March/April 2010

The long view for Prairie potash operations

Mosaic continues with expansion plans

By D. Zlotnikov

Supervisor Ken Berg at the Colonsay underground storage bin – a piece of the phase one expansions.

The recent ups and downs of the market have tested the producer, but the company is pushing ahead to add capacity at its three mines. The calculation is simple: potassium helps grow the food that feeds the growing global population. And so Mosaic grows.

When it comes to potash mines, is there such a thing as too big? That question is still open for discussion, according to The Mosaic Company one of the world’s premier potash producers. Mosaic’s Esterhazy Mine, located near Esterhazy, Saskatchewan, is already the largest potash mine in the world, with an annual capacity of 5.3 million tonnes. But in expectation of increasing demand, Mosaic has undertaken a series of expansion projects at the mine, which will see it reach new record-setting production levels by 2020.

The expansion is not limited to Esterhazy; Mosaic owns two other potash mines in Saskatchewan, Belle Plaine and Colonsay. All three saw additional development approved and begun in 2007, and will be entering their third season of expansion work as soon as weather permits — all this despite 2009 being a tough year for potash producers, to put it mildly. In fact, Norm Beug, Mosaic’s senior vice-president of potash operations, describes it as “the worst year on record, certainly in my career.” The economic downturn was not kind to farmers, which meant lower sales and falling prices for potash. The year that started with predictions of spot prices for the mineral hitting US$1000 per tonne ended with sales prices of around US$350 per tonne, approximately one-third of the expected level. Mosaic acknowledged the downturn in January of 2009 and announced temporary layoffs of 1,060 of its 1,500 Saskatchewan-based workforce. The company also sharply reduced its production goals for the year.

Yet despite the downturn, Mosaic is expecting to spend over $1 billion on its expansion plans in 2010 alone. Beug points to a recovering global grain market and the consequent need for nutrients as one sign of an expected increase in price, but places the emphasis on what he feels is the foundation Mosaic is building on — the appetite of a growing global population. ”At the end of the day, we’re in the food business and an important part of the food chain. That’s how we look at it,” he says.

The world needs to eat

The growth is going to be fuelled by more than just population increase, Beug explains. As the agricultural systems in developing countries become more modernized, using nutrients to increase yields will make more sense. On the other side of the equation, demand will be driven by two major factors Beug highlights: the increasing numbers of the middle class and the continued push for biofuels.

“People are the same the world over; they want better quality food,”says Beug. “They want to be able to eat more poultry, more pork, more beef, have milk, yogurt, just like we do. We see that as a significant driver to our business. The shift to a more meat-based diet is a significant driver for potash demand.”

When it comes to biofuels, Beug believes these will be considered a very important resource, especially for countries with limited access to reserves of oil and natural gas. Additionally, the continued struggle to limit carbon emissions can be addressed by switching to ethanol-based fuels. Given that all of the ethanol sources being used today for fuel production are plant-based, Beug sees this as a boon for potash producers. “Even with cellulosic ethanol, if it comes, you’re still going to have to have nutrients to grow the plants you use for biofuel,” he explains.

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