07/11/2013 11:36 EDT | Updated 09/10/2013 05:12 EDT

K+S and Canadian Pacific sign deal to transport Saskatchewan potash

SASKATOON - K+S Potash Canada has signed a deal with Canadian Pacific Railway Ltd. (TSX:CP) to ship potash from its Legacy mine in Saskatchewan.

Financial terms of the long-term, volume-based contract were not disclosed.

"Canadian Pacific offers an excellent logistics service and we are looking forward to this long-term partnership," said Ulrich Lamp, president and CEO of K+S Potash Canada, a unit of the German fertilizer giant K+S Group.

The shipments along Canadian Pacific's network will head to the West Coast for export, as well as to Canadian and U.S. markets.

"The capacity, flexibility and market access of CP's network on our western corridor, as well as efficient route options into the United States, ensures a growth opportunity for both companies," said Keith Creel, the railway's chief operating officer.

The Legacy mine, currently under construction, is expected to start production by the end of 2016, ramping up to two million tonnes per year in 2017 and reaching full capacity of 2.86 million tonnes by 2023.

Canadian Pacific plans to build an exclusive rail spur to provide direct access to the Legacy site, northwest of Regina.

"We view this deal as a solid growth opportunity for CP," wrote RBC analyst Walter Spracklin in a research note.

"However, we are not making any revisions to our estimates as anticipated volumes from this contract are several years out. As such, we consider incremental potash carloads to be included in our long-term volume growth assumptions."

Canadian Pacific also has an agreement with Canpotex — an agency that markets the crop nutrient on behalf of Agrium (TSX:AGU), Potash Corp. of Saskatchewan (TSX:POT) and Mosaic Co. (NYSE:MOS) — to ship potash to the Port of Vancouver.

Canadian Pacific shares rose 39 cents to $129.56 in afternoon trading on the Toronto Stock Exchange.