Yara International ASA has signed a Share Purchase Agreement with EuroChem Group AG to sell its Serra do Salitre phosphate project located in Brazil’s southeastern Minas Gerais state for a cash consideration of $410 million, subject to final purchase price adjustments.
“Our ongoing transformation has a strategic focus on food solutions, premium products, and enabling the hydrogen economy,” said Yara in an Aug. 1 statement. “Salitre remains an attractive project, but as previously communicated, the project progress has been impacted by COVID-19, and significant construction time and capital expenditure remains to reach completion.”
The Salitre divestment therefore supports Yara’s transformation by reallocating capital and risk appetite in the coming years towards Yara’s strategic focus areas, the company said.
EuroChem said initsAug.1 statement the acquisition will strengthen its production and distribution capabilities in one of the world’s most important crop nutrient markets.
Yara acquired the Salitre phosphate project in late 2014 via its acquisition of a 60 percent stake in Galvani Indústria, Comércio e Serviços S/A (Galvani) (GM Aug.11, 2014). Yara paid US$185 million in deferred consideration and capital injection for the project, based on project progress and in accordance with the Galvani stake acquisition agreements (GM Nov 16, 2015).
The Serra do Salitre assets comprise phosphate mining operations at an open pit, including a tailings dam, with an annual production capacity of approximately 1.2 million mt/y of phosphate rock and an ongoing project to construct phosphate fertilizer operations with a projected production capacity of approximately 1.0 million mt/y at completion.
Last month, Yara International EVP & Chief Financial Officer Thor Giæver said the Salitre project “was progressing” after earlier COVID-19 related and other delays, and Yara was re-evaluating the timeline on the project, but was unable to provide a new completion date (GM July 23, p. 31; July 16, p. 26).
According to EuroChem, the phosphate fertilizer plant is 50 percent complete and is expected to come on stream in 2023, reaching full capacity in 2024. The plant will have capacity to produce MAP/NP and SSP/TSP products. The project will further include a sulfuric acid unit and a phosphoric acid plant, as well as a 0.4 million mt storage facility for granulated fertilizer, including urea and potash.
The mine and beneficiation plant are producing around 500,000-600,000 mt/y of phosphate rock and “already generating positive EBITDA from third-party concentrate sales,” the group noted. The mine has more than 350 million mt of reserves.
According to Yara, the estimated capital expenditure required to reach completion is of a similar magnitude to the divestment value. EuroChem said the remaining development capex to reach full capacity “is close to the deal value”.
EuroChem Group CEO Vladimir Rashevskiy said the acquisition expansion will allow the group to reduce its dependency on third-party phosphate supplies, and also creates the potential for phosphates and complex fertilizer production in Brazil.
“It significantly improves our competitive position in Brazil, and enables us to leverage the extensive blending and distribution capabilities brought by the acquisition of Fertilizantes Tocantins, which we completed last year,” Rashevskiy said.
EuroChem completed the purchase of the remaining 50 percent interest minus one share in Fertilizantes Tocantins (FTO) in August 2020 for a total consideration of R1.26 billion (US$229.68 million), fully integrating the Brazilian firm into the EuroChem Group (GM Aug. 21, 2020). The group acquired the initial 50 percent plus one share controlling stake in FTO in July 2016 (GM July 8, 2016).
The transaction with Yara, which will give EuroChem full control of all of Serra do Salitre’s assets, is expected to be completed in approximately six months, and remains conditional, among other things, of obtaining approval from the Brazilian antitrust authority (CADE) and customary closing conditions.
After deal closing, EuroChem will undertake to complete the construction works of Salitre.
When brought on stream and fully ramped up, Serra do Salitre will take EuroChem’s existing annual phosphate and complex fertilizer product output to 5 million mt/y, the group said.
Yara President and CEO Svein Tore Holsether said Yara Brazil will continue to play “an essential role” in the company’s growth agenda, and the transaction enables that growth to be driven with a sharper downstream focus.
Following the decision to divest, the Norwegian major expects the impacted assets will be classified as a held-for-sale disposal group in the third quarter of 2021 and that an impairment charge of approximately $400 million will be recognized in the same quarter.