10/27/2011 06:18 EDT | Updated 12/27/2011 05:12 EST

PotashCorp reports $826 in net earnings in third quarter

SASKATOON - Potash Corp. of Saskatchewan Inc. (TSX:POT) mined near-record profits in the third quarter as the world's largest producer of potash cashed in on growing global demand for food and crop fertilizers that its chief executive expects will continue.

"Our optimism for the agriculture sector is based on long-term trends and population growth and global development rather than short-term peaks and valleys," CEO Bill Doyle told a conference call after PotashCorp released a report boasting near-record earnings in the latest period.

The Saskatoon-based company, which reports in U.S. dollars, said net income jumped to US$826 million, or 94 cents per share in the three months ended Sept. 30.

That was more than double the 38 cents per share, or US$343 million in profits the company earned in the same quarter last year.

Sales in the quarter jumped to US$2.3 billion from $1.58 billion last year as the company profited from demand for fertilizer in China, India and other parts of the world.

PotashCorp said record third-quarter sales and significantly higher prices raised potash gross margin to $700 million — the second-highest third-quarter total in company history.

This raised gross margin for the year to $2.2 billion, well ahead of the $1.3 billion earned in the first three quarters of 2010.

Production in the quarter hit a record 1.9 million tonnes, up from 1.3 million tonnes a year earlier as producers scramble to meet what Doyle call the "undeniable need for potash, phosphate and nitrogen."

"Growing demand and the need to rebuild inventories will provide a supportive environment for crop pricing beyond 2012," Doyle told the analysts.

"As farmers prepare for this environment, we believe the near-term demand for all three nutrients will be solid."

After the rejection of BHP Billiton's hostile $40-billion bid for PotashCorp last year, the Saskatoon company has moved ahead with expansion plans and developments to boost supply.

Based on recent share prices, PotashCorp's market value is about $43.7 billion. Its stock price Thursday afternoon was $51.04, up $1.29 or 2.6 per cent.

"Our growing ability to deliver, especially in potash, is becoming evident today and we believe will be even more valuable moving forward," Doyle said, adding that the company is "well positioned for today and for the future."

The company's earnings guidance for the year remains at between US$3.40 and US$3.80 per share, with the midpoint close to the previous record of US$3.64 per share set in 2008.

Cash flow per share at the mid-point would be some 10 per cent higher than the company's 2008 record.

Doyle noted that agriculture commodities, while not immune to global economic winds, held up better than most during the recent economic turbulence.

PotashCorp expects contract commitments to China and India will help underpin the potash market in the fourth quarter.

"As well look ahead to 2012, we anticipate strong consumption growth will lift potash demand to record levels of 58 million to 60 million tonnes (globally)," he said.

At the same time "we expect demand to continue to test the industry's supply capabilities."

Already shipments by Canpotex, the marketing body for Saskatchewan potash producers, include a $60 per tonne increase in prices for the first quarter of 2012 compared with the fourth quarter of 2011, he said.

Asked about competitive concerns in the next seven to 10 years amid reports of lower-cost producers coming on stream, Doyle described some of them as "questionable."

Among them, for example, is word that China could become potash independent by 2015.

"I would just say that that announcement might have something to do with the upcoming negotiations for 2012," Doyle said.

"If you look at the numbers and know what is being produced, China has no opportunity to be independent of potash imports in 2015 and quite frankly the commercial people in China say that China will be 75 per cent dependent on imported potash for the foreseeable future."

"Brazil being potash independent also I think is a stretch," added Doyle, who described a proposed Amazon development as a "very expensive, difficult project in a high humidity climate" in which potash does not do well.