Cost of Agrium potash expansion jumps on cold, wind

Reuters — Canadian fertilizer producer Agrium said Friday the cost of expanding its west-central Saskatchewan potash mine had jumped 25 per cent from the original estimate, after cold and windy weather hampered construction.

The Calgary-based company plans to complete its project at Vanscoy, about 20 km southwest of Saskatoon, by the end of 2014, boosting potash capacity by 60 per cent to as much as 3.2 million tonnes of the crop nutrient.

The project at Vanscoy, which is about 65 per cent completed, is now expected to cost nearly $1.9 billion.

“The weather has not only been cold, we’ve lost several days due to wind,” Ron Wilkinson, Agrium’s senior vice-president said on a conference call with analysts. “Productivity has been extremely poor.”

The company on Thursday reported a steep drop in quarterly profit that was in line with expectations, and said global nitrogen and phosphate markets had firmed early this year.

Grain prices slipped last year, dragging down fertilizer prices. Global potash prices were further weakened after Russia’s Uralkali OAO broke away from its joint trading venture with Belaruskali in July. [Related story]

Agrium CEO Chuck Magro said he expects an increase in global potash shipments in 2014 to between 56 million and 58 million tonnes, from 54 million tonnes last year.

Speaking later on a call with reporters, Magro said he didn’t know whether Russia and Belarus were likely to re-form their potash trading alliance. While potash prices in Brazil and Southeast Asia were rising, he doubted they would exceed $400 per tonne this year, barring a reunion of the former partners.

Moving Agrium’s fertilizer products from Western Canada to market has been a challenge this winter, as a record-large grain and canola harvest and frigid weather have hindered Canada’s two main railways.

Magro said the company had lost a modest volume of production because it didn’t have adequate transportation and storage to keep plants running at full capacity.

Movement of Agrium’s fertilizer products had slightly improved this month, he said.

“We’re hoping the worst is behind us.”

Agrium estimated $1.7 billion to $1.8 billion of capital spending for 2014, including sustaining capital, the completion of the Vanscoy project and possibly an expansion of its nitrogen facility at Borger, Tex., about 70 km northeast of Amarillo.

Chief financial officer Stephen Dyer said the company would seek board approval for the Borger project this month.

Magro said he expected new nitrogen plants in Egypt to be running in seven to 12 months, after unrest halted an expansion project in 2011. Agrium owns a 26 per cent stake in MOPCO (Egyptian Misr Fertilizers Production Company S.A.E.), which owns the facility.

Agrium may also be interested in finding a new source of phosphate rock, after supply from Kapuskasing, Ont. was depleted last year. It currently has a contract through as late as 2020 to buy rock from Morocco’s OCP and process it at Agrium’s Redwater, Alta. facility.

Agrium is examining a handful of alternatives, including operating its own phosphate mine, Magro said.

“We would invest if we can find the right return project in phosphate.”

— Rod Nickel is a Reuters correspondent based in Winnipeg.



Stories from our other publications