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Tax rise prompts PotashCorp to cut profits forecast

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Shares in PotashCorp tumbled after the fertilizer giant, citing increased taxes for mines in Saskatchewan, cut its full-year profits forecast, despite "encouraging consumption trends" in key markets.

The Canadian-based group, with world's top fertilizer company by stockmarket value, cut its earnings expectations for 2015 to $1.75-2.05 a share, from $1.90-2.20 a share.

The downgrade reflected in part expectations of far higher payments to the Saskatchewan government which has revamped its royalty payment regime, meaning bigger levies for miners in a province which represents the centre of the North American potash industry.

PotashCorp raised to 20-22%, from 15-17%, its estimate for its rate of tax for provincial levies.

Falls short of expectations

However, Jochen Tilk, the group's chief executive, also acknowledged a performance in the January-to-March period "that trailed our initial expectations".

While earnings rose 9% to $370m, despite an 11% fall to $1.67bn in revenues, Wall Street had expected a bigger increase.

Earnings per share, at $0.44, fell short of expectations of a $0.50-per-share result.

The group highlighted a 76% jump to $95m in payments for provincial mining taxes during the quarter, besides "weaker nitrogen sales volumes" – down nearly 20% at 1.31m tonnes.

Besides a slow North American spring planting season, "led to weaker fertilizer demand", particularly for urea and nitrogen products, PotashCorp also highlighted "mechanical challenges" at a plant in Peru, and hiccups in Trinidad & Tobago stemming from a squeeze on natural gas supplies.

"Record Chinese urea markets" also depressed the nitrogen market.

Prices up

In potash itself, the group achieved a 1.6% rose to 2.34m tonnes in sales volumes, and a 13.6% increase to $284 a tonne in its average sales price, despite "some caution among buyers" caused by delayed settlement of Chinese purchasing contracts.

With China the top potash importer, the terms of its deals are closely watched by other buyers, and used as market benchmarks.

However, with "China's annual potash contracts now in place and planting underway in the northern hemisphere, we expect global shipments to accelerate and market fundamentals to improve in the [April-to-June] quarter", PotashCorp said.

The group forecast world potash shipments hitting the "upper end" of the range of 58m-60m tonnes it has guided to, and lifted to 14.0m-14.5m, from 12.5m-12.7m, its forecast for demand in China itself.

"Cause for concern"

The results received a cautious response from broker Alta Corp, which said that "despite an optimistic outlook for global potash demand and increasing margins in the potash segment, [PotashCorp's] weaker guidance may be a cause for concern".

PotashCorp Toronto-listed shares stood down 1.3% at Can$39.29 in late morning deals, having hit a four-month low of Can$38.81.

Alta Corp also highlighted that it was seeking updates from the PotashCorp post-results conference call on the fertilizer group's holdings in other potash companies, some of which are suffering local difficulties.

Israel Chemicals, in which PotashCorp has a minority stake, has been locked in a labour dispute, as well as facing threats of higher mining taxes and stronger environmental obligations from the Israeli government.

Meanwhile PotashCorp has been struggling to bring discipline to Chilean mining group SQM, in which it has a stake.

SQM shares plunged after it became embroiled in a complex political scandal, involving alleged illegal payments to political parties.

PotashCorp recently won a key victory in forcing a board reshuffle, removing the longstanding chairman and placing three PotashCorp employees on an eight person board.


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