POTASH CORP. OF SASKATCHEWAN $42 (Toronto symbol POT; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 832.1 million; Market cap: $34.9 billion; Price-to-sales ratio: 5.3; Dividend yield: 4.5%; TSINetwork Rating: Average; www.potashcorp.com) has suffered two recent setbacks. (All amounts except share price and market cap in U.S. dollars.)
First, the Saskatchewan government decided to change the timing of certain tax breaks for new potash mines and expansion projects. The province is also reviewing how it taxes potash producers.
Potash Corp. expects the new rules to cut its pre-tax earnings by $75 million to $100 million (Canadian) in 2015. To put that in context, it earned $1.5 billion, or $1.82 a share, in 2014.
In addition, Canpotex has finalized its 2015 supply contracts with its major customers in China. (Potash Corp. and Agrium each own a third of Canpotex, which sells potash fertilizer to customers outside Canada and the U.S.; Mosaic Co. [New York symbol MOS] owns the remaining third.)# Canpotex didn’t reveal the price it will receive, but based on other recent deals, potash is currently trading around $315 U.S. a tonne, down from over $400 in mid-2013.
About 40% of Potash Corp.’s revenue comes from bulk potash sales. That makes it more vulnerable to lower potash prices than Agrium.
Potash Corp. is still a hold.
