Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Profits of the world’s largest potash producer took a big hit this quarter, dropping to $356 million – down 45% from Q3 2012.
Saskatchewan’s PotashCorp (TSE:POT) blames a “challenging fertilizer market” which is suffering from lower prices and sales volumes.
The company’s share price shed 2.4% on Thursday, trading at $32.29 per share, though that’s nothing compared with the 20% share-price dive suffered in July. PotashCorp is still down nearly 20% for the year.
It’s been a tough few months for PotashCorp after Russia’s OAO Uralkali wreaked havoc on the industry by breaking up the world’s largest potash cartel this summer.
It appears companies are still suffering the consequences.
“The most recent quarter can best be characterized as a predictable response to an unpredicted event,” explained PotashCorp CEO Bill Doyle in a statement. “As we have seen in the past, fertilizer customers faced with uncertainty act with extreme caution.”
Doyle went on to say that the Russian producer’s pronouncements “left buyers waiting in anticipation of weaker prices.”
Uralkali’s announced change in sales strategy created tremendous market uncertainty and a state of paralysis in most regions #POTQ3
— PotashCorp (@PotashCorp) October 24, 2013
India and China in particular delayed purchases or “were reluctant to accept major tonnage against existing contracts.”
Meanwhile, offshore shipments from North American producers “fell to one of the lowest third-quarter totals in recent history.”
“While this volatility does not change the long-term underlying fundamentals of fertilizer demand, it did significantly slow market activity and our ability to deliver the results we expected.”
In reflection of these market forces, the company sold potash for $307 per tonne in Q3 2013 versus $429 per tonne last year.
Production also lagged, dropping by 27% to 1.2 million tonnes.
As a result, PotashCorp has revised its 2013 gross margin forecast range to $1.5-$1.7 billion, down from $1.8-$2.1 billion forecasted last quarter.
In July, the company expected full-year 2013 net income of between $2.45-$2.70 per share. This figure is now set between $2.00-$2.20 per share.
Despite these developments, total potash sales volumes for the first nine months of the year reached 6.3 million tonnes – a 7% increase over the same period in 2012, fuelled by strong demand for crop nutrient.
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