By Brendan Borrell and Daniel Grushkin
Nov 5, 2010 11:15 AM ET
Béatrice Montagnier, a hotel specialist with consulting firm Horwath HTL, snapped pictures of an old warehouse and a jumble of sun-baked two-story concrete block homes outside the Moroccan town of Khouribga. It was May 2009 and Paris-based Montagnier was scoping out a planned site for an 800-acre hotel resort and museum. While she worked on details of project layout, one issue — funding — was not a concern. The estimated $1 billion needed to build the resort would come from the ground beneath her feet, Bloomberg Businessweek reports in its Nov. 8 issue. Khouribga and elsewhere in Morocco are home to the world’s biggest known deposits of phosphate, used in fertilizer, detergent, food additives, and more recently lithium-ion batteries. Sold for decades in its raw state for less than $50 per metric ton, it’s currently at about $125, according to World Bank figures. This is good news for Morocco’s King Mohammed VI, 47, who owns more than half the world’s phosphate reserves. Mohammed VI is the unofficial overseer of the state-owned phosphate monopoly, Office Chérifien des Phosphates (OCP), Morocco’s largest industrial company. Most traders expect OCP to drive the commodity’s price higher, which means the cost of making everything from corn syrup to iPads will be going up. Phosphate as fertilizer is the engine powering modern agriculture, and its reserves are in decline almost everywhere except Morocco. Most phosphate mines, including those in the U.S., which produces 17 percent of global supply, have been in decline for the past decade, running out of quality rock and hindered by environmental regulation. That has forced companies to look farther afield for supplies.
Mosaic, BHP, Potash
Earlier this year, Mosaic Co. spent $385 million for a 35 percent stake in a Peruvian mine to supply rock to its phosphate operations in the U.S. and South America. Australia’s BHP Billiton Ltd., the world’s biggest mining company, made a $40 billion hostile takeover offer for Canada’s Potash Corp., a major supplier of both potash and phosphate. Even a temporary phosphate shortage could affect a range of U.S. industries. Phosphate fertilizer is used on just about every crop, though most in the U.S. goes to the 13 billion bushels of corn grown each year to make everything from corn syrup to cattle feed to ethanol. The 2007-08 food crisis gives clues to how a shortage might play out. At that time, rising food prices led to riots across Africa and Asia. Before the crisis was over, China had levied a 135 percent export tariff on its phosphate to protect its domestic food supply; phosphate there is still taxed at 110 percent at the height of the buying season.
85% of World’s Total
The scale of Morocco’s phosphate wealth was officially verified in September, when the International Fertilizer Development Center released its long-awaited update on global phosphate resources. Morocco’s portion went from the 5.7 billion tons still cited in U.S. Geologic Survey reports, to 50 billion tons — 85 percent of the world’s total. Even with 170 million tons of concentrated phosphate changing hands each year, the Moroccans likely have at least 300 to 400 years of rock available.
Talal Zouaoui, OCP’s director of communications, won’t agree or disagree with estimates, but says in an e-mail that Morocco has “significant reserves,” and notes that reserves denote only those quantities that countries have discovered and deem economically viable to extract. With a growing world population consuming more grain, more meat, and more biofuels, demand is expected to rise at a rate of 2 percent to 3 percent per year, according to the International Fertilizer Association. Dana Cordell, co-founder of the Global Phosphorus Research Initiative, predicts that phosphate production will “peak” within the next 50 years.
Fertilizer, Coca-Cola
Not all phosphate becomes fertilizer: about 15 percent is turned into detergents or food additives, such as the tangy phosphoric acid in Coca-Cola, or the moisture-retaining salts in salami.
OCP controls 30 percent of global phosphate exports, and plans to increase annual production from 30 million tons to 54 million tons by 2015, investing $5 billion in the process. By that time, Prayon SA, a Belgian phosphate processor in which OCP owns a 50 percent stake, believes demand for phosphate as a component of the lithium-ion batteries in electric vehicles could exceed demand for it in detergent. At September’s World Fertilizer Conference in San Francisco, Morocco’s ascendancy was the main topic of conversation.
Hotel Hopping
Asked about OCP, trader Mark Mangassarian answered with a question: “Oh, you mean the guys who are trying to drive up phosphate prices the most?” Mangassarian, who is assistant vice-president for sales at Nitron International in Stamford, Conn., spent three days doing deals at the San Francisco conference hopping from suite to suite at the Westin St. Francis on Union Square. Though the industry average for diammonium phosphate fertilizer has hovered around $500 this summer, the executives he sat down with weren’t willing to go below $550. A few weeks later, Mangassarian came to see it their way, and is paying $560. OCP’s tough negotiating tactics have irritated many in the industry. “You try to talk to them, and they don’t answer. They’ve always been like that. That’s their strategy,” says Taoufik Meddeb, who buys sulfur for Groupe Chimique Tunisien, another state-owned company and OCP’s biggest competitor in North Africa. “God just put the phosphate there,” said Jamal Bensari, a member of OCP’s delegation. “It is our only resource, and it is our responsibility.” ‘Quasi-Impossible’ OCP’s current communications director Zouaoui declined to arrange interviews for Bloomberg Businessweek following multiple requests in September and October. “It is quasi-impossible right now,” he explained. In a separate e-mail, he also noted that OCP is “subject to customary international governance standards for a global corporation, including transparency and accountability.”
Mohammed VI, called the King of the Poor for his efforts to raise Morocco’s living standards, has about $2 billion in assets, which places him seventh on Forbes’ list of the richest royals. That’s far behind Sheikh Mohammed of Dubai but well ahead of the Prince of Monaco. Although he is not technically the head of state, he has control of the country as both a secular and religious leader. He appoints the Prime Minister and his Cabinet, and has the power to overrule or dissolve the elected Parliament. His portrait adorns the first page of OCP’s annual reports, and his face appears in nearly every home and coffee shop. The Moroccan Embassy did not respond to requests for interviews with the King.
Disputed Territory
Western Sahara is a disputed territory. It’s also where Morocco’s best phosphate lies. The region known to the King as “Moroccan Sahara” begins just south of the fishing village of Tarfaya on the Atlantic coast. The UN calls it “the non-self- governing territory of Western Sahara” and deems it “occupied.” It’s a place where phosphate rumbles to the coast on the world’s longest conveyor belt, while tanks and soldiers roam alongside, defending the shipments from Sahrawi separatists.
When Spain withdrew from Western Sahara in 1975, some 350,000 Moroccans marched into the region with tents on their backs. The native Sahrawi fought back for 16 years under the leadership of the Algerian-backed Polisario rebels, signing a cease-fire in 1991. The UN continues to monitor the agreement with 215 uniformed peacekeepers, but a planned vote on self- determination has been repeatedly delayed. Today, approximately 90,000 Sahrawi live in refugee camps in Algeria, separated from their families in Moroccan-controlled territory by a 1,400-mile- long berm dotted with land mines.
Land Mines
OCP reports that just 2 percent of Morocco’s phosphate lies in the Phousboucraa mine at Bou Craa in Western Sahara, and that it accounts for 6 percent of sales. Companies in Australia and Norway have said they no longer use phosphate mined in Western Sahara. In August, Mosaic told the advocacy group Western Sahara Resource Watch that it has stopped buying rock from the territory. The U.S., in addition to needing the phosphate, sees Morocco as an ally in the war against terrorism. Last year, Secretary of State Hillary Clinton reaffirmed U.S. support for Morocco’s plan of “limited autonomy” for the territory, which stops short of the independence demanded by the Polisario.
Private Riads
Montagnier finished her consulting contract last year, but her employer, Horwath, has a small office in Rabat and is working on other projects. The King opened the Royal Mansour Marrakech hotel this year, with private riads — the traditional style of home with a courtyard and garden — going for $2,200 per night. For Khouribga, Montagnier has settled on three stars for the hotel, but says the final room tally awaits approval by OCP. Architects put the total price on the project, known as Mine Verte, at 665 million euros ($937 million). “Khouribga is the world capital of phosphates,” says Founoun Mohammed, 48, a subcontractor overseeing the first stages of a pipeline that will deliver phosphate in slurry form from Khouribga to the port of Jorf Lasfar south of Casablanca, 146 miles away. After work he settles down at the back of a favorite restaurant and talks business over seafood paella. A bottle of Moroccan wine is not to his liking, and he orders a French red for the table. “People will come from Europe, the United States, everywhere to see Khouribga. It will raise the level of the city.” He is in high spirits and pours a glass of wine for the waiter, who tosses it back in a single gulp. Mohammed says he loves his country: He is safe and has a good job, what else can he ask for? “The King,” he says, “is a gentleman.”
To contact the reporters on this story: Brendan Borrell at [email protected]; Daniel Grushkin through Bryant Urstadt in New York at [email protected]
To contact the editor responsible for this story: Amanda Jordan at [email protected]