Potash Corporation of Saskatchewan Continues Careful Growth with Increasing Market Demand

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Researched by Industrial Info Resources (Sugar Land, Texas)--Potash Corporation of Saskatchewan (NYSE:POT) (PotashCorp) (Saskatoon, Saskatchewan) is not only the world's largest producer of potash, but also a world leader in the production of nitrogen and phosphate. The company has operational potash mines in Canada and nitrogen and potassium operations in the U.S. and South America. At a recent conference, Potash Corporation's Executive Vice President and CFO Wayne Bromlee discussed why the company focused its continued growth on potash over other minerals.

Referring to the potash production business as an "oligopoly," Bromlee noted that production of potash was an extremely difficult market sector to enter. Greenfield production plants would generally cost about $3 billion to establish, not including the associated infrastructure such as rail and port facilities. Potash facilities generally see no positive cashflow until about the seventh year of operation, which keeps PotashCorp's competitors at bay, which as Bromlee stated, "is one of the reasons why there has been no new capacity built in the potash business for over 20 years."

Demand for potash, which along with nitrogen and phosphate is a key constituent of agricultural fertilizers, has in the past few years, seen an annual growth rate of about 5.7%, versus 4% growth for nitrogen and phosphate, elements that have traditionally been more available in developing countries. As production and demand for grain, meat and other products rise, so does the need for fertilizer. Bromlee noted that increases in crop prices also brought in more revenue for PotashCorp. Referring to the recent floods in the Midwest, Bromlee said of the subsequent increased price of corn, "We're still seeing extremely high prices of corn, and at these prices of corn, you can charge a lot of money for potash." While all plants require potash as an essential nutrient, it is used extensively in the corn market, which accounts for about 14% of world potash consumption. Corn grown specifically for ethanol accounts for about 2% of the world's consumption. "You can charge $1,000 [per ton of potash] when you have $4 or $5 corn. You can't charge that much when you have $2 corn," said Bromlee. "We think we're in for a wild year with some pretty decent grain prices." For more information, view related article from July 29, 2008 - Price of Potash Sending Producers into $16 Billion Capital Spending Frenzy.

This year, PotashCorp is expecting to produce almost 10 million tons of potash, representing 22% of the world's capacity. Controlling such a large amount of the world's potash, PotashCorp carefully monitors its expanding capacity in order to avoid an oversupply on the market. The company hopes to increase capacity to over 15 million tons by 2012. In order to achieve this goal, the company is launching major expansions of its Canadian mines.

Industrial Info, as part of its North American Industrial Database, is currently monitoring over $6.1 billion of projects of PotashCorp, almost all of which are mine expansions. The largest of these expansions has an estimated total investment value of $2.8 billion and involves the expansion of the company's potash mine in Rocanville, Saskatchewan. PotashCorp is almost doubling the capacity of the mine, raising its production capacity from 3 million tons per year to 5.7 million tons per year. Similar expansions are planned to begin at five other mines belonging to PotashCorp between now and 2010.

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