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.
Canada’s Potash Corp. of Saskatchewan (TSX, NYSE:POT), the world’s largest producer of the fertilizer by capacity, said Wednesday it would cut jobs and production at its Cory potash mine west of Saskatoon.
The Saskatoon, Saskatchewan-based company said approximately 100 full-time workers and 40 temporary positions are being laid off. Most of the cuts will take place in February with the remainder during the company’s 2017 third quarter.
Production will also be halted for six weeks at Lanigan mine starting in January and for 12 weeks at Allan, beginning in February.
Potash Corp said it plans to drop production of one type of potash at Cory, lowering the mine’s operational capability by 43% to about 800,000 metric tons of the key fertilizer ingredient. It also said the mine will continue to employ about 350 people.
“We are making this decision to optimize production to our lowest cost operations, including Rocanville and other Saskatchewan sites,” Mark Fracchia, president of the company’s PCS Potash operations said in the statement.
Rocanville mine, also in Saskatchewan, has a production capacity of 3 million tons.
Potash will also curtail output for six weeks at two other operations in the province in early 2017 to help match supply with market demand. Production will be halted for six weeks at its Lanigan mine starting in January and for 12 weeks at Allan, beginning in February.
Potash Corp, which agreed in September to merge with peer Agrium, said additional temporary layoffs will result from the curtailments, adding that specific numbers haven’t yet been determined.
A global oversupply of the fertilizer has caused prices to tumble in the past year, leading to layoffs and mine closures across the sector.
Prices for the fertilizer ingredient began their decline four years ago, as weak crop prices and currencies weakness pinched demand. Potash has also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.
Potash’s collapse picked up speed in the past year, putting additional pressure on producers, whose profits have been hit by falling prices, largely due to weak currencies in countries such as Brazil and low grain prices.
Crop prices have also been hurt, with corn and wheat at seven-year and 10-year lows respectively, which have reduced farmers’ willingness to maximize production with fertilizers.
Earlier this year, BHP Billiton (ASX, NYSE:BHP) (LON:BLT), revealed it might place its Canadian Jansen potash project in the back burner if prices for the fertilizer ingredient don’t pick up by the end of the decade.
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patentbs
And the good news just keeps coming. At least history shows that the survivors come out of these trials with lower costs and better efficiency. The pain for workers can be long term.