SASKATOON – Potash Corp of Saskatchewan Inc. (TSX:POT) plans to slash production and permanently close a potash mine New Brunswick ahead of schedule, the company said Thursday as it reported a drop in quarterly profits, sales and financial guidance.
The company said the fertilizer market has been weaker than expected in the second half of this year and it’s taking measures to reduce inventory and output.
PotashCorp chief executive Jochen Tilk said the company is focused on striking the right balance between flexibility and cost.
“We have some of the best, most efficient potash assets in the world and we continue to take steps to even further improve efficiencies and lower our costs,” he told a conference call with financial analysts.
Tilk noted cuts the company made in 2013 when it took out 3.5 million tonnes in potash production capacity.
The company said it will permanently close its Penobsquis mine in New Brunswick at the end of next month, instead of next year, affecting 140 contract workers employed by Vic Progressive Diamond Drilling.
PotashCorp is also planning three-week temporary shutdowns at three of its mines in Saskatchewan in December as part of the plan to reduce production by 500,000 tonnes in the fourth quarter.
The earlier closure of the Penobsquis mine, with 800,000 tonnes of capacity, will allow the company to focus on ramping up production at Picadilly, a newer and lower-cost mine in the province.
“While this will reduce production levels in New Brunswick by approximately 800,000 tonnes annual until we have Picadilly fully ramped up, it aligns with market conditions,” he said.
New Brunswick Premier Brian Gallant said the closure had been planned, but that didn’t make it any easier for those affected.
“But that’s just a reminder to myself and to our government why we have to focus on creating jobs, why we have to focus on developing our natural resources and energy projects, why we have to ensure that projects like the Energy East pipeline make its way from Alberta to New Brunswick,” he said while in Edmonton.
In its financial report for the three months ended Sept. 30, PotashCorp said its net income dropped to US$282 million or 34 cents per share from US$317 million or 38 cents per share in the third quarter of 2014.
Revenue from sales of potash, nitrogen and phosphates and related fertilizer products or services fell to US$1.53 billion from US$1.64 billion.
In its outlook, the company said it now expects earnings for the full year of $1.55 to $1.65 per share, down from earlier expectations for between $1.75 and $1.95.
PotashCorp also cut its forecast for potash sales volumes to between 9.0 and 9.2 million tonnes and gross potash margins of $1.4 billion to $1.5 billion. That compared with its guidance in July for potash sales volumes between $9.3 million tonnes and $9.6 million tonnes and gross potash margins between $1.5 billion and $1.7 billion.
Despite the lower outlook, Tilk said the company’s dividend is safe.
“The value of the dividend, $1.2 billion annually, was stress tested in a number of downside scenarios and we remain comfortable that even amidst a more challenging macro environment it is very well supported and can be sustained,” he said.
Shares in the company, which traded lower Thursday following the release of the company’s results, carried a dividend yield of more than seven per cent.
Earlier this month, PotashCorp dropped its attempt to buy German fertilizer company K+S AG.
The company had offered 41 euros a share for the company, valuing it at about 7.9 billion euros, however the bid failed to win widespread support and was rejected by K+S.