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Potash Corp’s Shares Fall due to Saskatchewan’s New Tax Measures

Shares of Potash Corporation of Saskatchewan started sinking yesterday morning (19 March) after the company had announced that new provincial tax measures will decrease its profit by as much as $100 million this year. The company’s CEO, Jochen Tilk, said that although he understood the difficult revenue situation facing the government, the company is “nearing completion of a $6-billion investment in Saskatchewan which was based on the existing tax structure remaining in place.” He added that “changing the rules midstream impacts the ability of the company’s shareholders to earn a fair return on their capital and undermines Saskatchewan’s relative competitiveness.”

Potash Corp warned that the changes in the tax legislation are expected to cut its pre-tax profit by $75-100 million this year. Next year, the trend will continue, although “to a lesser extent”. The company added that the major problem of the new tax measures is the “significant change” in the timing of allowable deductions for expansion and maintenance spending. The company thinks that the provincial government should aim for a “constructive and consultative” process. Saskatchewan is one of Canada’s provinces that have been hit hard by the collapse in oil prices. According to analysts, the more stretched out deduction period is supposed to boost revenues of the province by $150 million in 2015-2016.

At the same time, the broader potash industry continues to be occupied with pricing. The sector is waiting for “the conclusion of protracted Chinese contract negotiations with lingering uncertainty attributable to much of the sector’s recent underperformance,” Steve Hansen of Raymond James commented and added that “While it does appear that the balance of power is tipping toward the Chinese as the spring application period approaches, we remain optimistic that a contract will ultimately be reached – likely by early April with a modest (5-per-cent) price increase attached.”

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