5 Key Things Potash Corp Management Wants You to Know

Image source: Potash Corp.

#1 Regarding potash

Optimistic outlook despite headwinds

Source: PotashCorp

What management said “Even with more modest expectations for

global economic growth, our outlook for potash remains positive and we anticipate global potash shipments will be in the range of 59 million tonnes to 62 million tonnes.”

CEO Jochen E. Tilk

Forecast for potash shipments

Source: PotashCorp’s 2015 Annual Integrated Report

PotashCorp’s outlook2016 global potash shipments: 59 million

tonnes-62 million tonnes. 2015 shipments: 60 million tonnes

Favorable farm economics and the need

to replenish soils with essential nutrients to fuel demand in coming years

#2 Regarding China

China: The biggest challenge

Image source: Sven via Flickr

What management said “[W]e expect in most other major markets

that we’ll see improved demand in 2016 compared to 2015, but the first quarter will be a slower quarter that largely will be influenced by the timing of a China settlement.”

President of PCS Sales, Stephen Dowdle

World potash shipments by market

Source: PotashCorp’s Market Overview Report, February 2016

The concerns PotashCorp expected China to negotiate potash import

contracts for the year by mid-February. However, no talks have been held yet.

As the world’s largest potash importer, China sets the benchmark prices that potash producers can fetch from their contracts worldwide.

Macquarie expects China to settle at $270-$280 per tonne this year, compared to $315 per tonne it paid in 2015. Delayed contracts and lower prices will be a double whammy for Potash Corp.

#3 Regarding nitrogen

A key nutrient but challenges aplenty

PotashCorp’s nitrogen facility at Augusta, Georgia. Source: PotashCorp

What management said “Weaker fertilizer prices characterized 2015

and contributed to lower quarterly and full year-earnings of $0.24 and $1.52 per share. Declining ammonia, urea, and UAN prices had the largest impact.”

Jochen E. Tilk

Why is nitrogen important?

Source: PotashCorp’s 2015 Annual Integrated report

A key contributor to PotashCorp’s sales and gross profit

The concernsWhat: Nitrogen prices slumped in late 2015 as

lower input (natural gas) costs boosted supply.So what: PotashCorp’s Q4 gross profit slumped

48% year over year.Now what: PotashCorp expects to earn only

$0.9-$1.20 per share in 2016 compared to $1.52 a share last year. Worsening nitrogen markets is also a key reason why the company recently slashed its dividend.

#4 Regarding dividend

Expected to stabilize after recent cut

Photo credit: LendingMemo.com

What management said “We believe this level, which represents a

payout ratio of close to 100% of 2016 earnings, remains highly competitive while also protecting the long-term financial health and financial flexibility of the company.

Jochen E. Tilk

No further cuts expected PotashCorp recently

lowered its quarterly dividend by 34% in anticipation of lower profits

The company aims to pay out 100% of its profits as dividends this year

Declining capital expenditure to support free cash flows and dividend going forward Source: PotashCorp’s Presentation at the BAML Global

Agriculture & Chemicals Conference, March 2016

#5 Regarding restructuring

Aggressive cost cutting underway

Photo credit: www.gotcredit.com

What management said “We shift the production to our lower cost

facilities as an important step in optimizing our portfolio. We recently took the difficult, but necessary step of the accelerating our Penobsquis mine closure and suspending our Picadilly potash operations in New Brunswick.”

Jochen E. Tilk

Steps takenIn response to weak potash markets, Potash Corp:

Closed its Penobsquis mine and took inventory shutdowns at three mines in Q4. Total shutdown time in 2015: 28 weeks

Indefinitely suspended operations at its Picadilly plant in January

Is curtailing production for four weeks each at Allan and Lanigan mines this month

Meanwhile, PotashCorp is expanding production at Rocanville, its largest and lowest-cost plant

Targeted cost and savings Rocanville cash cost of

goods sold to be $40-$45 per tonne. PotashCorp’s cost of goods sold averaged $111 per tonne of potash in 2015

The company’s annual potash cost of goods sold to decline by $40 million-$50 million over the next two years Source: PotashCorp’s presentation at BMO Global

Mining & Metals Conference, March 2016

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