Risks To Our Potash Strategy
We pay particular attention to risks associated with our potash strategy, and act quickly to mitigate them. We considered the following risks of greatest potential impact in 2008:
New Supply Creates Market Imbalance
Rising prices have encouraged potash producers to increase production through expansion and development projects. If supply increases faster than world consumption, prices could be depressed for a prolonged period, negatively affecting our financial performance. While we anticipate that long-term growth in consumption will match or exceed the new supply, fluctuations in demand are characteristic of this market. We attempt to mitigate this risk and protect our margins by producing to meet market demand.
Global Demand Insufficient to Consume PotashCorp Capacity
We are preparing for an anticipated increase in world potash demand by investing a total of CDN $7 billion in expansion and debottlenecking of existing facilities. As this new capacity is added, we believe we can capture a significant share of the expected demand growth, further strengthening our potash position and adding long-term shareholder value.
If our estimates of future potash demand prove to be overstated, our return on this investment would be lower than expected due to lower revenues and the related opportunity cost of outlaying significant capital before it was needed. We mitigate this risk somewhat because we are able to operate profitably at reduced rates, matching our production to market demand.
Lack of Adequate Transportation and Distribution Infrastructure
We rely on a complex transportation and distribution infrastructure of railcars, barges, ocean freightliners, warehouse and port storage facilities to get potash to our customers quickly and efficiently. Short-term problems – such as railcar shortages, slow turn times and disruptions such as strikes, derailments or adverse weather – could lead to customer dissatisfaction, loss of sales and higher distribution costs, making it difficult to achieve our growth plans.
We attempt to mitigate this risk by working directly and through Canpotex to ensure sufficient investment is made in transportation infrastructure to help potash move as smoothly as possible. Internally, we continue to optimize our industry-leading distribution network in North America with predictable, consistent mine loading and delivery schedules.
Underground Mines Face Particular Risks
Water-bearing strata that carry the risk of water inflow often exist in the vicinity of underground mines. We are successfully managing water inflows at our New Brunswick operation. Our other conventional mines currently have no significant water inflows. At Esterhazy, where our mineral rights are being mined by another producer under a mining and processing agreement, water inflows are being managed.
All mining companies face the risk of unexpected rock falls that can result in life-threatening injuries. We have developed a mining machine canopy to protect workers, and our earth sciences group has developed ground-penetrating radar to help detect the anomalies that cause rock falls. Advanced geoseismic monitors record micro-events and provide information to help predict falls.