POLITICS

Shares of Potash producers take a hit on Saskatchewan government tax changes

03/19/2015 10:54 EDT | Updated 05/19/2015 05:59 EDT
REGINA - Shares in Potash Corp. of Saskatchewan Inc. (TSX:POT) and other potash producers came under strong selling pressure Thursday, a day after Saskatchewan announced budget changes that will collect an additional $150 million from the industry.

The provincial government also announced in its budget Wednesday that it will review the potash royalty structure.

PotashCorp — the world's largest producer of potash, which is used to boost crop production — said it expects the tax change will shave $75 million to $100 million from its pre-tax earnings for 2015.

PotashCorp president and CEO Jochen Tilk said in a statement that the company understands the provincial government's revenue situation but added the change affects $6 billion of investments that assumed the rules would stay in place.

"Changing the rules midstream impacts the ability of our shareholders to earn a fair return on their capital and undermines Saskatchewan's relative competitiveness," Tilk said.

The Saskatchewan government said it was changing its potash production tax to help offset a sharp drop in revenue from oil.

Potash producers will receive the same total tax deductions for capital spending but they will be spread over a longer period of time.

Economy Minister Bill Boyd said the decision was made after "full consultation" with the industry.

"It has not impaired the investment climate here in Saskatchewan," he said Thursday.

He added that Mosaic was aware there could be changes when it announced last week a $1.7-billion investment in its potash mine in the province's southeast.

Boyd said the government's review of potash royalties will include industry consultation.

In January, a report from the University of Calgary criticized the royalty structure for being "alarmingly inefficient."

The weakness in the potash stocks also came as the Belarussian Potash Co. and China settled potash contract negotiations at $315 per tonne for the first half of this year.

"Although the lower-than-expected contract price is not ideal and may add to near-term negative potash equity sentiment, we believe the settlement will provide price direction to the market and should alleviate some recent market concerns that this year's contract prices could be flat or lower year-over-year," RBC analysts said in a note.

PotashCorp shares closed down $1.23 or 2.9 per cent at $41.14 in trading on the Toronto Stock Exchange on volume of more than 2.6 million shares, double the daily average. Shares of Agrium (TSX:AGU) were down $$3.49 or 2.49 per cent at $136.70, while stock in Mosaic Co. (NYSE:MOS) was down $1.22 or 2.57 per cent at $46.33 in New York.