Desert bloom: the top executive at Chile's PCS Yumbes is ready to take on his much larger fertilizer-mining rival Soquimich—even if his firm's parent company is now a minority owner of the competition

Latin CEO: Executive Strategies for the Americas, Dec, 2001 by Tim Vandenack

MARK BOULANGER, the top executive in Chile for PCS Yumbes, is holding forth in a Yumbes boardroom in Santiago. The room is decorated with bottles of white, granular nitrates and miniature excavators--small-scale models of the machinery used to stripmine the minerals.

"They obviously have the upper hand," he says, referring to Chile-based Soquimich and US-based Trans Resources, Yumbes' chief competitors in the field of specialty fertilizer production. But that lead clearly doesn't intimidate Boulanger. "What we bring to the market is competition," he says.

Boulanger believes that Yumbes, a 2-year-old subsidiary of Canadian fertilizer giant Potash Corp. (which started production in earnest just this year) is up to the challenge. The company can count on Potash's global distribution network and has fonnulated a new low-cost potasslum nitrate production process, he says. Potassium nitrate, derived from natural nitrates and found in massive quantities only in northern Chile, is a high-grade fertilizer used by fruit, vegetable, tobacco and other crop growers.

Boulanger, an American with 25 years experience in the business, recognizes that the specialty fertilizer niche is already saturated. Experts say that by 2005, if Yumbes' production grows as expected and other smaller Chilean nitrate projects move forward as planned, the specialty fertilizer market could be sufficiently swamped to trigger price wars. Analyst Vicente Perez of Cochilco, Chile's government mining agency warns, "There could be difficulty selling [the fertilizeri - or competition prejudicial to everybody."

That may be one reason why Yumbes' parent company acquired an 18 percent stake in Soquimich in November - and made headlines by aggressively pushing to elect three of Soquimich's seven directors, even though the purchase entitled the Canadian firm to only two seats.

Boulanger, who brushes off the purchase, says that competition will continue unabated, and that PCS Yumbes wili operate separately from Soquimich. "It'll be business as usual," he says. Boulanger also discounts predictions of over-supply and price wars, pointing out that specialty fertilizer sales have gone up 9 percent annually in recent years and should continue expanding at similar rates. Moreover, Boulanger says Yumbes' new potassium nitrate production technique will help it undercut the competition and creep out of the red in 2003.

"It's a competitor--a competitor that could be strong," notes analyst Jose Mujica of Santiago-based Santander Investment. Meanwhile, Soquimich, which mines an array of non-metallic minerals in northern Chile, says its track record and "proven" nitrate production procedures give it the edge.

Both companies mine the eerie landscape of the Atacama Desert in northern Chile, which contains the world's largest source of natural nitrates. In the late 1800s and early 1900s, the mineral was exported for use in explosives. These days, synthetic materials are used in explosives and the nitrates are exploited mainly for fertilizers. Soquimich is the world's largest - and until recently the only--manufacturer of natural specialty fertilizers like potassium nitrate, Yumbes' chief product. Trans Resources manufactures synthetic potassium nitrate.

Boulanger himself previously served as president of KAP Resources, a Canadian mining company that sold Minera Yolanda (subsequently renamed PCS Yumbes) to Potash for US$36 million in July 1999. After the deal Boulanger became general manager of the new firm and has since overseen efforts to get Yumbes' Atacama plant running. "It's like writing a new chemistry book," he says.

He says the plant is now capable of reaching full capacity--285,000 metric tons of potassium nitrate and 60,000 metric tons of the less popular sodium nitrate--by 2003. That's still a far cry from the million or so metric tons of potassium nitrate produced each year by Soquimich and Trans Resources.

Regardless, Boulanger hints that nitrates may not be the end of the story for Yumbes. Chile's desert yields other fertilizers that may be of possible interest to Yumbes, such as potassium chloride. Says Boulanger of his Potash parents: "If the right opportunity presents itself, they're interested." Words to live by.