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PotashCorp - Scotiabank Agriculture, Fertilizers and Chemicals Conference - September 18, 2012

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  • 1. ScotiabankAgriculture, Fertilizers andChemicals ConferenceSeptember 18, 2012Wayne BrownleeExecutive Vice-President and CFO PotashCorp.com
  • 2. Forward-looking StatementsThis presentation contains forward-looking statements or forward-looking information (forward-looking statements). Thesestatements can be identified by expressions of belief, expectation or intention, as well as those statements that are nothistorical fact. These statements are based on certain factors and assumptions including with respect to foreign exchangerates, expected growth, results of operations, performance, business prospects and opportunities and effective tax rates.While the company considers these factors and assumptions to be reasonable based on information currently available,they may prove to be incorrect. Several factors could cause actual results to differ materially from those expressed in theforward-looking statements, including, but not limited to: variations from our assumptions with respect to foreign exchangerates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates;fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; costs and availability oftransportation and distribution for our raw materials and products, including railcars and ocean freight; changes incompetitive pressures, including pricing pressures; adverse or uncertain economic conditions and changes in credit andfinancial markets; the results of sales contract negotiations with major markets; the European sovereign debt crisis and therecent downgrade of US sovereign debt and political concerns over budgetary matters; timing and impact of capitalexpenditures; risks associated with natural gas and other hedging activities; changes in capital markets and correspondingeffects on the company’s investments; unexpected or adverse weather conditions; changes in currency and exchangerates; unexpected geological or environmental conditions, including water inflows; imprecision in reserve estimates;adverse developments in new and pending legal proceedings or government investigations; acquisitions we mayundertake; strikes or other forms of work stoppage or slowdowns; changes in and the effects of, government policies andregulations; security risks related to our information technology systems; and earnings, exchange rates and the decisionsof taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in ourForm 10-K for the fiscal year ended December 31, 2011 under the captions “Forward-Looking Statements” and “Item 1A –Risk Factors” and in our other filings with the US Securities and Exchange Commission and the Canadian provincialsecurities commissions. Forward-looking statements are given only as at the date of this presentation and the companydisclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, futureevents or otherwise, except as required by law.
  • 3. Potash Overview
  • 4. Potash Phosphate Nitrogen % of Global Capacity 20% 5% 2%PotashCorp Profile Global Position % of Gross Margin (2011) #1 64% #3 15% #3 21%A Global Crop Nutrient Company Sinofert APC ICL Potash Phosphate (Mining/Processing) Nitrogen Investments SQM Source: Fertecon; CRU; Blue, Johnson & Associates; PotashCorp
  • 5. PotashCorp ProfileUnique Potash Position Drives Earnings Growth and Strong Cash Flow ReturnsGross Margin - US$ Billions Percentage Potash GM Phosphate GM Nitrogen GM PotashCorp CFR WACC 6 50% 5 40% 4 30% 3 20% 2 10% 1 0 0% 2004 2006 2008 2010 2012F* 2003 2004 2005 2006 2007 2008 2009 2010 2011 * 2012F as at July 26, 2012 CFR = Cash Flow Return WACC = Weighted Average Cost of Capital Source: PotashCorp
  • 6. Agriculture Market Overview
  • 7. Global Crop ConditionLess Than Ideal Conditions Have Impacted 2012 Crop Production Potential Dry conditions have reduced FSU Expect decent crops in Canada; crop expectations; Russian wheat heat and disease pressure have exports could be down more than impacted yields 60% in 2012/13 Rapid deterioration of US corn and soybean conditions. Projected corn yield is the lowest since 1995 Indian monsoon rains have improved in recent weeks but remain 8% below normal Brazil is gearing up for increased corn/soybean planting; need some rain to get planting started Argentina expected to Australian wheat production increase soybean acreage could be down more than 20% if dryness persists Key Factors to Watch in 2012: • How will US corn and soybean demand be rationed • Uncertainty of FSU grain export supply • Planted area and crop conditions in Brazil • China corn and soybean import demand Source: USDA, World Commodity Analysis Corporation, Doane, Brilliant Pioneer Consultants, PotashCorp
  • 8. US Corn YieldProjected Yield Expected To Be the Lowest in 17 Years Corn Yield – Bushels per Acre 180 170 160 150 140 130 120 110 100 90 80 2012F refers to the 2012/13 crop year Source: USDA
  • 9. World Corn SituationTightest Stocks Level Since 1973; US Drought Has Global ImplicationsWorld Corn Stocks-to-Use (Percent) Share of World Corn Exports (Average 2007-2011) 50 Other 45 15% 40 35 Ukraine 7% 30 25 52% US Brazil 10% 20 15 10 16% 5 Argentina 0 2012F refers to the 2012/13 crop year Source: USDA
  • 10. Top Investor Questions: Will the US Drought Impact Fertilizer Demand?
  • 11. US Fertilizer Use Following Major Yield DeclinesFertilizer Use Increased in Majority of Fertilizer Years Following a Major Yield Decline Percentage Change Change in US Fertilizer use (in following fertilizer year) 30% Year-over-Year Corn Yield Decline 20% 10% 20% 7% 7% 4% 0% 3% -9% 0% -10% -20% -30% -40% 1970 1974 1980 1983 1988 1993 1995 Source: USDA, AAPFCO
  • 12. US Net Cash Farm IncomeHigher Crop Prices and Insurance Payments Support Record Farm Income US$ Billions 160 140 120 100 80 60 40 20 0 Source: USDA
  • 13. US Crop PricesPrices Have Moved Higher in Response to Global Production IssuesCorn SoybeansUS$/bushel US$/bushel As of Sept 10 As of June 1 As of Sept 10 As of June 1 9 20 8 18 7.94 17.34 7 16 6.58 14 6 6.03 13.63 12 12.58 13.00 5 5.10 5.15 5.04 11.53 11.42 10 4 8 3 6 2 4 1 2 0 0 Dec 2012 Dec 2013 Dec 2014 Nov 2012 Nov 2013 Nov 2014 2013 Economics (Sept 10 vs June 1) 2013 Economics (Sept 10 vs June 1) $1.43/bu x 160 bu/acre $2.10/bu x 43 bu/acre + $229/acre + $90/acre Source: Bloomberg
  • 14. Fertilizer Cost Percentage of US Corn RevenueP & K Costs Account for Small Percentage of Projected Corn RevenueNitrogen Phosphate Potash Percent Percent Percent 18 18 18 10- year high 16 16 16 14 14 14 12 12 12 10 10 10 8 8 8 10- year high 10- year low 6 6 10- year high 6 4 4 4 2 2 2 10- year low 10- year low 0 0 0 $4 $5 $6 $7 $8 $4 $5 $6 $7 $8 $4 $5 $6 $7 $8 US$/bushel US$/bushel US$/bushel Based on DTN reported retail fertilizer prices as of September 7, 2012 Source: USDA, DTN, PotashCorp
  • 15. Fertilizer Market UpdateTop Investor Questions: How Can Demand Grow In 2013?
  • 16. World Potash DemandInventory Destocking and Lower Indian Imports Affect Demand in 2012 Million Tonnes KCl 60 58 56 54 52 50 48 46 2011 India Distributor Consumption 2012F Destocking* Growth** * Based on PotashCorp estimate ** Excluding India Source: Fertecon, CRU, Industry Publications, PotashCorp
  • 17. World Potash Shipments Expect Strong Demand Rebound in 2013 Scenario #1 Scenario #2 Million Tonnes KCl Million Tonnes KCl62 6260 6058 5856 5654 5452 5250 5048 48 2012F India North Other 2013F 2012F India North Other 2013F America America Source: Fertecon, CRU, Industry Publications, PotashCorp
  • 18. World Potash ShipmentsExpect Strong Rebound in 2013 Million Tonnes KCl 14 12 10 8 6 4 2 0 India China Other Latin North Other Asia America America Source: Fertecon, CRU, Industry Publications, PotashCorp
  • 19. World Grain Production and Fertilizer Application Balance Balanced Fertilization is Essential to Long-Term Crop Production Growth Grain Production – Billion Tonnes K:N Ratio • Crop production flat over the past2.0 Grain Production K:N Ratio 0.4 four years despite increased global1.9 acreage 0.41.8 • Adverse weather has impacted1.7 0.3 crop production but we believe1.6 reduced potash applications have1.5 0.3 played a role1.4 0.21.3 • Adequate soil potassium levels are1.2 0.2 most important in years with1.1 adverse growing conditions1.0 0.1 2000 2002 2004 2006 2008 2010 2012F Source: USDA, Fertecon
  • 20. Latin America Market Update Import Pace Has Picked Up to Meet Strong Anticipated Application Season KCl Imports - Brazil Million Tonnes KCl • South American farmers will have1,200 2012 2011 first opportunity to respond to significant increase in crop1,000 economics 800 • Expect record Brazilian fertilizer consumption in 2012 600 • After slow start in first-quarter 400 2012, expect record potash imports 200 through remainder of year 0 Source: Potafertz
  • 21. China Market Update Higher Prices and Demand Drive Up Food Import Costs; KCl Fraction of Cost Import Cost US$ Billions • Higher global crop prices and strong40 Soybeans Corn KCl domestic demand driving up China’s food import costs3530 • Opportunity to increase domestic25 crop productivity with more balanced nutrient application2015 • Expect strong long-term growth in10 Chinese potash demand 5 0 2004 2006 2008 2010 2012F Source: Bloomberg, Industry Publications, PotashCorp
  • 22. Other Asia Market Update Expect Continued Steady Consumption Growth Potash Fertilizer Consumption Million Tonnes K2O • Rising regional food demand and5 supportive crop prices have driven significant potash consumption4 growth • Potash distributor inventories have3 been drawn down from elevated levels at the end of 20112 • We expect growth in potash1 shipments in 2013 due to anticipated higher consumption and0 reduced inventories 2002 2004 2006 2008 2010 2012F Source: Fertecon
  • 23. India Market Update Crop Production was Improving with more Balanced Fertilization Rice Production Million Tonnes • India’s rice yields are more than110 Rice Production K:N Ratio 0.30 20% below those in the rest of Asia100 0.25 • Reduced potash applications over past two years is not agronomically 90 0.20 sustainable 80 0.15 • Expect rebound in potash 70 shipments in 2013; magnitude will 0.10 60 depend on potential crop production 50 0.05 issues and government policy 40 0.00 2000 2002 2004 2006 2008 2010 2012F Source: USDA, Fertecon
  • 24. North American Market Update Anticipate Strong Demand Given Low Dealer Inventories Million Tonnes KCl • Domestic dealers entered the12 Domestic Shipments Offshore Imports 2012/13 fertilizer year with limited Total Potash Consumption inventory10 • US farm income projected at record 8 levels; very supportive crop prices 6 • Farmers have mined soil potassium banks over the past decade; 4 reflected in soil test results 2 0 Source: Fertecon, AAPFCO, TFI, PotashCorp
  • 25. Top Investor Questions: Looming Capacity Overhang?
  • 26. Saskatchewan Brownfield & Greenfield Potash CostsNew Projects are Increasingly Expensive and Complex to Complete Capital Cost per Tonne Greenfield (Excluding infrastructure and reserve costs) 3,500 Greenfield (Including infrastructure and reserve costs) 3,000 2,500 2,000 1,500 1,000 500 0 POT Projects POT Projects in MOS Projects in AGU Project SK Greenfield** Completed Progress* Progress * New Brunswick cost per tonne based on new 2MMT mine (net addition totals 1.2MMT). ** Based on 2MMT conventional greenfield mine constructed in Saskatchewan. PotashCorp project costs exclude infrastructure outside the plant gate. Assuming US$/CDN$ at par Source: AMEC, Company Reports, PotashCorp
  • 27. World Potash Supply EstimatesBased on Public Announcements ~13 Million Tonnes of New Operational Capability Million Tonnes KCl Operational Capability Additions 80 70 60 50 40 30 20 10 0 2012F Total 2013F 2014F 2015F 2016F 2016F Total * Based on percentage of operational capability (estimated annual achievable production level). Source: Fertecon, CRU, IFA, PotashCorp
  • 28. Industry Consultant Potash Capacity OutlookHistorical Overestimation of Capacity AdditionsCumulative Capacity Additions Million Tonnes KCl Actual Capacity Additions Forecast Capacity Additions* 10 8 6 4 2 0 2009 2010 2011 * Based on percentage of operational capability (estimated annual achievable production level). Source: Industry Publications
  • 29. PotashCorp: Our Value Argument
  • 30. PotashCorp Share Price (Then and Now) Significant Potential: We Believe Share Price Has Yet to Fully Reflect Fundamentals 1 August 16, 2010: Share Price - US$ • Corn = $4.27/bu5045 • Global Potash Consumption (2010) = ~50mmt40 • POT Q2 Netback* = ~$309/mt35 • POT remaining CAPEX = ~$4.3 billion*3025 2 September 11, 2012:20 1 2 • Corn = $7.99/bu1510 • Global Potash Consumption (2012E) = ~54mmt5 • POT Q2 Netback* = ~$433/mt0 • POT remaining CAPEX = ~$1.9 billion* Disclaimer: Historical share price information is not indicative of future performance and is not necessarily correlated to the metrics * As of the end of June 30 provided herein. Source: Bloomberg, PotashCorp
  • 31. PotashCorp Investments Profile Significant Financial and Strategic Value 1 APC (28% ownership): Billions - US$ • ~2.5-million tonnes of potash capacity (~4% of global capacity)10 • Board (3/13 members) and Mgmt representation (4 members)98 2 SQM (32% ownership):7 • ~2.0-million tonnes of potash capacity (~3% of global capacity)6 • Board representation (3/8 members)5 3 ICL (14% ownership):4 • ~6-million tonnes of potash capacity (~9% of global capacity)3 • No Board or Mgmt representation21 4 Sinofert (22% ownership):0 Market Value* Total Contribution to • Distributes nearly 50% of total potash in China Earnings Since • Board representation (2/7 members) Purchased** * As at September 10, 2012 ** As at June 30, 2012 Source: Bloomberg, PotashCorp
  • 32. PotashCorp Capital Spending and Cash FlowCash Flow Expected to Remain Strong US$ Millions Capital Expenditures Estimates* Cash Provided by Operating Activities 4,500 Scenario One** Scenario Two*** 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2006 2007 2008 2009 2010 2011 2012F 2013F 2014F 2015F * Excluding capitalized interest and major repairs and maintenance ** Scenario One: assumes flat cash flow from 2012F (based on July 26, 2012 earnings guidance) *** Scenario Two: assumes 10% growth in potash cash gross margin from 2012F (based on July 26, 2012 earnings guidance Source: PotashCorp
  • 33. Historical Cash Flow DeploymentFocused on Using Free Cash Flow to Drive Long-Term Shareholder Value Opportunity Capital Equity Investments $6.6 Billion since 2003 $2.0 Billion since 1998 5-Year Average CFR = 24.3% Current Market Value* = $9.2 billion Share Repurchases Dividend Payments $6.3 Billion since 1999 $1.2 Billion since 2002 Average purchase price = $26/share Increased dividend 3x since January 2011 * As at September 11, 2012 Source: PotashCorp
  • 34. Future Cash Flow PrioritiesFocused on Using Free Cash Flow to Drive Long-Term Shareholder Value2012 2013 2014 2015 2016 Potential: Dividend Increases / Share Buybacks / M&A Potash Brownfield Projects (Announced) Phosphate & Nitrogen Brownfield Projects (Announced) Source: PotashCorp
  • 35. Thank youThere’s more online: PotashCorp.com Visit us online Facebook.com/PotashCorp Find us on Facebook Twitter.com/PotashCorp Follow us on Twitter