5 Revealing Quotes From PotashCorp’s CEO

Image source: PotashCorp

#1 Regarding potash markets

No signs of a recovery yet

Source: PotashCorp

The quote “Despite these improvements in market

conditions, the carryover of weaker potash demand and prices from the first quarter is expected to weigh on results and guidance for the balance of the year.”

CEO Jochen Tilk

End markets remain weakPotashCorp lowered its 2016 guidance for potash

sales volumes and global shipments in Q1.

Metric

Volumes in million tonnes

Actual 2015Previous guidance

2016

Revised guidance

2016

Potash sales volumes 8.8 8.3-9.1 8.3-8.8

Global potash shipments 60 59-62 59-61

A tough year ahead for POTPotashCorp’s EPS outlook:

Q2: $0.15-$0.25 versus $0.5 in Q2 2015.2016: $0.6-$0.8 versus $1.52 in 2015.

POT also lowered its 2016 gross profit guidance in Q1: Potash: $0.5 billion-$0.7 billion versus $1.3 billion in

2015.Nitrogen + phosphate: $0.6 billion-$0.8 billion versus

$0.95 billion in 2015.

#2 Regarding global capacity

Oversupply concerns could continue to haunt potash producersImage source: Sven via Flickr

The quote “If we then extrapolate that and look at

2020 as a target point, we believe that the operational capability at that time will be approximately 74 million tonnes.”

Jochen Tilk

Huge capacity coming online

Source: The Mosaic Company Investor Presentation, February 2016

Supply could exceed demandPotashCorp’s projections: global potash capacity of

74 million tonnes by 2020, up from 65 mt currently. POT’s Rocanville project is expected to add 3 mt.

Mosaic’s projections: global potash capacity of 80 mt versus demand of only 72 mt by 2020.

A prolonged supply glut could mean lower realized prices and margins for potash producers.

#3 Regarding restructuring

Increased focus on reducing costs

Photo credit: www.gotcredit.com

The quote “Being proactive also means optimizing our

cost profile. That includes focusing production at our lower-cost facilities while maintaining flexibility to respond to customer needs.”

Jochen Tilk

PotashCorp’s initiatives In response to weak markets, PotashCorp:

shut down its high-cost Penobsquis plant ahead of schedule in Q4.

indefinitely suspended operations at its Picadilly plant in January.

curtailed production at two mines in February.

At the same time, POT is aggressively expanding its plant at Rocanville, which will also be its largest and lowest-cost facility.

Potential benefits from Rocanville Reduce PotashCorp’s

operating costs substantially.

Expand POT’s share in Canpotex – the marketing group that handles potash exports outside the U.S./Canada. POT is the major stakeholder in Canpotex. Source: PotashCorp’s presentation at BMO Global

Mining & Metals Conference, March 2016

POT’s projected potash cost

#4 Regarding dividend

Is another dividend cut in store?

Photo credit: LendingMemo.com

The quote “We recognize that our updated guidance

range currently falls short of our annual dividend payout, but in light of transitioning market conditions, we believe any adjustment would be premature until we can determine the extent and timing of a recovery.”

Jochen Tilk

Dividend > Free cash flow

Negative FCF

The concernsPotashCorp’s annual dividend: $1 per share

versus EPS guidance of $0.6-$0.8.Total dividend payments during the past 12

months: $1.2 billion versus free cash flow worth $708 million.

2016 capital expenditures guidance lowered by $100 million. However, that may not boost POT’s FCF enough to cover dividends as profits are expected to fall substantially.

#5 Regarding divestments

In the pipeline, but on hold for now

Source: PotashCorp

The quote “Right now markets are difficult from an

equity perspective and it probably isn't the best time to transact from a point of divesting.”

Jochen Tilk

PotashCorp’s global investments

1 and 3. Capacity and market value as of Dec. 31, 2015. 2. Sinofert owns 24% of China’s largest potash producer. Source: PotashCorp’s 2015 Annual Integrated Report. Data source: Fertecon, CRU, Bloomberg, public filings, PotashCorp

Why POT isn’t divesting nowIn 2015, PotashCorp said it could consider

selling stake in some of its equity investments to fund growth initiatives.

Tilk, however, believes that “timing is everything,” and current business conditions aren’t conducive to divesting assets. The company will consider opportunities once end markets improve.

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