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PotashCorp - BMO Metals and Mining Conference - February 26, 2013


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PotashCorp - BMO Metals and Mining Conference - February 26, 2013

  1. 1. BMOGlobal Metals and MiningConferenceFebruary 26, 2013Wayne BrownleeExecutive Vice-President and CFO
  2. 2. Forward-looking StatementsThis presentation contains forward-looking statements or forward-looking information (forward-looking statements).These statements can be identified by expressions of belief, expectation or intention, as well as those statements thatare not historical fact. These statements are based on certain factors and assumptions including with respect to foreignexchange rates, expected growth, results of operations, performance, business prospects and opportunities andeffective tax rates. While the company considers these factors and assumptions to be reasonable based on informationcurrently available, they may prove to be incorrect. Several factors could cause actual results or events to differmaterially from those expressed in the forward-looking statements, including, but not limited to: variations from ourassumptions with respect to foreign exchange rates, expected growth, results of operations, performance, businessprospects and opportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur,transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materialsand products, including railcars and ocean freight; changes in competitive pressures, including pricing pressures;adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contractnegotiations with major markets; economic and political uncertainty around the world; timing and impact of capitalexpenditures; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected oradverse weather conditions; changes in currency and exchange rates; unexpected geological or environmentalconditions, including water inflows; imprecision in reserve estimates; adverse developments in new and pending legalproceedings or government investigations; acquisitions we may undertake; strikes or other forms of work stoppage orslowdowns; rates of return on and the risks associated with or investments; changes in, and the effects of, governmentpolicies and regulations; security risks related to our information technology systems; and earnings, exchange rates andthe decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties canbe found in our Form 10-K for the fiscal year ended December 31, 2012 under the captions “Forward-LookingStatements” and “Item 1A – Risk Factors” and in our other filings with the US Securities and Exchange Commission andthe Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this releaseand the company disclaims any obligation to update or revise any forward-looking statements, whether as a result ofnew information, future events or otherwise, except as required by law.
  3. 3. PotashCorp Overview
  4. 4. Potash Nitrogen Phosphate % of Global Capacity* 20% 2% 5%PotashCorp Profile Global Position % of Gross Margin (2012) #1 57% #3 29% #3 14%A Global Crop Nutrient Company * Based on nameplate capacity at year-end 2012, which may exceed operational capability (estimated annual achievable production level Sinofert APC ICL Potash Phosphate (Mining/Processing) Nitrogen Investments SQM Source: Fertecon; CRU; Blue, Johnson & Associates; PotashCorp
  5. 5. PotashCorp Profile Unique Potash Position Drives Earnings Growth PotashCorp Gross Margin Percentage PotashCorp Gross MarginPercentage of Net Sales (2012) Gross Margin - US$ Billions 10-Year Growth: +1,000% * 2013F as at January 31, 2013 Source: PotashCorp
  6. 6. Agricultural Market Update
  7. 7. World Grain and Oilseed Supply/DemandNeed Historically Large Production Increase to Avoid Further Shortfall Million Tonnes 2013 Production Growth Rate Scenarios 6% (~ 3X Historical Growth Rate) 4% (~ 2X Historical Growth Rate) 2013F refers to the 2013/14 crop year. Consumption forecast based on historical trend line growth. Source: USDA, PotashCorp
  8. 8. Crop and Fertilizer Price RelationshipSignificant Economic Incentive for Increased Fertilizer Usage Price Index (2005 Average = 100) * Based on corn, soybean and wheat prices (weighted by global consumption) ** Based on urea, DAP and KCl prices (weighted by global consumption) Source: Bloomberg, PotashCorp
  9. 9. Fertilizer Market UpdateFertilizer Market Update
  10. 10. World Potash Shipments and ConsumptionSignificant Global Distributor Inventory Destocking Occurred in 2012 Million Tonnes KCl Distributor inventory estimated to be ~3 million tonnes lower at the end of 2012 Source: Fertecon, IFA, PotashCorp
  11. 11. World Potash ShipmentsSlower Demand Periods Have Historically Been Followed by Robust Growth Million Tonnes KCl 5.3% CAGR 6.5% CAGR Source: Fertecon, PotashCorp
  12. 12. World Potash Demand Reduced Destocking and Increased Demand Expected to Drive 2013 Shipments Estimated Shipments by Market* (million tonnes)Million Tonnes KCl Market 2012E 2013F China 10.6 11-11.5 India 3.5 3.5-4.5 Other Asia 7.5 ~8.5 North America 7.9 ~9.5 Latin America 9.5 ~10.0 Other 12.0 ~12.5 Total 51.0 55-57 * Estimates per PotashCorp Source: Fertecon, CRU, Industry Publications, PotashCorp
  13. 13. Latin America Market UpdatePotash Import Demand Anticipated to Remain Robust Market CommentaryBrazil KCl Imports - Million Tonnes KCl • High planted acreage and very supportive farm economics leading to robust fertilizer demand • Off to an excellent start in 2013 with strong potash shipments from both Canpotex and New Brunswick • Distributors working to more evenly spread fertilizer shipments throughout the year • 2013 demand for total fertilizer and potash could surpass 2012 record levels Destocking period from Potash import demand inventory build at close of 2011 +12% over May-Dec 2011 period Source: Potafertz
  14. 14. China Market UpdateContinued Consumption Growth Anticipated to Increase Import RequirementsMillion Tonnes KCl Market Commentary • Anticipate growth in potash consumption given need to increase domestic productivity due to rising costs of soybean and corn imports • Significant tonnage contracted for first-half 2013 delivery • Canpotex contract commitments for first-half 2013 represent record levels Source: Fertecon, CRU, IFA, Industry publications, PotashCorp
  15. 15. Other Asia Market UpdateExpect Strong Demand Growth in Indonesia and MalaysiaMillion Tonnes KCl Market Commentary • Strong consumption trends masked by destocking activities in 2012 • Shipments to this market accelerated upon the settlement of new contracts in China and India • Despite volatility in prices of palm oil, a key consumer of potash in the region, grower economics remain supportive for robust potash demand Source: Fertecon, CRU, IFA, Industry publications, PotashCorp
  16. 16. India Market UpdateExpect Modest Growth in IndiaMillion Tonnes KCl K:N Ratio Market Commentary • Lower potash prices expected to reduce government subsidy levels; potential for some savings to pass on to the farmer • Canpotex’s contracted volumes represent an increase above those in 2012 • Based on estimated imports, N:K ratio likely to remain well-below scientifically-recommended levels; unlikely to improve lagging yields Source: Fertecon, CRU, IFA, Industry publications, PotashCorp
  17. 17. North America Market UpdateLow Dealer Inventories and Strong Crop Economics Support Demand Market CommentaryMillion Tonnes KCl • Expect fertilizer applications to be robust due to supportive crop economics and increased agronomic requirements from declining soil potassium levels • Strong start to the season as buyers begin to secure product for spring needs given limited inventory at the distributor and retail level • Offshore imports into the US continue to be well below recent historical levels Source: IPNI, USDOC, AAPFCO, PotashCorp
  18. 18. The PotashCorp Advantage: Positioned to Deliver Superior Performance
  19. 19. PotashCorp’s OpportunityPotential to Gain Largest Share of New Potash Demand Growth Growth in Global Fertilizer Consumption Percentage of New Operational Capability (2012-2016F)*Estimated Annual Increase (2012-2016) Percentage of Global Operational Capability (2016F)* * Based on public filings and PotashCorp’s estimates of global operational capability Source: PotashCorp, IFA
  20. 20. PotashCorp’s OpportunityHigher-Cost, Low-Return Greenfield Potash Projects Could Be DeferredEstimated Capital Cost of Greenfield Projects Estimated Return on Brownfield vs GreenfieldUS$ per Tonne Internal Rate of Return (IRR) - Percentage 1,2,4 3 3 Negativ e IRR 3 1,2 1 New Brunswick cost per tonne based on new 2MMT mine (net addition totals 1.2MMT). 2 PotashCorp project costs exclude infrastructure outside the plant gate; Assuming US$/CDN$ at par. 3 Based on 2MMT conventional greenfield mine constructed in Saskatchewan. 4 Calculation of IRR assumes: PotashCorp average per tonne capital cost; 15 percent discount rate; 4 year construction timeline and 1 year ramp up. Source: AMEC, Company Reports, PotashCorp
  21. 21. PotashCorp’s Opportunity Equity Investments Provide Additional Financial and Strategic Value PotashCorp Equity Investments APC (28% ownership):US$ - Billions • ~2.5-million tonnes of potash capacity (~4% of global capacity) • Board (3/13 members) and Mgmt representation (4 members) SQM (32% ownership): • ~2.0-million tonnes of potash capacity (~3% of global capacity) • Board representation (3/8 members) ICL (14% ownership): • ~6-million tonnes of potash capacity (~9% of global capacity) • No Board or Mgmt representation Sinofert (22% ownership): Total Contribution to • Distributes nearly 50% of total potash in China Earnings Since • Board representation (2/7 members) Purchased** * As at February 19, 2013 ** As at December 31, 2012 Source: Bloomberg, PotashCorp
  22. 22. PotashCorp’s OpportunityNew Ammonia Capacity Adds Margin Potential 2012 Nitrogen Product Mix (Volume) Ammonia Capacity Million Tonnes Recent Board approval for $190 million expansion of our Lima, OH ammonia (+88,000 short tons/year) and urea capacity (+80,000 short tons/year) expected to be complete by late-2015 Source: PotashCorp
  23. 23. PotashCorp’s OpportunityIndustrial and Feed Products Enhance Stability in Phosphate PotashCorp Average Realized Sales Price 2012 Phosphate Product Mix (Volume)US$/tonne * Mosaic’s percentage based on last four fiscal quarter’s feed sales volume relative to total phosphate sales volume as publicly disclosed. Source: PotashCorp, Company Filings
  24. 24. PotashCorp’s OpportunityStrong Cash Flow + Reduced Capital Spending = Greater Financial Flexibility Annual Cash Provided by Operating Activities* PotashCorp Capital Spending**US$ Millions US$ Millions* As we adopted International Financial Reporting Standards (IFRS) with effect ** Excluding capitalized interest, major repairs and maintenance and Lima expansionfrom January 1, 2010 ; 2003 to 2009 information is presented on a previousCanadian Generally Accepted Accounting Principals (GAAP) basis. Accordingly,information for 2003 to 2009 may not be comparable to 2010 , 2011 and 2012. Source: PotashCorp
  25. 25. PotashCorp’s OpportunityUtilizing Strong Cash Flow to Enhance Long-term Shareholder Returns Dividend* per Share – US$ Opportunity Capital (10-year total) = $8.1B 24% Return 5-year Average Cash Flow Return 1,2 (2008-2012) se ea cr Share Repurchases (since 1999) = $6.3B In 74 0% 60% Increase in Current Share Price2 above average repurchase price Equity Investments 3 (since 1998) = $2.0B 352% Increase Change in Market Value of Investments Since Acquisition2 * Dividends declared each quarter 1 See reconciliation and description of certain non-IFRS measures at ** $0.10 per share dividend adjusted for 3 for 1 stock split; rounded to nearest cent . 2 All figures as at February 19, 2013 3 Total acquisition cost for SQM, APC, Sinofert and ICL Source: PotashCorp
  26. 26. Thank youThere’s more online: Visit us online Find us on Facebook Follow us on Twitter