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TABLE OF CONTENTS Apr 28 - May 4, 2014 Volume 100 Number 11 - 0 comments

Inmet alumnus Tilk to replace Doyle as PotashCorp CEO

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Potash Corp. of Saskatchewan (TSX: POT; NYSE: POT) has surprised analysts by revealing that its long-time president and CEO Bill Doyle will be replaced in July by mining veteran Jochen Tilk, who apparently has no potash or fertilizer experience. 

While analysts said they had expected Doyle to retire soon, they were taken off guard when the board selected Tilk as the successor, given the potash industry is going through one of its toughest periods. Potash firms are still recovering from the plunge in potash prices after Russia’s Uralkali (LSE: URALL), the world’s biggest potash producer, ended its sales partnership with Belarus-based rival Belaruskali last year,  causing concerns that Uralkali would flood the market with cheaper supply.

“It’s hard not to be a little taken aback, that such a monumental ‘changing of the guard’ [at PotashCorp] will unfold on the heels of one of the potash industry’s most volatile periods . . . which makes the decision to bring in an industry ‘outsider’ somewhat perplexing, in our view,” Raymond James analyst Steven Hansen writes in a note.

Tilk has 30 years of mining experience and was most recently the president and CEO of Inmet Mining, the international copper–zinc producer that First Quantum Minerals (TSX: FM; US-OTC: FQVLF) acquired in a hostile $5.1-billion takeover last year. 

PotashCorp, which spent three years searching for a new CEO, says Tilk will bring “operational excellence and disciplined growth” to the company. “The entire board agreed he was the right person to lead the company forward,” PotashCorp’s chair Dallas Howe said in a statement.

But Hansen of Raymond James remains cautious about the choice. “While we certainly acknowledge the accomplished resume of Mr. Tilk, we can’t help but opine that his background in base metals and reputation for operational excellence and strategic mergers and acquisitions strike us as an odd, perhaps even incongruent, ‘toolkit’ to tackle many of the potash industry’s key challenges,” he writes. That said, he notes a new face could be “invigorating” for the company, adding that Doyle staying on as a senior advisor until June 2015 is reassuring. Hansen has a US$36 target price and an “outperform” rating on the stock.

BMO analyst Joel Jackson expects Tilk will adopt similar strategies of price over volume that Doyle has used for some time, with little change in direction or strategy anticipated in the near-term.

Doyle has worked at PotashCorp for 27 years, spending the last 15 years as CEO, where he transformed the firm into a global potash player. He has been one of the “thought leaders and a senior statesman in the global and fertilizer industry for many years, including very senior roles in the International Fertilizer Industry Association,” Jackson writes in a note. He has a US$32 target price and a “market perform” rating.

In recent years, Doyle fought off a hostile bid from mining giant BHP Billiton (NYSE: BHP; LSE: BLT) and strongly voiced his disappointment over the break-up of the Russian–Belarusian potash cartel. Along with its North American equivalent Canpotex — owned by fertilizer majors PotashCorp, Agrium (TSX: AGU; NSYE: AGU) and Mosaic (NYSE: MOS) — the cartel had previously controlled 70% of the world’s potash supply.

After the break-up, PotashCorp saw its quarterly earnings slide with the decline in fertilizer prices. It reported a 46% drop in its fourth-quarter 2013 earnings of US$230 million, or US26¢ per share. The producer also cut its workforce by 18% in late 2013 and lowered output from its high-cost operations to preserve cash.

PotashCorp is set to release its first-quarter 2014 earnings on April 24.

Earlier in April, Canpotex signed an annual contract to supply 1 million tonnes of potash priced at US$322 per tonne to its Indian customers. BMO’s Jackson notes this represents a 9% decline in tonnes, despite a US$105 price drop over last year. He adds that Canpotex signed 300,000 fewer tonnes in its Chinese contracts for the first half of 2014, versus the same period a year ago.

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