Foskor is a proudly South African producer of phosphates and phosphoric acid with international exposure. Thanks to ageing plant and declining global commodity markets, the company has seen difficult times but with big planned investments on the horizon, the future is looking bright…
It’s well known that times in mining and commodity markets are difficult right now. The situation in global markets has changed dramatically in the past few years and this is largely down to a confidence crisis in Chinese financial sectors. The situation in some areas is so bad that even the biggest companies have not been safe. Take Peabody Energy for example, the world’s largest coal miner announced that it had filed for bankruptcy after the commodities price collapse.
In South Africa, a country built on mining, falling prices are already causing trouble, despite the favourable export conditions with the recent depreciation of the Rand. In February, the mining sector recorded the worst figures in three years, contracting by 8.7% year-on-year, a much higher figure than even the pessimists predicted. This contraction has paved the way for new claims that the country could be facing recession.
But even with all the negativity, there are companies that have remained positive and decided to be optimistic and enthusiastic about the future, and not get caught up in short term problems. A good example is Foskor, the country’s producer of phosphates and phosphoric acid and the only vertically integrated phosphate producer.
The falling commodity price has hurt Foskor but instead of getting stuck in a rut, the company has announced a large-scale investment into its equipment and plant with the aim of revitalising the business and improving reliability, availability and efficiency.
The company holds a strong position in the market, it has built fruitful and long-standing relationships with companies all over the world and with this new investment it is looking to improve its business case from within in the coming years.
One relationship which has been fertile for Foskor over the past 16 years has been with German company Loesche who installed an innovative mill, the VRM Type LM 50.4, back in 2000 at Foskor’s Phalaborwa site.
Foskor’s Senior Manager Project and Strategy, Shivaji Gadhave says that this type of outlay is indicative of the company’s strategy and bold approach to investment.
“In 2000, we commissioned that Extension 8 plant. Before that we were using a ball mill or traditional mill. Our team visited the site and tested material before submitting the feasibility report. It was a courageous decision at that time as that type of mill had not been used in the phosphate industry.
“Whenever you try new things there are challenges and we worked hard with Loesche on this. This mill was not designed for the phosphate industry but we’ve seen improvements in performance since using the technology in this mill,” he says.
Foskor will hope that its future investments are as successful as this. The Loesche mill is suitable for hard rock processing, can be fitted with wear resistant products, uses low steel consumption compared to conventional milling and provides a better ore liberation compared to conventional milling.
For the next three to five years, one of the main focus areas for Foskor will be upgrading ageing plant and Gadhave is confident that this will be of huge benefit to the company.
INVESTMENTS & UPGRADES
Foskor has a 65 years heritage in South Africa and, as with any company that utilised heavy industrial machinery, the time has come for a significant upgrade to allow Foskor to remain competitive.
“We have some plant that is around 40 years old so we now have the requirement to replace a portion of the plant in the Acid Division in Richards Bay. We have had the funding approved from our shareholder, the IDC, for the acid equipment last year and we have initiated the project.
“What the project is going to do is improve the utilisation of plant, the reliability of the plant and the efficiency of the plant – currently because of the age of the plant, we are struggling with these parameters.
“This investment is between R3-4 billion,” explains Gadhave.
“It will definitely be positive for us in the future and we are quite excited. We are doing everything in house and as we require we are going to source contracts and consultants depending on their expertise and contribution. It’s completely funded by our major shareholder, the IDC.
“There will not be a single partner. Depending on the different part of the plant there are different levels of expertise available in the market, so there will be several partners, several construction consultants and partners who will help us to implement this project for the next three to five years,” he adds.
The company has had success recently following upgrades and benefits from that investment are already showing.
“In December 2014, we replaced some of the major plant in our mining division. This was a R550 million investment and is currently running successfully and has helped protect our production capacity in the mining division as the old plant was no longer fit to run properly,” says Gadhave.
The R3-4 billion investment is going to act as a catalyst for growth for Foskor as it’s clear that the ageing plant has been the source of many problems for the business.
PRESSURE ON PRICE
“There is certainly downward pressure in the market on pricing and currently we are struggling with efficiency issues and availability of plant so the situation is difficult but there are opportunities and soon the situation is going to change and we will make profits,” says Gadhave.
Economic phases are cyclical and slumps are followed by peaks. If we assume that the falling global commodity prices will eventually stabilise and rise, Foskor will be well positioned to take advantage of new opportunities.
“We have seen a reduction in our market share but the major contributor to that is our old plant as we cannot produce at the level we were producing before. Our quality is still the best in the market, we have good customer relationships so I think that the market is not responsible for our reduction in share, it’s to do with our internal issues surrounding the age of our plant.
“The quality of our rock is among the best in the world. It’s the same with our phosphoric acid – it’s world class. If there is a customer looking for phosphoric acid and our acid is available at the same price, customers will go for our aid as there’s less impurities and our acid is good for niche markets. We have a quality advantage and excellent customer relationships,” explains Gadhave.
Commodity pricing has also been effected by unpredictable events that cannot be planned for. Because of the close link between phosphate and farming, events such as droughts are hugely damaging to the supply and demand situation.
“Phosphate is a commodity but you can’t generalise and group with other commodities because it is mainly used in fertiliser so it’s closely related to the farming industry. There are others uses in the food, pharmaceutical and animal feed industries but the main use is in farming. There is currently a drought in South Africa, there’s a drought in parts of India and India is the largest consumer of phosphoric acid and fertiliser so with the drought and with changing government policies there is a downward trend in price of phosphate,” says Gadhave.
“It’s a temporary cycle and we’ve seen it in the past. Things always go down and then come back up. We are geared up to survive in this is economic cycle. Currently, there is no crisis for us – we’re not going for a reduction in production or retrenchments so we are surviving and I’m sure the future will be bright.
“Returning to profit is one aim and the other is sustainability. The current plant has completed its useful life so we cannot expect much more from this plant. New plant will mean sustainability and improved efficiency and that improves cost of production,” he adds.
GROWTH & DEVELOPMENT
Following the installation of the company’s new plant and the upgrades of machinery, Foskor will be looking to grow in terms of profits and markets served.
“We always think about our country and our continent so one of the initiatives from our side is to contribute to the SADC market and grow our business there while looking for strategic alliances where possible so that we can penetrate those markets,” says Gadhave.
“We also have strategies to increase our product basket. We want to add value and move into downstream products and we are planning to diversify our business to reduce risk and ensure everything is financially sustainable.
“We are still focussing on our South African market and there are advantages here for us. We have long-term relationships and established logistics so we are well positioned in local and international markets,” he adds.
The business is also focussed on developing its most valuable asset – its people. Foskor was awarded Top Employer status in 2016, an award that has been bestowed on the company many times before, and this accreditation demonstrates that Foskor offers ‘exceptional employee conditions, nurtures and develops talent throughout all levels of the organisation and has demonstrated its leadership status in the HR environment, always striving to optimise its employment practices and to develop its employees’.
Gadhave, who joined the company in 2010, is the perfect example of how an employee has been nurtured. “I am a mechanical engineer and a registered and certified project management professional in South Africa. I joined as a project engineer in the mining division and I climbed the ladder and I am now heading up strategy and new business development.
“Foskor offers fantastic career development opportunities and shows confidence in its staff,” he says.
Development of staff forms one of the pillars of Foskor’s strategy – it’s not all about profit. Part of the company’s mission is to ‘earn the respect of stakeholders’.
“We have a mechanism in place where we engage with not only employees but also the local community. Foskor is a company that has the IDC as a majority shareholder and that means that we are not only driven by profit making but also by community development, empowerment, small business development and economic growth,” says Gadhave.
“We have the internal problem with our old plant as well as the downward pressure from the market on prices and so in the last couple of years, we haven’t made huge profits so it’s difficult to continually offer bonuses.
“We had a temporary problem but now everyone is motivated and everyone is giving their best effort to assist in the turnaround of the company,” he explains.
In the long-term, the investment into new plant is likely to be one of the biggest decisions Foskor has ever made. With the markets the way they are, always unpredictable, the pressure is on this sizeable business to perform well. Fortunately, Foskor’s people are committed and its partnerships and products are solid.
“To remain in the market you must be a profitable business but we do have other objectives and we want to emphasise this as much as possible,” says Gadhave.
This is going to be an interesting few years, and Foskor is certainly worth keeping an eye on.