PotashCorp - J.P. Morgan Aviation, Transportation & Industrials Conference - March 11, 2014


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PotashCorp - J.P. Morgan Aviation, Transportation & Industrials Conference - March 11, 2014

  1. 1. PotashCorp.com JP Morgan Industrials Conference March 11, 2014 David Delaney Vice President & COO
  2. 2. This 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 that are not historical fact. These statements often contain words such as “should,” “could,” “expect,” “may,” “anticipate,” “believe,” “intend,” “estimates,” “plans” and similar expressions. These statements are based on certain factors and assumptions including with respect to: foreign exchange rates, 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. Forward-looking statements are subject to risks and uncertainties that are difficult to predict. The results or events set forth in forward-looking statements may differ materially from actual results or events. Several factors could cause actual results or events to differ materially from those expressed in the forward-looking statements, including, but not limited to the following: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; risks and uncertainties related to operating and workforce changes made in response to our industry and the markets we serve; changes in competitive pressures, including pricing pressures; risks and uncertainties related to our international operations and assets; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; unexpected geological or environmental conditions, including water inflows; economic and political uncertainty around the world; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected or adverse weather conditions; changes in currency and exchange rates; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; increases in the price or reduced availability of the raw materials that we use; strikes or other forms of work stoppage or slowdowns; timing and impact of capital expenditures; rates of return on, and the risks associated with, our investments and capital expenditures; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; risks related to reputational loss; and earnings, and the decisions of taxing authorities, which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2013 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 provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Forward-looking Statements Slide#2
  3. 3. PotashCorp Overview Slide#3 World’s largest fertilizer producer by capacity; #1 in potash and among the largest in nitrogen and phosphate. Global leader in potash; nutrient with highest margins and significant barriers to entry. Canadian potash operations and strategic offshore investments position us to benefit from growth markets. World-class nitrogen and phosphate businesses focused on more stable feed and industrial markets.
  4. 4. • Strong cash flow • Cash flow from operating activities of $3.2B in 2013 • Well positioned potash business • Low-cost supplier to key markets • 93 percent complete CDN $8.3B expansion program • Operational capability aligned with anticipated near-term demand, with flexibility to significantly grow sales volume • Strong balance sheet affords good flexibility • Low leverage relative to historical levels (Net debt to EBITDA) • Access to $3.5B liquidity (commercial paper/credit facility) at low borrowing rates • Proven track record of returning capital to shareholders • Dividend increase of 950 percent since January 2011 • Executing share repurchase program (authorization to repurchase up to 5 percent of o/s) PotashCorp Highlights Slide#4
  5. 5. PotashCorp Operating Strategy
  6. 6. PotashCorp’s Operational Strategy Slide#6 Corporate Goals and Operational Strategy Aligned to Drive Value • Financial Health • Focused growth initiatives • Maintain operational flexibility to capture opportunities and enhance gross margin • Build and sustain advantaged competitive position • Supplier of Choice • Product quality standards that set us apart from competitors • Community engagement • Maintain social license to operate by building relationships and opportunities in our local communities • Engaged employees • Attract and retain top talent by providing competitive compensation and opportunities for development • No harm to people or environment • Commitment to best-in-class safety and environmental performance
  7. 7. Focused Growth Initiatives
  8. 8. 0 500 1,000 1,500 2,000 2,500 3,000 3,500 POT Projects MOS Projects AGU Projects SK Greenfield* Brownfield Greenfield (Excluding infrastructure and reserve costs) Greenfield (Including infrastructure and reserve costs) Source: AMEC, Company Reports, PotashCorp * Based on 2MMT conventional greenfield mine constructed in Saskatchewan. PotashCorp project costs exclude infrastructure outside the plant gate. Assuming US$/CDN$ at par Capital Cost per Tonne – (CDN$) Enhancing Potash Position Through Lower-cost Brownfield Expansions Potash: Focused Growth Initiatives Estimated Cost of New Potash Capacity Slide#8
  9. 9. Rocanville Construction Nearing Completion; Will Add Significant Low-cost Capacity Potash: Focused Growth Initiatives Source: PotashCorp 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 2013 2014 2015F 2016F Slide#9 Million Tonnes (KCl) Remaining Spend: ~$0.3B Expected Completion: 2015 Incremental Capacity: +3MMT Competitive Advantage: PotashCorp’s lowest cost capacity, estimated among lowest mine- site production costs globally Status: • Mill complete and beginning commissioning efforts • New shaft at ~900 meters; underground development work progressing concurrently • Conversion of service shaft to production shaft underway Rocanville Nameplate Capacity* * Estimated capacity as per design specifications or completed Canpotex entitlement runs; does not necessarily represent operational capability.
  10. 10. Picadilly Construction Expected to be Complete by the End of 2014 Potash: Focused Growth Initiatives Source: PotashCorp 0.0 0.5 1.0 1.5 2.0 2.5 2013 2014 2015F 2016F Slide#10 Million Tonnes (KCl) Remaining Spend: ~$0.3B Expected Completion: 2014 Incremental Capacity: +1.2MMT** Competitive Advantage: Well positioned to competitively serve PotashCorp’s customers in Latin America Status: • Mill expansion complete and commissioned • Ceasing production at higher-cost Penobsquis mine, while simultaneously developing new Picadilly ore body. First production anticipated in late 2014. • New service and production shafts are now operational New Brunswick Nameplate Capacity* * Estimated capacity as per design specifications; does not necessarily represent operational capability. **Represents replacement of existing 0.8MMT capacity at Penobsquis mine. Potential to increase operational capability to 1.8MMT with staffing and ramp-up.
  11. 11. Enhancing US Operations Through Lower-cost Brownfield Expansions Nitrogen: Supporting Growth Initiatives Source: Blue Johnson, Company Reports, CRU, Fertecon, Green Markets, PotashCorp 0 500 1,000 1,500 2,000 2,500 PotashCorp Average Brownfield Cost Competitor Average Brownfield Costs** Estimated Greenfield Cost Slide#11 $US – Cost per Tonne Estimated Cost of New Ammonia Capacity* * Calculation based on total projected costs per tonne of ammonia capacity ** Based on publically available information for peer ammonia projects (Austin Powder, Incitec Pivot, Koch, LSB)
  12. 12. Source: PotashCorp Ammonia Capacity* New Ammonia Capacity Adds Margin Growth Potential Nitrogen: Focused Growth Initiatives 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2012 2013 2016E Trinidad Augusta Lima Geismar Million Tonnes * All estimated capacity amounts as at beginning of year. ** Contributions based on 2013 per-tonne margins for anticipated capacity additions. Augusta Expansion • Completed: 2012 (August) • Incremental Capacity: 70K MT • Incremental Gross Margin (2013): ~$15M Geismar Expansion • Completed: 2013 (February) • Incremental Capacity: 500K MT • Incremental Gross Margin (2013): ~$100M Lima Expansion • Anticipated Completion: 2015 (September) • Incremental Capacity: • 100K MT (Ammonia) • 80K MT (Urea solution) • Incremental Gross Margin (Potential)**: ~$40M Slide#12
  13. 13. Operational Flexibility
  14. 14. Million Tonnes (KCl) Capability Aligned With Expected Demand; Flexibility to Capture Growth Potash: Operational Flexibility Source: PotashCorp • 93 percent complete spend on multi- year expansion program • Expansion construction to be finalized on two remaining projects (Rocanville and Picadilly) to support approximately 18 million tonnes of nameplate capacity by 2015 • Operations will be staffed and ramped up each year according to expected market conditions • Inventory position provides additional flexibility to serve customer needs 0 2 4 6 8 10 12 14 16 18 20 2013 2014F 2015E 2016E Nameplate Capacity* Operational Capability** Inventory Estimate 2014 Volume Guidance Midpoint * Estimated capacity as per design specifications or completed Canpotex entitlement runs; does not necessarily represent operational capability. ** Estimated annual achievable production level at current staffing and operational readiness. Estimate does not include inventory-related shutdowns and unplanned downtime. Slide#14
  15. 15. Source: PotashCorp PotashCorp Gross Margin by Category Portfolio Directed to Higher Margin, More Stable Products Nitrogen: Operational Flexibility 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 2009 2010 2011 2012 2013 Industrial Fertilizer Percentage of Five-year Average Slide#15 0 500 1,000 1,500 2,000 2,500 Trinidad Augusta Geismar Lima Industrial Fertilizer Thousand Tonnes Product – 2013 PotashCorp Sales by Nitrogen Plant
  16. 16. Source: Company Reports, CRU, PotashCorp Industrial and Feed Products Provide Flexibility and Enhance Stability in Phosphate Phosphate: Operational Flexibility Slide#16 PotashCorp Gross Margin by Category 0 5 10 15 20 25 30 Feed & Industrial Fertilizer Percentage of Net Sales (2013) 0% 20% 40% 60% 80% 100% PotashCorp OCP** Mosaic* Agrium* CF* Feed & Industrial Fertilizer Finished Product Mix * Based on most recently reported 12-month sales volume totals as per publicly available data ** Estimate per CRU. Excludes phosphate rock sales Percentage
  17. 17. Advantaged Competitive Position
  18. 18. Potash: Advantaged Competitive Position Source: CRU (2012 Study), Public Filings, PotashCorp Slide#18 Competitively Positioned on the Global Cost Curve POT (SK) POT (NB) Potash Industry Site Cost Profile* US$ Per Tonne (FOB Mine**) * Site cost includes all cash operating costs, estimated per-tonne sustaining capital expenditures, royalties and taxes. Darker shaded bars represent CRU estimated mine site production costs at actual production levels; lighter shaded bars represent PotashCorp’s estimate of competitors cost range based on company reported data. Includes impact of PotashCorp’s announced changes for 2014 (upper end of range) and 2016 target (lower end of range). ** Competitive position dependent on end-market destination.
  19. 19. Optimizing Production at Our Lowest-cost Facilities Potash: Advantaged Competitive Position Source: PotashCorp * Based on PotashCorp’s estimate of cash costs of production (defined as total cost of production less per-tonne depreciation cost) at full operating rates; levels not adjusted for inflation 2013 Cash Costs Profile Slide#19 2016E Cash Cost Profile* 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Rocanville Lanigan Patience Lake Cory Allan New Brunswick $50-$75 per tonne $100-$125 per tonne >$125 per tonne 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Rocanville Allan Lanigan Cory Patience Lake New Brunswick $50-$75 per tonne $75-$100 per tonne $100-$125 per tonne >$125 per tonne Operational Capability - Million Tonnes KCl Operational Capability - Million Tonnes KCl
  20. 20. Targeted Cost Improvements Potash: Advantaged Competitive Position Source: PotashCorp 50 60 70 80 90 100 110 120 2013 Cash Cost 2014E Cash Cost 2016 Cash Cost Target * As compared to 2013 levels (not adjusted for inflation); target assumes successful ramp-up of expansions at lower-cost facilities. Annualized Improvement*: ~$15-$20 per tonne Cash Cost of Production – Potash Annualized Improvement*: ~$20-$30 per tonne Slide#20 US$ Per Tonne
  21. 21. Optimize Delivered Cost Advantages; US Advantaged Position Nitrogen: Advantaged Competitive Position Source: PotashCorp Slide#21 0 100 200 300 400 500 600 700 Ammonia Urea POT Avg US Netback US Benchmark Price* • Geographic positioning and lower transportation costs provide opportunity for higher average realized prices • Proximity to corn belt allows for reduced freight costs on fertilizer sales • Industrial ammonia production located near consumers, some via pipeline direct to customers * Represents average Tampa Ammonia and NOLA Urea prices for 2013
  22. 22. Source: Fertecon, PotashCorp 0 1 2 3 4 5 6 7 8 Q4-10 Q4-11 Q4-12 Q4-13 Trinidad Gas* US Gas Production – Million Tonnes Optimize Delivered Cost Advantages; Trinidad Position Improving Nitrogen: Advantaged Competitive Position Gas Cost – US$ Per MMBtu 0.00 0.05 0.10 0.15 0.20 0.25 0.30 2010 2011 2012 2013 2014E Slide#22 * Estimate based on Tampa ammonia priced divided by 100. Actual price based on specific contract, which may vary slightly. Natural Gas Costs Estimated Production Lost to Gas Curtailments
  23. 23. Production - Million Tonnes (P2O5) Focus on Efficiencies and Optimization of P2O5 Production Portfolio Phosphate: Advantaged Competitive Position Source: PotashCorp • Optimizing production portfolio • Close Suwannee River chemical plant – one of two plants at White Springs • Net reduction of P2O5 (after offset from higher operating rates at Aurora) is ~215,000 tonnes; • No expected impact to customers given ability to flex production of end products 0.0 0.5 1.0 1.5 2.0 2.5 2013 2014E 2015E Aurora White Springs Geismar Slide#23
  24. 24. Focus on Efficiencies and Optimization of P2O5 Production Portfolio Phosphate: Advantaged Competitive Position Source: PotashCorp Slide#24 150 250 350 450 550 2012 2013 2014F US$ Per Product Tonne Costs of Goods Sold • Greater efficiency and improved procurement practices expected to reduce costs in 2014 • Reduced workforce levels expected to improve cost structure • Mining efficiencies (course ore recovery in Aurora) to lower rock costs • Optimizing sulfur sourcing points and freight terms to reduce delivered cost • Lower ammonia prices and shifting sales mix away from more ammonia intensive fertilizer products
  25. 25. Creating Shareholder Value
  26. 26. Source: PotashCorp PotashCorp Total Capital Spending** CAPEX Spending Largely Complete PotashCorp’s Opportunity 93% 7% Completed Remaining PotashCorp Potash Projects Estimated Capital Spending* US$ Billions Slide#26 * As at December 31, 2013. Includes both debottleneck and expansion spending. ** Cash additions to property, plant and equipment per cash flow statement (2006-2013) 0.0 0.5 1.0 1.5 2.0 2.5 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E
  27. 27. Utilizing Strong Cash Flow to Enhance Long-term Shareholder Returns PotashCorp’s Opportunity * Dividends declared each quarter ** $0.10 per share dividend adjusted for 3 for 1 stock split; rounded to nearest cent. Source: Bloomberg, PotashCorp 5 Percent Share Repurchase Program Announced July 24, 2013 (up to $2 billion through August 1, 2014) 4.0% 3.1% 2.0% 1.5% 0.0% 0% 1% 2% 3% 4% 5% POT AGU MOS CF IPI Percent Yield* Slide#27 * Indicated yield percentage as per Bloomberg at March 6, 2014. $0.03 $0.35 $0.00 $0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40 Q4-10** Q3-11 Q2-12 Q1-13 Q4-13 Dividend* per Share – US$
  28. 28. There’s more online: PotashCorp.com Visit us online Facebook.com/PotashCorp Find us on Facebook Twitter.com/PotashCorp Follow us on Twitter Thank you
  29. 29. Try Our Overview Site: www.potashcorp.com/overview Looking For More Industry and Company Information? Explore our Key Markets… Find Data on Key Crops… Learn about our Company