A company spokesman said K+S was considering selling a stake in its Bethune, Sask. potash mine — which the company values at nearly five billion euros (C$7.32 billion) — or bringing in an industry partner. It ruled out an outright sale of the facility.

He added that K+S was also considering all options for its salt business in North and South America, which includes the Morton Salt brand.

The group was favouring a stake sale, which could be done via an initial public offering, the spokesman added.

K+S has slashed production this year in response to weak demand for potash, following the lead of rivals such as Nutrien.

The group said it had become clear that ongoing cost cuts alone were not enough to reach a target to cut net debt as a multiple of EBITDA to about 2.7 times by end-2020 from 4.3 times recently.

K+S in 2015 fended off a 7.9 billion-euro takeover approach from Nutrien, at the time called PotashCorp, of 41 euros per share.

— Reporting for Reuters by Ludwig Burger.

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“In the current weak market environment, which is further intensified by the continuing Chinese import bans on the standard potassium chloride product, adjusting production is a difficult decision, but the right one,” K+S executive Alexa Hergenroether said in a statement Monday.

K+S mines and produces potash at facilities in Germany and in Saskatchewan, where it opened a mine at Bethune, about 60 km northeast of Moose Jaw, in 2017.

The grou said its potash output will be reduced by up to 300,000 tonnes by the end of the year, holding back core earnings, or earnings before interest, taxes, depreciation and amortization (EBITDA), by as much as 80 million euros (C$116.6 million), the company said.

It had previously forecast 2019 EBITDA of 730 million to 830 million euros, targeting the sale of 6.9 million to 7.1 million tonnes of potash for the year.

“Irrespective of this, we are continuing to work hard on implementing the ongoing measures to increase product quality at the Bethune plant in Canada and to strengthen operational excellence at the German sites,” Hergenrother said.

Larger Canadian rival Nutrien earlier this month flagged a US$100 million-$150 million reduction in potash EBITDA as a result of cutting output by about 700,000 tonnes.

Russian potash producer Uralkali last week followed up with plans to reduce output by 350,000-500,000 tonnes.

U.S. competitor Mosaic Co. also announced last month it would temporarily idle one of its Saskatchewan potash mines, which it said would allow it to avoid US$40 million-$50 million in cash expenditures in 2019.

— Reporting for Reuters by Ludwig Burger; includes files from Glacier FarmMedia Network staff.

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Now the trick will be keeping prices from appreciating too much to ensure a major would-be competitor, BHP Billiton, stays on the sidelines.

BHP has been weighing an entry into potash since prices spiked a decade ago. Construction of its Jansen mine in Saskatchewan — which could become the world’s largest — has been advancing slowly for years, but BHP has held off on committing the capital needed for completion, because of soft prices.

A BHP entry would create stiff competition in Canada, where a marketing arrangement allows Nutrien and Mosaic Co. to dominate.

Fresh supply would also threaten a recovery for potash driven by steadily growing global demand, Nutrien’s curtailments and a slow ramp-up at new mines owned by K+S AG and EuroChem.

Nutrien plans to wield its 8.1 million tonnes of unused capacity to protect its position, in a switch from its previous strategy of using curtailments to lift prices even at the cost of market share.

CEO Chuck Magro, asked whether Nutrien intends to balance its desire for higher prices with an effort to keep competitors out, said “that’s exactly the way we think about it.”

Nutrien’s idled production represents 11 per cent of current global operational capacity and will be deployed once prices approach levels that would encourage new mines, he said.

“There will be a price in the global market, that once we get there, you will see Nutrien put more tonnes into the market because the demand is there. We will not be shy,” Magro told Reuters.

Prices are well below such a level, he said, declining to identify it.

Granular potash sells for an average $331 per tonne in Brazil, as of Aug. 17, up 25 per cent year over year, according to Mosaic data (all figures US$).

BHP likely needs prices in Brazil of around $400 per tonne to realize a reasonable return on the Jansen mine, said Bernstein analyst Jonas Oxgaard. Nutrien will need to keep prices below that level to avoid “waving a red flag in front of the BHP bull,” he said.

BHP reports annual results on Tuesday, and investors will look for any improved sentiment toward potash, given rising prices.

A spokeswoman said BHP takes a long-term view of commodities and investment decisions are not based on short-term prices.

BHP has approved $3.9 billion in spending on the Jansen mine, allowing it to sink mine shafts. That work may last up to two years, and building the first four million-tonne stage of the mine is expected to require a further $4.7 billion that BHP’s board may consider next year.

Three more stages of equal size are longer-term options, taking the mine to 16 million tonnes, or more than double the world’s current largest potash mine.

Nutrien maximizes its leverage through Canpotex, a company it owns with Mosaic that handles transportation and sales outside North America.

Canpotex’s ownership of thousands of rail cars and access to four port terminals give it a logistical advantage, raising the challenge for K+S, the only other Canadian potash miner, to compete.

But BHP, one of the biggest global sellers of iron ore, copper and coal, has a global supply chain, low-cost production and a reputation for focusing on market share over price, positioning it to mount the fiercest competition Canpotex has ever seen in its own backyard.

“It’s already a highly competitive space,” said Canpotex CEO Ken Seitz. “The fact that (BHP) would be coming out of Saskatchewan, I don’t see that as threatening Canpotex.”

Canpotex expects to set a sales record this year of around 13 million tonnes, and has sold out of supplies through October.

Demand from Brazil and China continues to grow, pushing global sales to an expected 66 million-67 million tonnes this year, Seitz said.

— Reporting for Reuters by Rod Nickel in Winnipeg and Barbara Lewis in London.

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Revenues would be tangibly higher and earnings before interest, taxes, depreciation and amortization (EBITDA) would see significant gains, it said on Thursday.

Fourth-quarter operating profit adjusted for currency hedging effects came in at 92.7 million euros (C$148.7 million), up from 27.5 million a year earlier but slightly below the 95 million euros expected on average by analysts in a Reuters poll.

— Reporting for Reuters by Ludwig Burger.

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K+S, the world’s largest salt producer and the fifth-largest seller of potash, is grappling with a slow recovery in potash prices and output restrictions at its German mines.

Chief executive Burkhard Lohr has continued a company review started by his predecessor Norbert Steiner, who stepped down in May, and has been looking at ways to boost the value of its salt unit.

“To this end, we examined all growth options with a no-holds-barred mindset,” Lohr said in a statement on Monday.

“We have reached an important milestone with the opening of the Bethune mine in Canada,” he said, referring to the company’s potash mine at Bethune, Sask., about 50 km northwest of Regina.

“It was the right time to develop a clear picture of how K+S is to be structured in 2030.”

A person familiar with the company’s thinking told Reuters last week that K+S would refrain from listing of its salt activities, after concluding a strategic review.

K+S will in future focus on four market segments — agriculture, industry, consumers and communities — to improve product development and target customers more effectively, it said on Monday.

The firm said it expects the overhaul to bring annual synergies of at least 150 million euros (C$220.4 million) by the end of 2020 and set itself a goal of three billion euros in earnings before interest, tax, depreciation and amortization (EBITDA) by 2030.

The Kassel, Germany-based firm had been targeting EBITDA of around 1.6 billion euros by 2020, but said it was unlikely to reach that after quarterly results missed forecasts in August.

The company’s shares were indicated two per cent higher after the strategy update.

— Reporting for Reuters by Andreas Cremer. Includes files from AGCanada.com Network staff.

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Australia-based BHP aims to start potash production at Jansen, Sask., about 70 km southeast of Humboldt, in 2023, eventually producing four million tonnes annually, the company said this week.

The mine is already under construction but requires BHP’s board to approve another US$4.7 billion to bring Jansen into production. That decision may happen as early as June 2018.

By the time Jansen opens, potash supply and demand are likely to be in balance, said Giles Hellyer, vice-president of operations for potash, in a phone interview from Saskatoon.

BHP’s tentative plan to proceed with Jansen shocked some analysts, who have said that the market may be oversupplied for the foreseeable future as new mines from K+S AG and EuroChem start up.

“We’re a company which looks at large, long-life, low-cost assets,” Hellyer said. “We take a long-term view.”

Jansen would be the first potash mine globally to use highly efficient boring machines supported by a system to convey ore that allows the machines to run longer and at larger volumes without interruption, Hellyer said.

That system, other digital technology and minimal use of diesel equipment will raise efficiency and reduce energy costs, giving Jansen a competitive edge, he added.

“It’s going to have a very different look and feel to it,” he said of the mine.

The industry will struggle to absorb four mines from competitors that are starting in 2017 and 2018, let alone Jansen, BMO analyst Joel Jackson said in a note on Tuesday. Some analysts thought BHP would abandon its potash ambitions years ago, after the Canadian government blocked its 2010 takeover bid for PotashCorp.

In the lead-up to Jansen’s possible opening, potash prices are likely to remain low, pressuring higher-cost producers and possibly taking capacity out of the market, Hellyer said.

He declined to comment on how BHP sees Jansen’s future potash sales breaking down between the U.S. and outside North America.

BHP, under pressure from activist investor Elliott Management for an independent review of its petroleum division, remains open to taking on a partner in Jansen, Hellyer said, but there are currently no ongoing talks.

BHP has completed more than two-thirds of Jansen’s mine shafts and has another couple of years’ worth of work to go, Hellyer said.

— Rod Nickel is a Reuters correspondent covering the agriculture and mining sectors, based in Winnipeg.

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Faced with the gradual depletion of its domestic reserves over the next 35 to 40 years, K+S built its new Bethune mine, previously known as Legacy, in Western Canada even as many experts describe the North American market as oversupplied.

The company held its formal opening for the mine on May 2 at Bethune, Sask., about 50 km northwest of Regina.

“We will not undermine our price levels from the additional volumes that we will get out of Bethune,” CEO Norbert Steiner, who will hand over to finance chief Burkhard Lohr this week, told analysts during a call to discuss quarterly results.

“Our customers have asked us to ship more than we were able to do, this is now the time where we can sell more to them… This will not be pushed into the market with, let’s say, brutality, we wanted to maintain decent price levels and so far we have never undercut price levels in the past and we will continue to act in this way,” he added.

He said while output capacity will be ramped up to two million tonnes per year in 2018, the company expects actual output to be in the 1.7 to 1.8 million tonne range.

Market researchers expect 2018 demand for potash of 66 million tonnes amid global output capacity of 84.4 million tonnes.

— Reporting for Reuters by Ludwig Burger.

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Mosaic halted production in July at the mine, about 70 km southeast of Saskatoon, for the rest of 2016 due to low global potash demand and weak prices.

Analysts have speculated Mosaic may not reopen the mine in 2017, due to excessive global capacity and a faltering farm economy. Rival K+S AG will start production next year in Saskatchewan, and PotashCorp will complete expansion of its biggest mine there.

Fertilizer demand looks strong for spring seeding, said Mosaic CEO Joc O’Rourke.

“We’re believing it will probably be necessary for us to be starting up Colonsay in the early new year,” he said.

Potash inventories in Brazil are low, supplies are dwindling in India and fertilizer is moving faster in China, said Mosaic senior vice-president Rick McLellan.

The Colonsay mine’s capacity is 2.6 million tonnes annually.

Mosaic reported adjusted third-quarter profit that handily beat analysts’ estimates as the company sold more potash than it had expected.

The company sold 2.2 million tonnes of potash, above its forecast of 1.8 million-2.1 million, and up from 2.1 million tonnes a year earlier.

Still, the average realized price was $160 per tonne of potash, down from $265 a year earlier (all figures US$).

Larger rival PotashCorp last week reduced its profit guidance for the year, saying that a recovery of the potash market would take more time.

Mosaic, the world’s largest producer of finished phosphate products, sold 2.5 million tonnes of phosphate in the quarter, at an average price of $326 per tonne of diammonium phosphate, compared with 2.1 million tonnes at $451 per tonne a year earlier.

Plymouth, Minn.-based Mosaic’s net earnings fell to $39.2 million, or 11 cents per share, from $160 million, or 45 cents per share, a year earlier.

Excluding items, profit was 33 cents per share, surpassing analysts’ average estimate of 10 cents, according to Thomson Reuters I/B/E/S.

The company recorded a one-time $60 million charge related to a leak of contaminated water through a sinkhole at its New Wales plant in Mulberry, Florida.

The company said in September it expected the incident to cost $20 million-$50 million.

Net sales fell 7.3 per cent to $1.95 billion, but exceeded estimates of $1.92 billion.

— Reporting for Reuters by Ismail Shakil in Bangalore and Rod Nickel in Winnipeg.

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Saskatoon-based PotashCorp and Calgary’s Agrium confirmed Tuesday they were in preliminary merger talks, toward a deal that would create a fertilizer and farm-retailing giant.

Canada is likely to look more favourably on the combination because its regulators more strongly weigh the potential for achieving efficiencies such as reducing overhead and optimizing shipping. This position has its roots in a desire by policymakers to strengthen companies operating in Canada’s smaller market.

“The efficiencies defense will certainly loom large,” said Nikiforos Iatrou, competition group chair at law firm WeirFoulds in Toronto.

“It’s possible that in this case the efficiencies win the day in Canada but don’t carry the day in the United States.”

The defense was highlighted this year, when the Canadian Competition Bureau approved a deal between Superior Plus Corp. and Canexus Corp., saying that efficiency gains would be greater than the anti-competitive effects.

The U.S. Federal Trade Commission blocked the same deal, which was then scrapped.

U.S. to focus on product pricing

PotashCorp and Agrium have significant operations in the U.S., which would spur review by the Federal Trade Commission or the Justice Department.

U.S. regulators would focus primarily on prospects for the deal to raise prices for the companies’ fertilizer products, which account for as much as one-third of input costs for U.S. corn farmers.

A combined PotashCorp and Agrium would control 62 per cent of potash capacity in North America, 30 per cent of phosphate production capability and 29 per cent of nitrogen capacity, according to National Bank Financial.

Both U.S. regulators have taken an aggressive stance on mergers, said Andrea Murino, co-chair of competition at law firm Goodwin Procter in Washington.

“Just based on the market shares, the deal is going to get some really close scrutiny,” she said.

The prospect of having only two big U.S. potash sellers, down from three, might worry antitrust enforcers, said Ethan Glass, a U.S. Justice Department veteran now at Quinn, Emanuel Urquhart + Sullivan in Washington.

The merged company could sell Agrium’s potash mine at Vanscoy in west-central Saskatchewan to ease those worries, he said.

Agrium-PotashCorp’s clout could also be diluted by other developments with rival miners Mosaic Co. and K+S AG planning to add capacity in North America.

Under the Canadian review, PotashCorp and Agrium could argue their merger would enable the Canadian company to be a stronger global player.

“This idea of creating a ‘national champion’ pops up from time to time — and the federal government is often pressured to consider measures that would be supportive of this,” said Subrata Bhattacharjee, vice-chair of competition for law firm BLG in Toronto.

The deal may also catch the attention of regulators in China, a major potash buyer. Agrium, PotashCorp and Mosaic sell potash offshore through jointly-owned Canpotex.

Huy Do of law firm Fasken Martineau in Toronto said Chinese regulators may see the deal as an opportunity to dismantle Canpotex.

— Reporting for Reuters by John Tilak in Toronto, Rod Nickel in Winnipeg, Diane Bartz in Washington, D.C. and Michelle Price in Hong Kong.

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K+S shares dropped 24 per cent after Potash announced its decision in a statement, wiping almost 1.5 billion euros off the company’s market value.

An acquisition of K+S would have given Saskatoon-based PotashCorp an opportunity to realize savings from selling potash within North America from its own Western Canada mines and from K+S’s Legacy mine, under construction at Bethune, Sask., northeast of Moose Jaw.

However, senior K+S executives dismissed the Saskatchewan company’s 41-euro-per-share cash bid — which represented a 59 per cent premium to the volume-weighted average of K+S’s share price during the prior 12 months — as too low, and refused to negotiate.

Since PotashCorp made its offer to K+S privately at the end of May, shares of K+S peers have dropped by around 40 per cent amid concerns over weakening demand from China, the world’s largest consumer of potash.

“We withdrew our proposal, frankly, with some disappointment as the strategic rationale for the transaction was compelling in our view,” PotashCorp CEO Jochen Tilk said in a letter to K+S’s supervisory board, dated Sunday and obtained by Reuters.

“Nonetheless, in light of the market conditions… and a lack of engagement by K+S management, we have concluded that the pursuit of a business combination with K+S is no longer in the best interest of PotashCorp’s shareholders,” he said.

K+S chairman Norbert Steiner said in a statement Monday that PotashCorp’s decision “creates clarity” for the German firm.

“We are convinced that we can successfully develop our company based on a consistent implementation of our two-pillar strategy in the long term. We are strong in potash and in salt.”

K+S had previously voiced fears that PotashCorp could dismantle the company and eliminate jobs, and that its pledges to the contrary were too vague. PotashCorp argued its proposal was not based on closing mines, curtailing production, selling K+S’s salt business or cutting jobs.

“This will increase pressure on K+S management to come up with measures to improve the value of K+S in this challenging commodity environment,” Baader Bank analyst Markus Mayer said.

Equinet analyst Michael Schaefer, who recommends that investors buy K+S shares, said the German company’s upcoming investor day on Nov. 12 could be a good opportunity for management to try to persuade investors of its value.

PotashCorp, meanwhile, plans to focus on its growth strategy, according to people familiar with matter who asked not to be identified as the matter remained confidential.

— Reporting for Reuters by Greg Roumeliotis in New Tork and Arno Schuetze in Frankfurt. Additional reporting for Reuters by Rama Venkat Raman in Bangalore, Maria Sheahan and Patricia Weiss in Frankfurt. Includes files from AGCanada.com Network staff.

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