Mosaic delays Canadian potash expansion for 12-24 months

13 May 2013 20:34  [Source: ICIS news]

HOUSTON (ICIS)--North American potash producer Mosaic announced on Monday that the company is delaying its potash expansion in Canada for at least 12-24 months until market conditions improve enough to justify increasing the amount of additional capacity.

Speaking in a conference call regarding the company’s capital management, officials said they are going to wait and see if there is better clarity about the long-term supply and demand within the potash industry before proceeding with the expansion set for western Canada.

Mosaic also believes that the period could bring about better labour conditions in the province of Saskatchewan that would help lower the overall cost, which has been estimated to be as high as $2bn (€1.5bn).

“The final 2 million tons of our potash expansion strategy are being deferred. When market conditions warrant and when risk-adjustable returns justify them, we expect to reinitiate these projects,” said Larry Stranghoener, Mosaic CFO.

"We believe these projects will continue to be the most cost-effective expansions to come on line when market conditions warrant the additional capacity," Stranghoener said.

Potash producers in recent years have expanded their capacity as demand for the crop nutrient has increased, but the steady growth has also raised concerns within the industry of an oversupply that could drive the price below the cost of producing the fertilizer.

Company officials also said that it is favouring buying back stock over increasing dividends as a means of using its surplus cash, which has been forecasted to reach nearly $2bn by month’s end. The company’s current dividend is at.25 cents per quarter.

Mosaic has come under criticism by shareholders that it has not distributed enough cash back despite its increasing market value.

Additionally the company plans later this month to begin talks with the founders of its former parent company, Cargill, and their charitable trust, which currently hold roughly 30% of Mosaic stock. The two companies split in 2011, and the terms of that arrangement prohibited Mosaic from pursuing these outstanding shares until this time.

When asked if the potash expansion delay was connected to the potential buyback and the inability to finance both efforts at the same time, Stranghoener said the two were not connected.

“We have built ample flexibility that gives us the opportunity to pursue value enhancing growth projects such as the potash expansion project, which is currently under way, as well as return cash to shareholders. We continue to generate a healthy amount of operating cash flow and so the two decisions are unrelated,” Stranghoener said.

While the potash expansion has been temporarily set aside, Mosaic said it was moving forward with its building of two phosphate mines in Florida, which are in the permitting phase and will require a capital expenditure of $2bn.

Also the company is continuing with the engineering and design work on an ammonia plant in Faustina, Louisiana and will make a final decision on whether to proceed by year’s end.

“We plan to begin construction of these new mines during the latter half of the decade with production feeding our phosphate operations by the end of the decade,” Stranghoener said.

($1 = €0.77)

By: Mark Milam
+1 713 525 2653

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