the world, and that gives us a competitive advantage,” says Precourt.
“While we can’t control the world around us, we can make the best possible decisions to ensure Mosaic is well positioned for the future. We are seizing opportunities and pushing our growth strategy forward. Mosaic chooses to view the current environment as a climate for growth and have great confidence that the long-term outlook for food, and in turn potash, is extremely appealing.”
K+S Potash Canada is another company betting on the relative safety of investing in increased potash production in Saskatchewan. Its Legacy development near Bethune is a brand new solution mine expected to reach its goal of two million tonnes of production capacity by the end of 2017.
“We are making continued good progress with our Legacy Project,” says Michael Wudonig, K+S corporate spokesman. “We have now spent about 55 per cent
of our capital expenditures, and over 85 per cent of the contracts with suppliers are signed.”
This year is scheduled to be the main year of construction of the Legacy project. The company has been assembling the components of its evaporator units, has begun commissioning the pads above the first solution caverns and in April signed a long-term deal for storage and handling of its product on the West Coast.
“Despite the fact that there is plenty of work ahead, we are still confident in beginning the commissioning of the site and the startup sequences in summer next year and getting the first tonnes of product at the end of 2016,” says Wudonig.
“We want to reach two million-tonnes of production capacity by the end of 2017. All of this is in line with the allocated budget of $4.1 billion.”
The world’s largest potash producer is also adding production capacity, while trimming costs.
PotashCorp is in the final stages of completing its $3-billion Rocanville expansion, ramping up to a capacity of approximately six million tonnes a year in 2015.
“We expect the new shaft to break through sometime this summer,” said CEO Jochen Tilk.
The increase in capacity at the mine will make Rocanville one of the largest, and lowest-cost, potash producers in the world, he said.
“It’s an opportunity to optimize and really improve our cost profile because Rocanville, and its capacity economy of scale, will contribute to that. It’s an opportunity for growth. We obviously made the decision as we expected global demand to go up (and) the last two years, 2014 and 2015, are supportive of that.”
PotashCorp costs continued to move in the right direction as it capitalized on operating efficiencies and benefited from favourable currency exchange, Tilk added.
“Even excluding impact of a weaker Canadian dollar, we remain on track to achieve our multi-year target for reducing cash costs by $20 to $30 per tonne by 2016 from our 2013 levels.”
With Saskatchewan potash producers increasing capacity, even as prices remain stagnant and world supply remains high, what remains unknown is the future of brand new mines.
The BHP Billiton project at Jansen Lake holds the promise of becoming one of the largest potash mines in the world. BHP Billiton announced an investment of US$2.6 billion in 2013 to finish the excavation and lining of the production and service shafts at the project, and to continue the installation of essential surface infrastructure and utilities. Completion of both shafts is expected sometime in 2016, while the associated works program will extend into 2017.
The company says the Jansen Lake site is the world’s best, undeveloped potash resource and is capable of supporting a mine with annual capacity of 10 million tonnes for more than 50 years.
Worldwide demand in 2015 is expected to be 60 million tonnes, and with a growing middle class in China and India demanding more and better food, those extra tonnes could come in handy very soon.