Sask. government ‘slowing’ potash royalty review in response to weak prices

Sask. government ‘slowing’ potash royalty review in response to weak prices

Alex MacPherson, Saskatoon StarPhoenix

Published on: July 15, 2016 | Last Updated: July 15, 2016 2:20 PM CST

A five-month production shutdown and 330 layoffs at Mosaic Co.’s Colonsay potash mine aren’t expected to cut into the province’s bottom line, but weak prices led the government to put the brakes on its ongoing royalty review.

“The royalty review will continue to go forward, but we’re certainly slowing it down right now. We don’t think that any changes in the royalty structure would be a good idea given where we’re at in the marketplace,” Economy Minister Bill Boyd said Friday.

On Wednesday, Mosaic said its decision to “idle” its Colonsay operation for the rest of the year and rely instead on its lower-cost Esterhazy and Belle Plaine mines was based on lower demand and weaker prices.

With potash mired below US$300 per tonne and forecast to dip even lower, the Plymouth, Minn.-based company became the latest potash miner to announce cutbacks this year.

In January, Potash Corp. of Saskatchewan announced its intention to reduce its production costs by permanently closing its Picadilly, N.B., mine. A month later, the fertilizer giant implemented temporary production halts at its Allan and Lanigan mines.

Earlier this month, Canpotex, the international marketing arm of PotashCorp, Mosaic and Agrium Inc., abandoned plans to build a $775-million export terminal at the Port of Prince Rupert due to “economic and commercial considerations.”

Announced in last year’s budget by former finance minister Ken Krawetz, the royalty review is intended to examine and potentially change how the government collects royalties on potash mined in the province.

Under the current system, the province takes two cuts from producers: A Crown Royalty, which applies to potash mined on Crown lands, and a production tax on all potash extracted in Saskatchewan.

In his 2015-16 budget, finance minister Kevin Doherty said the government expects to earn $420.4 million in potash revenue this year, down more than $340 million from its previous projection of $796.0 million.

Boyd said that while the government’s latest revenue projection has “quite a bit of caution” built in to account for the possibility of further price erosion, there is “no timeline” on the completion of the royalty review.

“When we see prices recovering and volumes improving, then perhaps we can move forward. But at this time, we just don’t think that’s the right move to make,” he added.

In January, PotashCorp president and CEO Jochen Tilk told the Saskatoon StarPhoenix he hoped the project wasn’t a priority for the government given underlying market conditions.

“I think, quite frankly, that we’re all in this together. Saskatchewan and PotashCorp and our peers in the industry, we all need to be competitive right now,” Tilk said.

Mosaic said this week that it expects to recall the laid-off workers on Jan. 3 and that it has no plans to permanently shutter the Colonsay mine 60 kilometres east of Saskatoon.

Market conditions likely made Mosaic’s “difficult” decision to idle the mine and lay off 330 miners unavoidable, but the government isn’t concerned about a trend developing among Saskatchewan potash producers, Boyd said.

“We’ve always seen volatility in potash markets — prices and volumes — and I think here in Saskatchewan, people understand that prices go up (and) they certainly go down as well,” he said.

“The market is challenged right now but we’re expecting that these layoffs will be relatively temporary and that workers will be called back at some point in time. And we’re optimistic that markets will recover, but it may take some time.”

 

 

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on July 15, 2016, in economic impact, miscellaneous, political, potash. Bookmark the permalink. Leave a comment.

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