B09012

ARAB POTASH COMPANY

INTRODUCTION
 ARAB POTASH COMPANY

Arab Potash is a company that is primarily involved in harvesting minerals from the Dead Sea for use
in the agricultural and chemical industries. The company was formed in 1956 as a pan-Arab business
venture and has a 100-year concession from the government of Jordan to manufacture and market
mineral products derived from the Dead Sea. It is headquartered in Amman and its name is
abbreviated to APC. 1,2

The Arab Potash Company employs over 2000 personnel and has offices in Amman, Safi and Aqaba.
It owns extensive housing and recreational facilities near its plants, and in addition, it provides the
surrounding region with assistance in social, medical, economic and vocational development. 3

The Group operates under four segments: Producing potash and salt through Arab Potash Company,
producing mixed salts and mud through Numeira Company, producing potassium nitrate/fertilizer
and dicalcium phosphate/fertilizer through Arab Fertilizers and Chemical Industries (KEMPACO) and
producing NPK fertilizer and DAP fertilizer (Di-Ammonium phosphate) through Nippon Jordan
Fertilizers Company (NJFC). The Company has four manufacturing plants across Jordan, namely the
hot leach plant, the cold crystallization plant, the compaction plant and the industrial potash plant.
The Group operates in Asia and Europe. It supplies its products mainly to India, China and
Malaysia.4,5

The company is listed on the Amman Stock Exchange’s ASE Weighted Index 6.

The major Shareholders of Arab Potash Company are as follows 7:

The prominent officers of Arab Potash Company are 8:

OFFICERS

BOARD OF DIRECTORS Position

Mohammad Nasser Salem Mohammad Abu Hammour Chairman

Mansour Bin Suliman Bin Ibrahim Al Mebrek Vice Chairman

Nabeeh Ahmad Mahmoud Salameh Board Member

Mohammed Nour Abd Al Majeed Ali Al Shreideh Board Member

Eyad Jamal Ahmad Al Qudah Board Member

James Francis Dietz Board Member

Garth William Moore Board Member

Thamer Ahmed Abd Al Majeed Obeidat Board Member

Adnan Ahmad Rashid Al Rashdan Board Member

Hisham Ibrahim Rasheed Al Sha'ar Board Member

Abdelwadoud Abdelsattar Mahmoud Al Dulaimi Board Member

Younis Siddiq Younis Kreikshi Board Member

Abdullah Hasan Mshari Al Bader Board Member

MANAGEMENT Position

Michael Terence Hogan General Manager

Gary Phillips Deputy General Manager - Technical Affairs

William Lawrence Flahr Deputy General Manager - Finance

Jafar Mohammad Hafez Salem Deputy General Manager - Marketing

The industries where Arab Potash competes are:

 Agricultural Chemicals
 Basic and Intermediate Chemicals and Petrochemical Manufacturing
 Chemicals

Hence, the industry players can be any player which is involved in any of the above sectors. Names
of some prominent players are given below:

Makhteshim Agan Industries Limited, Israel Chemicals Limited, Misr Chemical Industries Company,
Agrium Incorporated, Akzo Nobel N.V., Albemarle Corporation, Arch Chemicals Incorporated , CEA-
Industrie SA, ChemFirst Inc., Cytec Industries Inc., Delta Electrical Industries Ltd, Eramet, GenTek
Incorporated, Great Lakes Chemical Corporation, ITOCHU Corporation, Minerals Technologies Inc.
Mitsubishi Gas Chemical Co., Inc., Nippon Chemical Industrial Co., Ltd., Nippon Synthetic Chemical
Industry Co., Nissan Chemical Industries Ltd, Octel Corporation, Rasa Industries, Ltd., Mosaic
Company, Potash Corporation of Saskatchewan (POT), Intrepid Potash, Athabasca Potash, Potash
One, Anglo Potash, Israel Chemicals Limited, K+S AG, OAO Silvinit. 9
The peers selected are:

Potash Corp of Saskatchewan (Canada), Uralkali (Russia), Israel Chemicals Limited (Israel), Mosaic
Company (USA)

NON-FINANCIAL INDICATORS OF THE FIRM:

 R&D: Better techniques and equipments helps in extracting and processing minerals at lower
costs, thereby helping in cost cutting.
 Marketing Effort: The market for Potash is pretty competitive, with stiff competition from
Russia, China, Canada and USA. Potassium is produced in 12 countries and supplied to
almost all the countries of the world 10!!Hence, marketing effort helps the company in sealing
deals with clients in different countries at attractive prices.
 International Promotional Activities: This step also helps the company to increase its global
visibility and reach out to more and more countries. APC is an active participant in the
International Fertilizer Association (IFA) and the Arab Fertilizer Association (AFA). APC is also
an active member of the International Plant Nutrition Institute (IPNI); promoting balanced
and responsible scientific methodology for fertilizer application. 11.1
 Company’s Projects: The Company has invested in a lot of new projects, which increase its
value.
 Training to Human Capital: The regular training (local and sometimes foreign) provided to
the staff members enhances their efficiency and increases their contribution to the firm. The
average employee turnover ratio for Arab Potash is just 1.07%. 11.2
 International Quality Standards (ISO): The Company has remarkable safety records. The
Company’s Lost Time Frequency Rate of 0.48 was much better than the previous record of
0.90 set in 2005. The Accident Severity rate of 21 beat the previous record of 49.8 set in
1993. Also, the Frequency Severity Indicator of 0.10 was much better than the previous
record of 0.44 set in 1996. Better safety measures lead to reduction in losses, both time and
labour, and improve the productivity of the firm. 11.3

RANKS IN FORBES 2000 LIST12:

ARAB POTASH COMPANY – 1964

MOSAIC COMPANY – 367

POTASH OF SASKATCHEWAN – 448

URALKALI, ISRAEL CHEMICALS LIMITED – UNLISTED

The titans listed on Forbes 2000 get a composite ranking from four metrics: sales, profits, assets,
market value.

Uralkali was listed no. 1687 in the Forbes 2008 list 13. 2008-09 was a harsh year for the Potash
industry as the economic turmoil in the financial capitals of the world rapidly affected even the most
remote corners of Asia and Latin America – Uralkali’s largest sales markets, whilst the subsequent
downturn in the world economy resulted in a significant drop of demand for fertilisers. As a result,
Uralkali witnessed a considerable drop in global demand for potash, and had to significantly reduce
the production of potash fertilisers in the fourth quarter of 2008. 14 Uralkali has again delayed its
plans to increase potash production15. This could be the reason for its dropping out from the list.

Israel Chemicals Ltd. actually has 3 divisions -ICL Fertilizers, ICL Industrial Products, ICL Performance
Products16. Though the company’s sales, profits and assets figure is high enough, it is probably the
market value which is not so high, when the complete enterprise is taken under consideration,
which results in the exclusion of the company from Forbes 2000 list.

SHAREHOLDER VALUE FRAMEWORK:

Factors Profitability Risk Growth Capital Market

Conditions

Ratios/Measure Return on Std. Dev (RoE)/ CAGR Market Value

s Equity Mean (RoE)

Arab Potash 60.4 0.94 0.63 High

Company

Mosaic 30.94 1.23 0.29 Very High

Company

Uralkali 92.2 0.64 0.36 Decreased in

2009

Israel 79.41 0.68 0.51 Average

Chemicals
Limited
*Risk: RoE have been taken for the past 5 years. 4 years in case of Uralkali due to lack of information

Arab Potash Company has performed well in the recent years. It ranks very high in the
profitability and growth parameters. It might look risky, however if we glance at the actual
Return on Equity figures we will find that it has increased from 7.5% in 2004 to 60.4% in
2008 and hence is a positive indicator for the company. The fact that despite having higher
profitability and lower risk than Arab Potash, Uralkali and Israel Chemicals Ltd do not
feature in the Forbes 2000 list establishes the fact that the market value of Arab Potash is
higher than these companies. (Uralkali has in fact dropped out of the 2009 Forbes List after
occupying 1687 rank in 2008)

Despite the low figures, Mosaic Company has been rated high on Market Value because the
company has a very good reputation and is involved in a lot of socially responsible work for
the community. It is this very feature which results in the company occupying a very high
position of 367 in the Forbes 2000 list of companies.

FUTURE PROSPECTS

Factors Profitability Risk Growth Capital Overall

Market
 Conditions

Arab Potash 0 + + + 2.5 +, 1 ‘0’

Company

Mosaic 0 + + + 2.5+, 1 ‘0’

Company

Uralkali 0 + + + 2+, 1 ‘0’

Israel 0 + + 0 1+, 2 ‘0’

Chemicals
Limited

On the Risk front, all of these companies are sitting pretty well because they are amongst
the top 7 manufacturers of potash in the world, and produce around 90% of the total
production. Significant barriers to entry exist due to significant start-up costs which
represent a high risk for any newcomers. Also there is a lack of good deposits as potash is

Considering the Growth parameter, there are expectations of a rebound in the Potash
market (IFA is predicting around 13.5% rebound in demand for demand) after the world
potash market collapsed in 2009, as international import demand dropped to its lowest
level of the past 30 years19. However, at the same time, the players are playing safe and
Uralkali has even postponed its intended new production capacity installation 15. Hence, in
the near future, we can expect the potash demand to increase by some amount due to the
high consumption by the Indian market, as well as the Western countries increasing stress
on improving productivity in order to put land to generation of biofuel crops. Hence, a small
+ has been given to this factor.

Profitability is more or less expected to remain constant as the marginal increase in

productivity would be compensated by the lowering of prices due to fierce competition
amongst the producers amidst a recovering economy.20

The capital market conditions have been reflected in the Forbes 2000 list. While Mosaic
Company enjoys a good reputation, both amongst the investors as well as the communities,
Arab Potash Company has also invested in expanding and modifying its projects as well as
increasing its international visibility and presence, and hence its market value should be
high in the future. Uralkali had had a decrease in its market value in the past year resulting
in its dropping out of the Forbes 2000 list. However, its good financial figures, as well as the
fact that it has paid up 7.8 billion roubles to all levels of Govt., in line with its strong
commitment to social responsibility, to cover the costs related to the Mine 1 accident and to
bridge the financing gap for the construction of the 53-kilometer Yaiva-Solikamsk railway
link, bypassing Verkhnekamskoye potash-magnesium salts deposit 21, will only add to its
value and hence a small + sign. Israel Chemicals Ltd., despite its impressive performance,
has not been able to get a place in the Forbes 2000 list and hence it has been given a 0
value.

REFERENCES:

1. http://en.wikipedia.org/wiki/Arab_Potash
2. http://www.google.com/finance?q=AFM:APOT
3. http://www.arabpotash.com/inside.php?src=ml&ml_id=1
4. http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C400D1270
5. http://www.google.com/finance?q=AFM:APOT
6. http://en.wikipedia.org/wiki/Arab_Potash
7. http://www.arabpotash.com/inside.php?src=ml&ml_id=2
8. http://www.hoovers.com/company/Arab_Potash_Company_Limited/rtrjfci-1-1njea3.html
9. http://www.icongrouponline.com/pr/Arab_Potash_Company_JO/PR.html
10. Mosaic Annual Report 2008 – Pg 12
11. Arab Potash Company Annual Report 2008 –Pg 18,33,37
12. http://www.forbes.com/lists/2009/18/global-09_The-Global-2000_IndName_6.html
13. http://www.forbes.com/lists/2008/18/biz_2000global08_The-Global-2000-
Russia_10Rank.html
14. Uralkali Annual Report 2008 – Pg 4-7
15. http://uk.reuters.com/article/idUKGEE5AN2AU20091124
16. Israel Chemicals Ltd Annual Report 2008 – Pg 31
17. uncommon and geographically concentrated.17
18. http://www.farmchemicalsinternational.com/news/marketupdates/?
storyid=1810&style=1
19. http://www.icis.com/Articles/2009/12/24/9319909/OUTLOOK-10-Fertilizer-
producers-expect-big-rebound.html
20. http://www.farmchemicalsinternational.com/news/marketupdates/?
storyid=1810&style=1
21. http://www.uralkali.com/eng/media/news/detail.php?ID=1108