Arab Potash Company

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Arab Potash Company

6 Jaheth St. Shmeisani
P.O. Box 1470
Amman, 11118
Jordan
Telephone: (+962 6) 5666165
Fax: (+962 6) 5674416
Web site: http://www.arabpotash.com/About.html

Public Subsidiary
Incorporated: 1956
Employees: 2,173
Sales: JOD 224.4 million (2005)
Stock Exchanges: Amman
Ticker Symbol: APOT
NAIC: 325312 Phosphatic Fertilizer Manufacturing

Arab Potash Company (APC) is one of the world's top ten producers of potash, a potassium derivative used in the production of glass and other products, but especially in the production of fertilizers. Jordan itself is the sixth largest national producer of potash (Canada and Belorussia are the largest). The Amman, Jordan-based company holds the monopoly concession for exploiting the minerals of the Dead Sea, one of the few known large-scale potassium deposits. APC produces all four grades of potash, including standard (54 percent of production), fine (37.7 percent), granular, and industrial. The company exploits the Dead Sea's vast mineral deposits directly, through the operation of several large solar evaporation pools (which are large enough to be visible from space). Potash is produced using both hot leach and cold crystallization methods. The company produced more than 1.8 million metric tons of potash in 2005. Nearly all of the company's potash production is destined for the export market, with China (32 percent of company production), India (12 percent), and Malaysia (6 percent) as primary offtakers. Altogether, the Asian region accounted for nearly 70 percent of APC's exports. Other foreign markets include Europe (14 percent), as well as Africa and the Middle East. In the early twenty-first century, the company has also been boosting its share of local sales, to nearly 10 percent of shipments by 2005. Part of this effort comes through sales to the company's subsidiaries, and especially Kemira Arab Potash, a joint venture with Denmark's Kemira set up in 1999; and the Nippon-Jordan Fertilizer Company, a joint venture in which APC owns 20 percent. Other APC subsidiaries include Jordan Magnesia, for the production of magnesium oxide; Jordan Bromine, a joint venture with the United States' Albemarle established in 1999; Numeira Mixed Salts & Mud; and Jordan Safi Salt. APC itself is controlled by Canada's Potash Corporation of Saskatchewan, which holds nearly 27.7 percent of the company; the Jordanian government, through the Jordan Investment Corporation, which holds more than 26.8 percent, and the Arab Mining Company, which holds more than 19.5 percent. Other shareholders include the governments of Saudi Arabia, Iraq, Libya, Kuwait, and others in the region, reflecting APC's origins as a pan-Arab initiative. Just under 7.5 percent of the group's shares are listed on the Amman Stock Exchange. In 2005, APC posted revenues of more than JOD 224 million.

PAN-ARAB POTASH PROJECT IN 1956

While the Dead Sea had long been known to have extensive mineral deposits, including vast amounts of potash, the earliest efforts to develop the production of potash on an industrial scale came about only in the early decades of the 20th century. Moshe Novomeysky, an engineer who had gained potassium salt mining experience in Siberia before immigrating to the then-Palestine in the 1920s, petitioned the British authority there for permission to launch a potash and bromine concession. Novomeysky was granted the concession, and founded Palestine Potash Ltd. in 1927, building a production site in Kalil, based on vast solar evaporation pools, along the northern shore of the Dead Sea. By the end of the 1930s, Palestine Potash had added a second facility, in Sodom, to the south. At the same time, the British authority had also begun to develop plans to develop mineral production on the Jordanian side of the salt lake.

The Israeli Independence War of 1948 put an end to these plans; during the war, the Palestine Potash facilities at Kalil were destroyed, while production at the Sodom facility came to a halt as well. These were later restarted, under a new company owned by the Israeli government. That company, called Dead Sea Works, later became part of Israeli Chemicals Limited.

The creation of Dead Sea Works encouraged Jordan to revive its own plans to exploit the Dead Sea Works resources. In 1956, the Jordanian government joined with a number of other Arab states, including Saudi Arabia, Iraq, and Kuwait, as well as Libya, to form a new company, Arab Potash Company (APC). APC remained majority held by Jordan, however. Despite its name, APC's original mandate was to exploit the full range of minerals available from the Dead Sea, including bromine and others. This mandate was further underscored in 1958, when the Jordanian government granted APC the monopoly to all Dead Sea mineral production, for a period of 100 years. The monopoly agreement called for APC to make royalty payments to the Jordanian government of JOD 8 per ton. Nonetheless, a cap was placed, fixing the maximum royalties due from APC at 25 percent of its net income.

However, the immediate plans to develop APC came to nothing, and for nearly 25 years the project lay dormant. It was only in 1975 that the Jordanian government revived the APC project. The company launched new plans to develop a site along the Dead Sea located some 110 kilometers from the Jordanian capital. The site, which acted more or less as a network of solar evaporation ponds with an area of 130 kilometers, was also located to the north of the Red Sea port of Aqaba. Despite a 200-kilometer drive over small roads, access to the port enabled APC to position itself as one of the lowest-cost potash providers, especially to the Asian market.

By 1976, the Jordanian government had raised nearly $500 million in start-up capital. The company then launched the initial phases of the project, which involved testing the different available production technologies to determine which could best be adapted to the harsh desert conditions at the site. Construction finally began in 1979 and lasted until 1982. By the time of its completion, APC had succeeded in building nearly 120 kilometers of eight-meter-wide seepage-proof dikes.

ADDING SUBSIDIARIES

APC's first commercial shipments of potash at last came in 1983, nearly 30 years after the initial conception of the project. The company quickly ramped up its production, and by the second half of the 1980s had succeeded in reaching the site's initial production capacity of 1.2 million tons per year. From the start, APC produced all four grades of potash, although the standard and fine grades were to represent the bulk of the company's production.

COMPANY PERSPECTIVES

APC management strongly believes that Quality, Environment and Safety are the crucial pillars for assuring business sustainability, profitability and growth.

With the surging demand for potash, particularly from the Chinese and Indian markets, the company soon sought to expand its production. By 1989, APC's total production had topped 1.3 million tons. Further improvements in its technologies, as well as investments in its plant, allowed the company to reach its new goal of 1.4 million tons by 1990. By then, APC's total revenues had topped JOD 87 million (approximately $145 million), with a profit of nearly JOD 40 million ($60 million). India at the time represented the company's largest market, taking 444,000 tons of APC's potash that year, while China accounted for 318,000 tons, and Indonesia for 109,000 tons. Yet the company's export operations remained highly flexible in order to accommodate the constant shifts in international demand. In 1991, for example, China emerged as the company's largest customer for the first time. In 1993, Indonesia briefly became the group's largest export market.

With its production and export operations solidly in place, APC next sought to diversify its holdings, primarily through an entry into various downstream operations. In 1992, for example, APC became a minority partner in a new joint venture, Nippon Jordan Fertilizers Company (NJFC). That company was controlled at 60 percent by a consortium of Japanese companies, including ZEN-NOH, Mitsubishi Kasei, Asahi, and Mitsubishi Corporation, while APC, and fellow government-owned group Jordan Phosphate mines, each took a 20 percent stake. NJFC launched construction of a fertilizer production facility in Aqaba, investing nearly $84 million in the plant. Production began in 1997, with a total capacity of 300,000 tons per year.

APC also sought more direct control over its downstream operations. In 1994, the company set up a new holding company, Jordan Dead Sea Industries (JODICO), in order to investigate new expansion possibilities. This led to the 1996 creation of Jordan Safi Salt Co. (JOSSCO), which was formed through the spinoff of part of APC's own production lines in order to produce industrial-grade and table salts. JOSSCO's production was launched in 1997, expecting to reach a capacity of 1.2 million tons of industrial salt and 32,000 tons of table salt, which were supplied to the export market through a warehouse facility at Aqaba.

Potash remained the company's core operation, however. With the continued surge in global demand, APC developed new plans for a production increase. In 1996, the company added a second production line, based on the cold crystallization method, a more efficient, lower-cost alternative to the group's hot leach production basis. The addition allowed APC to boost its total production capacity to more than 1.8 million tons, further solidifying its position as one of the world's top ten potash producers.

BECOMING PRIVATE FOR THE NEW CENTURY

APC continued to seek to diversify its business into the late 1990s and early 2000s. In 1997, the company became the majority shareholder in a new company, Numeirah Mixed Salts & Mud. That company was founded in order to package and market Dead Sea salt, minerals, and other products for the cosmetics industry, taking advantage of their reputed health and beauty properties. The success of the Numeirah operation soon led it to provide packaging services for APC's potash production as well.

Also in 1997, APC became the majority force behind the creation of Jordan Magnesia Company. That company was formed in order to produce magnesium oxide and magnesium hydroxide, both byproducts of the potash production. Initial plans called for the company to build a plant with a total capacity of 60,000 tons per year. Yet repeated delays by the original contractors caused the company to cancel their contract in 2002, and instead appoint the United States' Washing Group International to take over the project.

In the meantime, APC's JOSSCO operation had also fallen into difficulties; the company's production had never reached more than 25 percent of its initial projections. In 2002, JOSSCO itself was liquidated, and its assets transferred directly under JODICO. In another setback, one of the group's dikes had collapsed in 2000, forcing the company to undertake a costly repair and placing part of its solar evaporation capacity out of service into 2006.

KEY DATES

1956:: Arab Potash Company (APC) is created in order to exploit mineral resources of Jordanian coast of the Dead Sea.
1958:: APC is granted a 100-year monopoly for the Dead Sea minerals.
1979:: Construction begins on potash production facility.
1983:: APC records first commercial shipments of potash.
1992:: APC becomes minority partner in Nippon Jordan Fertilizers Company joint venture as part of downstream diversification effort.
1996:: Company launches new 400,000 ton-per-year cold crystallization plant, boosting total production to 1.8 billion tons per year.
2003:: APC is privatized and 26 percent stake is sold to Potash Corporation of Saskatchewan.
2006:: APC carries out construction of new expansion program in order to boost total production by 500,000 tons per year.

Yet APC's operations elsewhere remained strong, and buoyed by the continued high global demand for potash. The peace agreement reached between the Jordanian and Israeli governments in 1994 had also brought new stability for the company, as well as the promise of new markets. Immediately following the conclusion of the peace agreement, APC launched talks with Dead Sea Works in order to examine areas of cooperation available to the two companies. One important topic was the possibility of building a railroad linking the Dead Sea with the ports of Aqaba and Eilat, a move which would provide significant transport reductions for both companies. APC also hoped to gain access to the Mediterranean port of Ashdod, which would provide the company with less costly access to the European market.

In the meantime, APC continued to explore other areas of operations. In 1998, the company began construction of a new factory in order to produce industrial potash. Although initial production was launched in 1999, the company was unable to meet its quality objectives, and was forced to suspend production until it resolved a number of technical issues. By 2001, APC had completed the upgrade of the plant, ramping up its output to 11,000 tons per year. By 2003, the factory had reached production of 33,000 tons per year, while targeting a full production capacity of 100,000 tons per year.

By then, APC had started production at another joint venture, Jordan Bromine Company. That company, a 50-50 joint venture with the United States' Albemarle Holdings Co., built a new bromine production facility at Safi-Jordan, at a cost of $143 million. In addition to 50,000 tons per year of elemental bromine, the new factory was also slated to produce the flame retardant tetrabromo-bis-phenol-a, as well as calcium bromide, sodium bromide, and hydrogen bromide.

The accession of King Abdullah II to the Jordanian throne in the meantime had introduced a new era for the country's economy. Abdullah II launched a privatization program as part of an overall economic reform program backed by the International Monetary Fund. APC, as one of the country's largest and most profitable businesses, became a centerpiece of that effort. Ahead of its privatization, APC underwent a restructuring, streamlining its extended management structure, as the government began accepting offers for half of its 52 percent stake in the company.

By 2003, APC had a new major shareholder when the government sold a 26 percent stake in APC to Canada's Potash Corporation of Saskatchewan (PCS), in a deal worth some JOD 123 million. PCS also gained the right to acquire the remainder of the Jordanian government's stake in the near future, as well as the right to appoint several key management positions, including the managing director position, at APC.

The arrival of the APC-appointed management, under General Manager Brent Heimann, signaled the start of a fresh period of growth for the company. In 2005, the company launched a new $150 million expansion program. This plan included the construction of a new cold crystallization plant with a capacity of 450,000 tons per year, as well as upgrades to the group's existing plants expected to boost their production by 50,000 tons per year. The increased capacity was slated to boost APC into the top five among the world's potash producers. The company also expected to benefit from the continued surge in potash demand, particularly from China, India, and the southeast Asian region. While exports remained the company's primary market, the emergence of a new industrial infrastructure in Jordan had begun to show on the group's sales totals; by 2006, some 9 percent of the group's total production had been earmarked for the domestic market.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Jordan Bromine Company (50%); Jordan Magnesia Company (55.3%); Kemira Arab Potash Company (50%); Nippon Jordan Fertilizers Company (20%); Numeira Mixed Salts & Mud Company (52.7%).