Agrium Inc. announced today it expects to adjust the carrying cost of its Kapuskasing phosphate rock mine and associated Redwater phosphate facility resulting in a non-cash, after tax charge of approximately $100-million in the Corporation’s fourth quarter financial results.
Recent quality issues with the rock from our Kapuskasing phosphate mine resulted in a comprehensive drilling program as part of an extensive reevaluation of the nature of the reserves. The outcome of the drilling program has resulted in a reduction in the estimated economic ore reserve life from 2019 to 2013. This triggered an impairment review of our Canadian phosphate operations’ carrying cost. The impairment reflects the reduction in economic ore reserves, a pricing forecast for phosphate fertilizers that reflects significant new global supply additions in 2011 and a forecast of a strong Canadian dollar.
We will continue to evaluate longer-term solutions for the ongoing operation of the Redwater phosphate facility beyond 2013, including alternative sources for phosphate rock. We believe that upgrading the flotation system in early 2007 and moving into a higher quality ore area later in the year will improve the margins of our Canadian phosphate operations in the second half of 2007.
We expect second half 2006 results to be at the lower end of our previously issued guidance range of $0.20 to $0.25 per share, excluding the impact of the adjustment in carrying cost of our Canadian phosphate assets as described above. Very wet weather in the Eastern U.S. Cornbelt and an early snowfall in Western Canada negatively impacted fall sales in these regions. Additionally, we mark-to-market our estimated stock-based compensation expense monthly, and as such, our stock-based compensation expense is forecast to be higher. These negative effects are expected to be partially offset by a gain on a small non-core asset sale and the expectation that the maintenance originally anticipated to occur in the fourth quarter at our Profertil facility will now be deferred until the first quarter of 2007.
Agrium Inc. is a leading global producer and marketer of agricultural nutrients, industrial products, and specialty fertilizers, and a major retail supplier of agricultural products and services in both North and South America. Agrium produces and markets three primary groups of nutrients: nitrogen, phosphate and potash as well as controlled release fertilizers and micronutrients. Agrium’s strategy is to grow through incremental expansion of its existing operations and acquisitions as well as the development, commercialization and marketing of new products and international opportunities.
Certain statements in this press release constitute forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties and various business sensitivities, including those referred to in the management discussion and analysis section of the Corporation’s most recent Annual Report to shareholders as well as those risk factors described in the Corporation’s most recent Annual Information Form, which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
The major assumptions in updating our second half guidance include, but are not limited to, the timing of the turnaround at Profertil which we expect to occur in 2007, weather conditions, future prices and sales volumes of nitrogen, phosphate and potash, our Retail business’ fourth quarter results will be slightly lower than the fourth quarter of 2005 and the impact of Agrium’s share price on its stock-based compensation expense.
Assumptions applied in determining the adjustment to the carrying costs of our Canadian phosphate operations include, but are not limited to, anticipated phosphate ore quality at Kapuskasing and resulting future mining and processing costs, expected exchange rates between U.S. and Canadian dollars and expected future phosphate fertilizer prices.
Other factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to; the ability and timing to move into a higher quality ore body and implement an effective flotation system at our Kapuskasing mine, future crop prices, variability in and regional price differentials in various North American gas prices, the exchange rates for U.S., Canadian and Argentine currencies, South American domestic fertilizer consumption and government policies, China and India’s fertilizer trade policies and volumes, future levels of nitrogen imports into North America and future additional fertilizer capacity and operating rates, regulatory changes including changes to tax rates or environmental laws, and the potential inability to integrate recent or new business acquisitions as planned or within the time predicted. Agrium disclaims any intention or obligation to update or revise any forward-looking information as a result of new information or future events.
Senior Director, Investor Relations
Manager, Investor Relations
Source: AGRIUM INC.