Ten years ago potash mining was considered a long-term growth industry.
The world needed increasing food supplies. With limited farm land, fertilizer was the main way to increase food production.
Saskatchewan, owning the world’s largest potash reserves, had it made, according to most observers.
The war in Ukraine with Russia has changed that view.
When diplomatic sanctions on potash from Russia and Belarus were announced, potash prices hit the roof. Disruption of supply was feared.
Since then prices have come down and the potash market has changed trading patterns, perhaps forever, Russia is selling potash to India at $70 a tonne discount, freezing Canada out of that growing market. China has reduced purchases of Canadian potash as well.
Shares of Canadian potash miner Nutrien have reflected the new trading patterns, falling to the current $68-$69 level from the high of $113 a year ago.
About 40 per cent of Nutrien’s revenues come from potash revenues with almost 50 per cent from over 2,000 retail fertilizer facilities.
The rest of revenue is from phosphate mines, nitrogen fertilizer plants and a finance operation.
Nutrien owns six potash mines in Saskatchewan, four nitrogen fertilizer plants in Alberta and four U.S. phosphate mines.
Nutrien’s earnings and cash flow fell substantially in the first nine months of 2023. Cash flow — what’s left after all expenses — fell by 73 per cent.
Earnings dropped to $2.18 a share from $11.86. Reason for the decline was falling potash prices and a $698 million write-off of South American assets.
Nutrien expects global potash consumption to increase by about three per cent in 2024. Price increases are uncertain.
Half of Nutrien’s potash is sold to the United States. Since over 40 per cent of U.S. farm land is in moderate to severe drought conditions increased used of potash will probably not happen.
Add in the falling prices of all grains, tight farm margins and the oversupply of U.S. biofuels and one can expect a poor outlook for growth of potash sales south of the border.
Nutrien still benefits from a second round of profits on potash sold by the retail division.
Competitor Mosaic, which owns the Belle Plaine mine, expects potash demand will grow between three and 10 per cent this year.
The big question is: will Nutrien get its share of this growth given the new geopolitical alliances with Russia/Belarus and China/India?
New Saskatchewan competition could cut into market share when the Rio Tinto potash mine at Patience Lake starts producing three million tonnes a year with plans to ramp up to 10 million tonnes by 2030. Rio Tinto has a reputation for low cost operations.
Some stock analysts seem to have taken notice, with six recommendations to buy and five to hold. Hold is often a signal to sell.
Nutrien’s dividend yields 4.2 per cent. Debt of $5.25 billion is mostly short-term high interest bearing, but cash flow can cut the debt quickly.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
