Tax changes prompt potash expansions

18 April 2005 00:01  [Source: ICB Americas]

Any concerns over a near-term shortage of potash have been quelled thanks to changes to the tax code in Saskatchewan, Canada, which has induced the three major potash producers—Potash Corporation of Saskatchewan, Mosaic Company and Agrium Inc.—to expand production.

Last week, the government of Saskatchewan announced two changes to the provincial potash tax structure that are favorable to the economics of expansion projects. The government provided a 10-year tax holiday on base payments on expansions of potash mines of more than 200,000 tons as well as a capital investment incentive to promote expansion of production. The incentives are expected to provide pretax savings of about $6.25 per ton.

“The government tax incentives will provide longer-term benefits to all Saskatchewan potash producers, though the benefits are heavily tilted toward new capacity development and production,” says David Silver, analyst with JPMorgan.

“These tax changes allow us to continue investing in Saskatchewan,” says Bill Doyle, president and CEO of PotashCorp. “We operate in a number of countries and always weigh capital expansion opportunities with shareholder value in mind.”

“We are very pleased the government of Saskatchewan has revised the resource tax system, which enables Mosaic to continue to invest in Saskatchewan,” adds Fritz Corrigan, president and CEO of Mosaic. “This capital spending is consistent with our growth plan to meet growing global potash demand.”

In response to the tax changes, PotashCorp will restart about 1.9 million tons of capacity at its Lanigan and Allan, Saskatchewan, mines while Mosaic will add about 400,000 tons and Agrium another 310,000 tons. In addition, Mosaic is considering 1.6 million tons of further expansions and Agrium is looking to add an additional 310,000 tons.

“We believe that potash producers have an-nounced programs to increase potash production by at least 4.5 million tons over the next 3 to 5 years, equal to 9 percent of 2004 globalproduction,” notes Silver. “We believe this could ease near-term concerns of potash shortages over the next 1 to 2 years, though market fundamentals are likely to remain tight.”

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