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TABLE OF CONTENTS Dec 9 - 15, 2013 Volume 99 Number 43 - 0 comments

PotashCorp cuts workforce by 18%

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By: Salma Tarikh

Potash Corp. of Saskatchewan (TSX: POT; NYSE: POT) is reducing its workforce by 18% amid soft crop-nutrient demand from developing markets.

The Saskatoon-based fertilizer producer plans to cut its 5,914-person workforce by 18%, or 1,050 jobs by year-end, with most of the layoffs expected in its Canadian potash and American phosphate businesses.

"This was not an easy decision, but it is a necessary one," Bill Doyle, PotashCorp’s CEO, said in an online video. Doyle noted he’s confident in the "long-term drivers" of the business, but pointed out that the "sluggish environment" in emerging markets has led the company to reduce its employees and scale back operations. "The changes we must make today — while difficult — help ensure the company will continue to be well positioned for the future," he added.

Roughly 570 permanent potash employees are set to lose their jobs, including 440 at the Lanigan and Cory mines in Saskatchewan and 130 at the New Brunswick operation. Another 455 phosphate employees will be dismissed, including 350 at the White Springs phosphate facility in Florida, 85 at the Aurora plant in North Carolina and 20 at the Northbrook, Ill. office. PotashCorp expects to let go another 20 employees at its U.S. and Trinidad nitrogen facilities, along with a few others at its Saskatoon headquarters and Patience Lake potash mine in Saskatchewan.

With the reduced staff comes operating changes. For its potash unit, the fertilizer producer plans to close one of its two Lanigan mills by year-end, as well as lower output at its Cory facility before 2014. No changes are slated for its lower-cost Allan and Rocanville operations in Saskatchewan. But PotashCorp will shut down the Penobsquis operation in New Brunswick by March 2014 to develop the Picadilly potash mine.

Despite the slowdowns, PotashCorp could supply more than 10 million tonnes of potash in 2014, including its current inventory position. It says it could easily ramp up the Lanigan and Cory mines if market conditions improve.

From its phosphate unit, it will shut a chemical plant in White Springs in the second half of 2014, noting the higher rates at its Aurora plant should offset the reduced capacity. It anticipates a net loss of 215,000 tonnes of annual phosphate output in 2015.

With potash prices sinking in recent months, BMO analyst Joel Jackson said that "PotashCorp had to decide to increase potash production to take prices closer to marginal costs and attempt to close higher-cost mines, or, instead, balance the market. POT has chosen to balance."

The potash market has faced uncertainty since July, when Russian potash major Uralkali (LSE: URALL) ended a long-term marketing agreement with Belarus’ state-owned firm, Belaruskali, to increase its sales. That marketing agreement had controlled and supported pricing over 40% of the global potash output. Consequently, the break-up pushed the demand for potash down, as buyers pulled back in anticipation of lower prices. But as prices dropped, the demand from key markets — including China and India — instead stayed flat.

In October PotashCorp reported third-quarter earnings of US41¢ per share, down from its July guidance of US45¢ to 60¢ per share, with Doyle pointing to the "market uncertainty and a state of paralysis in most regions" from Uralkali. Quarterly potash sales slipped 27% to 1.2 million tonnes from a year ago, while the average realized potash price fell to US$307 per tonne from US$429 over the same period. Consequently, the miner lowered its full-year potash gross margin to US$1.5–1.7 billion, on shipment of 8–8.4 million tonnes. It also reduced its full-year net income guidance to US$2 to US$2.20 per share.

Jackson doesn’t expect that market conditions will improve. "We caution that potash markets will likely deteriorate over the near-term [with modest demand–growth potential] more than many estimate, and it is possible POT will get neither price nor volume." For example, Uralkali may run full out in a lower price environment. The analyst has lowered his 2014 potash and phosphate price estimates. He is forecasting global potash benchmark prices of US$295 to US$345 per tonne CFR, down from US$325 to US$360 per tonne, and Tampa diammonium phosphate prices of US$408 per tonne, from US$443 per tonne earlier.

PotashCorp. anticipates a one-time charge of US$70 million for severance packages due to the layoffs. It is also evaluating its affected operations, noting any writedowns, if required, will be announced in its fourth-quarter results.

On one bright side, it expects potash cost savings of US$15 to US$20 per tonne in 2014, and US$20 to US$30 per tonne by 2016. It forecasts a US$10- to US$15-per-tonne annual gross margin improvement for phosphate.

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