‘We see the benefit now’: PotashCorp bounces back after bleak year spent cutting costs

‘We see the benefit now’: PotashCorp bounces back after bleak year spent cutting costs

ALEX MACPHERSON, SASKATOON STARPHOENIX
Published on: April 28, 2017 | Last Updated: April 28, 2017 6:00 AM CST

 potashcorp - cory

Potash Corp. of Saskatchewan Inc. says its cost-cutting measures appear to be working. GORD WALDNER / THE STARPHOENIX

After one of the bleakest years in its history, Saskatchewan’s largest mining company says its cost-cutting measures are starting to take effect and that it does not anticipate making additional “material” changes to its operations.

Potash Corp. of Saskatchewan Inc. has planned “some inventory maintenance shutdowns” but does not believe more drastic measures are needed, its chief executive told reporters and analysts on a Thursday conference call.

“Beyond that point, we haven’t really looked into anything and we don’t think it’s necessary,” Jochen Tilk said a few hours after the company reported a 99 per cent jump in first quarter earnings compared to the same period last year.

Saskatoon-based PotashCorp spent last year struggling to cut costs in the face of weak fertilizer prices, which a glut of potash on the market caused to fall to just over US$200 per tonne from a peak of US$900 per tonne in 2008.

In response, the company shuttered its Picadilly mine in New Brunswick and permanently scaled back production at its Cory operation west of Saskatoon while shifting its attention to its recently-expanded low-cost Rocanville mine near Yorkton.

 

Those changes are reflected in the company’s US$149 million first quarter profit — well below the US$370 million it made in the first quarter of 2015, but almost half of what it earned in the entirety of 2016.

 

Tilk attributed the spike to a reduction in the company’s production costs, which he said have fallen to US$90 per tonne from around US$138 per tonne in 2013, and are expected to drop another US$10 per tonne.

While PotashCorp’s revenues dipped in the first quarter — US$1.1 billion compared to $1.2 billion in the first three months of 2016 — Tilk said it expects “supportive” conditions to persist throughout the year.

“Significant steps that we took, no question about it, but we see the benefit now.”

PotashCorp “really had no choice” but to close one mine and slash production at a second, but its first quarter results suggest those cost-cutting measures are working, according to a professor at the University of Saskatchewan.

“There’s still a very big trough between supply and demand in the world market, and until that closes, you’re not going to see the price of potash … go up significantly,” said Brooke Dobni, who teaches at the Edwards School of Business.

“But this is going to position them well for when it does, because if they get their costs down — and keep them down — and the price starts going up, you’re going to start seeing (large) profits again.”

It’s unclear whether PotashCorp will issue a second quarter report as an independent firm. Its US$26 billion merger with Calgary-based Agrium Inc. — a response to “fierce” market conditions — is expected to close in mid-2017.

Tilk said the companies are making progress toward clearing regulator hurdles and expect to achieve their US$500 million “synergy target” two years after the deal closes.

 

About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on April 28, 2017, in economic impact, political, potash. Bookmark the permalink. Leave a comment.

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