PotashCorp to cut production, shut plants, lay off over 1,000

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PotashCorp, whose expansion work in recent months includes this new ore storage facility about a kilometre underground at Allan, Sask., doesn't expect operations at Allan to be impacted by major cuts announced Tuesday. (PotashCorp.com)
PotashCorp, whose expansion work in recent months includes this new ore storage facility about a kilometre underground at Allan, Sask., doesn't expect operations at Allan to be impacted by major cuts announced Tuesday. (PotashCorp.com)

Facing demand growth “less robust than expected” in developing markets, fertilizer giant PotashCorp plans to dial down or shut plants and lay off staff across its crop nutrient businesses.

The bulk of the layoffs will be in the Saskatoon company’s potash mining and processing business in Saskatchewan and New Brunswick, with the remainder coming out of its fertilizer plants in the U.S. and Trinidad.

“This is a difficult day for our employees and our company,” CEO Bill Doyle said in a release Tuesday, but added the moves must be made “to run a sustainable business and protect the long-term interests of all our stakeholders.”

The company on Oct. 24 booked a six per cent drop in profit over the first nine months of fiscal 2013, netting $1.555 billion, down from $1.658 billion in the year-earlier period, on sales of $5.764 billion, down from $6.285 billion (all figures US$).

Doyle at the time described the company’s ledger, particularly in its third quarter ending Sept. 30, as “a predictable response to an unpredicted event,” noting “fertilizer customers faced with uncertainty act with extreme caution.”

Said “event” was the move by Russian potash miner Uralkali in July to exit the Belarusian Potash Co. (BPC), a joint venture with partner Belaruskali. BPC and North America’s Canpotex have been the world’s two top potash marketing cartels.

Many fertilizer buyers have delayed significant purchases as pronouncements from Russia “left buyers waiting in anticipation of weaker prices,” Doyle said in October. “While this volatility does not change the long-term underlying fundamentals of fertilizer demand, it did significantly slow market activity and our ability to deliver the results we expected.”

“Flexibility”

PotashCorp’s cuts in its Canadian potash operations include suspending production at one of its two mills at Lanigan, Sask.; reducing production at its Cory mine near Saskatoon; and “ceasing” production at its Penobsquis mine at Sussex, N.B. by the end of the first quarter of 2014.

Halting production at Penobsquis is expected to allow PotashCorp to “accelerate development activities” on its new Picadilly mine and wet mill nearby, the company said.

The company said it will also continue its expansion program at its Rocanville, Sask. mine as scheduled. That expansion of the company’s “lowest-cost” potash operation is about 90 per cent complete, PotashCorp said Tuesday.

PotashCorp’s existing Rocanville and Allan, Sask. mines “are not expected to be impacted” by the cuts, but staffing at its Saskatoon head office and Patience Lake, Sask. mine will also be affected, for total potash workforce reductions of about 570 people in Canada, the company said.

“We anticipate our operational capability for 2014, along with our inventory position, will provide us the ability to supply more than 10 million tonnes, which should provide ample supply cushion,” the company added.

“Although staffed to run at reduced levels for the foreseeable future, our Lanigan and Cory plans provide the flexibility to ramp up operations as market conditions warrant.”

In PotashCorp’s phosphate and nitrogen business, its Suwannee River chemical plant at White Springs, Fla. is now slated to close in the second half of 2014, for about 350 job cuts. Granulation plants at the site will still operate.

The company said it expects lower capacity at White Springs to be partly offset with higher operating rates at its Aurora, N.C. phosphate plant — though about 85 jobs are to be cut at Aurora also. Another 20 jobs will be cut at the company’s U.S. and Trinidad nitrogen plants, on top of cuts at the firm’s Chicago-area sales office.

Dividends “sacrosanct”

The overall changes are expected to lead to lower per-tonne operating costs, with potash cost savings of $15-$20 per tonne in 2014, rising to $20-$30 per tonne by 2016 (both against 2013 cost levels). In phosphate, the company expects annualized gross margin improvement of about $10-$15 per tonne of P2O5.

Those savings are to be offset in part by an expected $70 million in one-time severance costs and write-downs, if need be, in the carrying value of affected assets.

The Reuters news service on Tuesday quoted Doyle as saying PotashCorp’s dividend is “sacrosanct” and will not be cut, nor does he see any immediate change to the company’s share buyback program.

In all, the changes “are intended to optimize our lowest-cost operations, while retaining the ability to respond to expected demand levels and product needs of our customers,” the company said Tuesday.

PotashCorp expects most of the changes to be carried out by the end of this year, but “certain positions at impacted operations are expected to remain in place through a transitional period.”

“Rapid response”

“Obviously, this is not good news for those employees and their families,” Saskatchewan Premier Brad Wall said in a separate release Tuesday. “We will be immediately dispatching our rapid response teams to provide support and explore other opportunities in other sectors.”

Saskatchewan, he said, is “fortunate that this has occurred at a time of relative labour market strength and that our economy today is more diversified than ever. Our economy is strong enough to absorb this kind of job loss.”

Resource revenue from potash today accounts for about 3.5 per cent of Saskatchewan’s $11 billion budget, the province said Tuesday, down from about four per cent of total revenue in the government’s 2007 budget. — AGCanada.com Network

Related stories:
Mosaic, PotashCorp disband U.S. phosphate export group, Oct. 2, 2013
Price drop seen unlikely to close higher-cost mines: PotashCorp, Sept. 18, 2013
Billiton pressing further on Sask. potash mine plan, Aug. 20, 2013
PotashCorp drops bid for ICL, April 26, 2013
PotashCorp to idle biggest Sask. mines, again, Oct, 18, 2012