Potash of Saskatchewan Earnings Call INSIGHTS: Expecting a Strong Latin America, Cost Escalation

On Thursday, Potash Corporation of Saskatchewan, Inc. (NYSE:POT) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Expecting a Strong Latin America 

PJ Juvekar – Citigroup: What do you think is going to be the reaction of Latin American growers to the U.S. drought and what kind of acreage growth do you foresee in Latin America in both beans and corns, you see any shift from corn to beans and all that?

William J. Doyle – President and CEO: Well, PJ, if you think about Latin America, of course we have to talk about Brazil, because it’s the main driver, and if you think about where crop prices are, these guys are going to go into planting season with $7 corn, $15 beans, real about two per dollar. I can tell you from what I have known, customers that we have down there and the reports I’m getting back, the Brazilian farmers are salivating about the opportunities for profitability in this next crop. There’s no question that this is about as good as stimulation as you can get and Brazilians are very quick to remark – to respond to market fundamentals. I don’t know if you are going to see a huge acreage shift and I don’t know that you are going to see a mass of addition to acreage. If you think about where Brazil is, obviously there’s a premier crop, the corn crop has become more important and there may be small expansions there, but I think most of the effort is going to be responding to the need to apply better fertilization to capture that profit potential. So I would look more towards application rates being expanded in Brazil. As I said during my formal remarks, we’re expecting an additional 4 million tonnes of potash to be exported to Brazil during the second half. Right now the forecast for N-to-K is 29 million to 30 million metric tonnes, which will be a new record and that has real potential to exceed the record previously set last year in Brazil. So Brazil should be very strong. It’s not the only story in Latin America, of course we’ve got wonderful markets in Colombia, Peru, Chile, of course a very strong ag market, Central America, Guatemala, Costa Rica all of these markets are responding to profit incentives that are out there. So we expect Latin America to be quite strong.

Cost Escalation

Joel Jackson – BMO Capital Markets: Couple points I want to touch on, your New Brunswick mine expansion and cost escalation, maybe you could elaborate on the source of the cost escalation? Could you also talk about if you might see some CapEx inflation on some of your remaining work on your Saskatchewan Brownfield and also considering your recent commentary to return cash to shareholders as you go, does the $500 million cost escalation in New Brunswick imply the sort of reduced incremental cash returns over the next 18 months?

William J. Doyle – President and CEO: I’d answer the first question – the last question first and then have Mike Hogan to talk about New Brunswick and our other potash expansions. The answer to your question is no. The additional capital costs will not affect our ability to return cash to our shareholders. Mike you want to speak to New Brunswick situation and the other mines.

Michael T. Hogan – SVP, PCS Potash: As Bill mentioned in his opening remarks, our Picadilly project is unique relative to our other expansion projects in the sense that we are accessing and opening a new ore body, burying two shafts and the associated infrastructure to support that. This aspect of the project closely mirrors back on the greenfield operation. At the time we did not fully appreciate the scope of work required for this and our adjacent mill facilities and as Bill mentioned, this does not impact on our current timelines. We recently conducted a review of our Rocanville expansion project and it is on time and on budget.