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Uralkali to Invest $4.5bn to Increase Production Capacity

Russia’s Uralkali said it would invest $4.5 billion over the next five years in order to boost its production capacity by a third in an attempt to remain the world’s biggest potash company despite recent problems. Uralkali’s production capacity was hit hard by flooding at the Solikamsk-2 mine in November last year. “We are the industry leader and aim to maintain and strengthen our long-term prospects in the global potash market by increasing our annual production,” Dmitry Osipov, Uralkali’s CEO, explained.

Following the flooding, Uralkali’s capacity decreased to 11 million tons from 13 million tons. This year, production can go further down by 16 percent if Solikamsk-2 is closed down permanently. Moreover, the company might have to write down about $1 billion for the damage inflicted on the mine and for the loss of potash reserves. Financial results for 2014 reflected these problems and mainly the limited capacity to produce potash. They were also negatively influenced by non-cash write-offs caused by the weak ruble, whose value went down by more than 40 percent. Uralkali’s loss was bigger than expected – $631 million – mainly due to a foreign exchange and value loss on derivatives of $2 billion. Analysts did not mostly include non-cash write-offs in their forecasts, and therefore they expected a net profit of $784 million.

Uralkali’s earnings before tax, amortization, depreciation, and interest went up by 9 percent to $1.8 billion and revenue also increased by 7 percent to $3.6 billion. The company now intends to increase its output to 14.4 million tons by 2020 by building new facilities and expanding the existing operations. Based on the new strategy, the company has taken measures to produce additional 800,000 tons of potash from next year. Moreover, Uralkali would like to also launch Solikamsk-3 and build two new shafts to mine the remaining sources at Solikamsk-2.

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