Potash demand 'robust,' but Nutrien CEO doesn't rule out closing higher cost mines

Nutrien Ltd., the newly formed company from the merger of The Potash Corporation of Saskatchewan and Agrium Inc., is well on course to achieve savings of half a billion dollar in synergies annually, according to its chief executive officer Chuck Magro.

“When we look at it, the $500 million in annual synergies — we’re very confident about that number,” Magro told investors on Nutrien’s first conference call about the company’s 2018 guidance.

Already, the company has saved $40 million, Magro said, predicting that more savings will be achieved through the combination of the transportation, operations, finance and procurement functions.

For instance, he pointed to the elimination of 200 railcars as one example of a cost-saving synergy that resulted from the combination. 

But integrating the two companies could send ripples throughout Canada, with impacts far beyond Nutrien’s bottom line.

One example discussed on the conference call with investors: Nutrien controls six potash mines in Canada, and executives did not rule out closing higher cost mines.

“If market conditions continue to be as robust as they are we don’t see a change in a strategy,” Magro told the Financial Post, adding,”but if demand was to fall off, we would obviously look at all options.”

“I think in the short term we need the six running,” Raef Sully, Nutrien’s executive vice president, potash said during the conference call. “We’ll look at that again in the middle of the year.”

Magro said his company has always idled mines for periods to optimize its assets based on demand.

He also said a structural shift is helping drive potash demand: As the governments in China and India pay more attention to soil analysis, Magro said he believes farmers there will apply more fertilizer to ensure soil health does not deteriorate.

As far as the North American Free Trade Agreement negotiations, he said the company is watching closely to see if there are any changes to rules regarding U.S imports of fertilizer from Canada, and more generally how North America farmers are affected. 

“We’re in the same boat as everyone else,” said Magro. “We have our plans and contingencies, but until we actually know what happens we can’t get too far ahead of that.”

Headquartered in Saskatoon, the new company has corporate offices in Calgary.

Nutrien forecast $3.2 billion to $3.7 billion for its 2018 earnings before taxes, depreciation, amortization — a 10 to 27 per cent increase from the two companies’ combined $2.9 billion performance in 2017.

Magro said the wide range in the forecasts reflects the uncertainty about what will happen in the markets for potash, nitrogen and phosphates. He also gave an update on planned divestitures: Earlier this month, the company sold its equity stake in Israel Chemicals Ltd. for $685 million.

It also plans to sell its stake in Chilean-based SQM, a lithium company potentially worth billions of dollars, and its stake in Jordan-based Arab Potash Corp.

Antitrust regulators in India and China — both large markets for Nutrien — required both sales by early 2019 as conditions to the approval of the merger. Although Magro described the bidding process as robust, he cautioned that it is still in preliminary stages.

Magro also said the company would provide an annual dividend of $1.50 per share, which would leave room for future growth.

“We’re coming out of the gate with a strong free cashflow position and a healthy balance sheet,” said Magro.

The company’s stock was trading at $58.50 on Tuesday, down 3.2 per cent.

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