With improved performance in nitrogen and phosphate segments and increased income from global investments, Potash Corporation of Saskatchewan Inc. (PotashCorp) today announced record first-quarter earnings per share. Despite significantly reduced potash shipments in the absence of a price settlement with China, earnings rose to $1.19 per diluted share, exceeding the $1.15 per share in the same period last year. These first-quarter earnings were supplemented by a $12.3 million ($0.12 per share) cash tax recovery that more than offset additional costs ($0.08 per share) related to mine shutdowns, as we followed our long-held strategy of matching supply to demand.

Although net income declined to $125.5 million from $131.3 million in the same quarter last year, the rise in EPS reflected the value of a reduced share base following the repurchase of 9.5 million shares during 2005. The temporary slowdown of our higher-margin potash business affected total gross margin, which went from $258.5 million in last year's first quarter to $203.5 million this year. Still, operating cash flow before working capital changes of $189.4⁽¹⁾ million was roughly equivalent quarter over quarter. Our investments in Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile, Arab Potash Company (APC) in Jordan and an increased dividend from Israel Chemicals Ltd. (ICL) in Israel contributed to the $31.2 million of other income for the quarter, which was up 56 percent over last year's first quarter. The total market value of our investments in these publicly traded companies, and in Sinochem Hong Kong Holdings Limited (Sinofert) in China, equates to approximately $19.25 per PotashCorp share and now exceeds their book value by $1.2 billion.

"The key to PotashCorp's strategy is not only are we a three-nutrient company, but we understand how to maximize the value of the best areas of each of the three nutrients," said PotashCorp President and CEO Bill Doyle. "While long-term increases in potash demand are inevitable, we know that growth doesn't always follow a straight line up. By focusing on our unique advantages in Trinidad nitrogen and in specialty phosphate products, we delivered record per-share performance even as potash, the heart of our business, took a breather. With our unique assets and our world-class investments, we demonstrated our ability to deliver earnings growth with reduced volatility."

Potash demand remained constrained as offshore and North American markets delayed purchasing, awaiting the outcome of the Belarusian Potash Company (BPC) negotiations with China. With a settlement not reached by the end of the quarter, many offshore customers began buying to meet their seasonal requirements. North American potash sales were weaker than expected as a result of low crop commodity prices, higher energy costs and uncertainty around planting decisions. Dealers purchased cautiously in an attempt to end this fertilizer season with no inventory.

In nitrogen, supply/demand fundamentals remained tight and ammonia prices stayed firm despite a drop in the North American spot price for natural gas. Continuing high prices for Western European gas led to ammonia production curtailments and, along with higher ocean freight costs, caused Baltic producers to send a larger percentage of their product to markets closer to home. In phosphate, prices continued to climb for all products in response to continuing high input costs and reasonably tight supply/demand fundamentals.

As a result of reduced sales volumes, potash gross margin of $90.8 million was substantially lower than the $176.2 million in the first quarter of 2005. PotashCorp took 32 mine shutdown weeks in response to the reduced demand, which lowered production from 2.4 million tonnes to 1.3 million tonnes quarter over quarter and increased our costs. Inventories of 1.15 million tonnes were flat from the end of the fourth quarter of 2005, but higher than the abnormally low levels at the end of the first quarter of that year.

Offshore volumes were down 48 percent from the first quarter of 2005, as shipments to China, India and Brazil by Canpotex, the offshore marketing agent for Saskatchewan potash producers, dropped from 1.18 million to 0.13 million tonnes. Volumes to many smaller potash-consuming countries such as the Philippines, Taiwan, Vietnam, Ecuador and Mexico were up from the same period last year. North American volumes were 43 percent lower than in last year's first quarter. Realized prices were up 8 percent for offshore sales and 25 percent in North America quarter over quarter, including 1 percent and 3 percent, respectively, over the fourth quarter of 2005.

Nitrogen gross margin was up 22 percent from the same period last year to $79.4 million, a first-quarter record and the third-highest quarter ever. Trinidad contributed $50.4 million, or 63 percent of this total. US nitrogen operations contributed $8.1 million in gross margin. Total nitrogen sales volumes were down 17 percent from last year's first quarter, as fertilizer volumes dropped 30 percent while US farmers waited to buy, hoping for lower prices. As a result, we sold roughly 70 percent of our nitrogen volumes to our stable industrial customer base.

In total, ammonia and urea prices were up 39 percent and 15 percent, respectively, over the same period last year. Our average natural gas cost for the quarter, including the benefit of our hedge and lower-cost Trinidad gas contracts, was $4.34 per MMBtu, which was 17 percent higher than in the first quarter of 2005 but 25 percent lower than in the fourth quarter. In addition, we recognized $20.9 million of natural gas hedge gains. This compared to $8.6 million of hedge gain recognized in the same quarter last year.

Gross margin of $33.3 million marked the best first quarter for phosphate in seven years and was almost double the $17.0 million in gross margin in last year's first quarter. Feed phosphate provided $16.0 million of the phosphate gross margin for the quarter, capitalizing on higher prices even as volumes declined. Industrial products, long the foundation of our phosphate business, added gross margin of $14.8 million. Within industrial, purified acid was again the most profitable product, generating gross margin of $14.3 million, which was 32 percent of net sales. Realized prices for solid phosphate fertilizer climbed, but higher ammonia and sulfur costs diminished margins.

Feed phosphate volumes dropped 28 percent from the first quarter of last year, but a 33-percent jump in prices produced the higher margin. Industrial volumes rose 12 percent and prices 3 percent quarter over quarter. In solid fertilizer, volumes increased 15 percent as our US spring season started strongly and prices rose 13 percent from last year's first quarter. Liquid fertilizer sales were up 4 percent quarter over quarter, with realized prices increasing 13 percent.

In the first quarter, we exercised our option to purchase a further 10.01-percent stake in Sinofert, the largest fertilizer company in the People's Republic of China, investing $126.3 million to raise our ownership to 20 percent. An additional $120.0 million was used during the quarter for capital expenditures on property, plant and equipment, including $53.3 million to bring back idled potash capacity. Capacity expansions at our Trinidad 02 plant and the new Aurora purified acid plant required $10.4 million and $8.4 million, respectively. These investing activities were financed through our short-term credit facilities.

PotashCorp's consolidated effective income tax rate for the first quarter was approximately 26 percent, compared to 33 percent in the first quarter of 2005. This reduction was due primarily to the receipt of a $12.3 million income tax refund tied to 2002-2004 taxation years, brought about by a recent Canadian appeals court decision in the case of a uranium producer. Provincial mining and other taxes were 63 percent lower than in the first quarter of 2005 due to the significant decrease in potash gross margin.

The world's potash market is well positioned to regain its momentum. Most customers have worked through their product supply, leaving available inventories in the hands of producers. Shipments are expected to ramp up strongly partway through the second quarter and continue at higher volumes through the end of the year. However, due to the delay in reaching a settlement on price with China, we are shutting down our Lanigan and Allan mines for one week in May. Supply is being further constrained by an illegal labor strike at APC in Jordan that began on April 24, 2006, and there are reports of shutdowns at all three of Silvinit's mines in Russia and curtailments at three of four Belarus mines.

After negotiations are completed, Canpotex shipments to China for the remainder of the year are expected to approximate the record volumes for all of 2005. Brazil is also expected to purchase more vigorously in the second half, which is its spring season, taking somewhere between the record tonnes of 2004 and the reduced levels of 2005. The issues that slowed its 2005 purchases are being resolved, as potash inventories are low, a significant government aid package for farmers has been announced and the Brazilian real, while still strong, has stabilized. India has worked through its inventories and is currently negotiating new potash price and volume contracts. We anticipate these negotiations will conclude quickly, as we believe India's NPK producers are short of potash. Southeast Asian countries are expected to continue purchasing as a result of favorable growing conditions, lower inventories and an increasing need for potash. An expected favorable price settlement with China and lower dry bulk ocean-freight rates should support higher realized potash prices going forward.

In North America, the spring season is now strengthening, buoyed by improving corn prices, decent weather and a need to catch up on potash applications after less was used last fall.

PotashCorp also benefits from the evolving global energy story. Continuing high natural gas prices are a reality, not only in the US but globally as well. The increase in gas prices in Western and Eastern Europe, including Russia, is making our Trinidad asset even more valuable. First, the tightening energy supply has pushed up prices for natural gas, which increases the profitability of our Trinidad nitrogen operation. It not only keeps nitrogen product prices high, but expands our margins, given our favorable gas contracts. In addition, as oil prices reach all-time highs, ocean-going vessel bunker costs rise, and the proximity of Trinidad to the US becomes increasingly important. These attributes give us an excellent opportunity to capitalize on rising energy costs.

Secondly, the demand for ethanol and biofuels is rising. These energy products are made from crops that are intensive users of potash and other fertilizers. In Brazil, high fuel prices are leading to a rapid expansion of sugar cane acreage - a crop that uses over four times as much potash per hectare as soybeans in that country. In the US, the escalating energy demand is strengthening corn fundamentals by boosting consumption for ethanol production. In other countries, increased oil crop production is required to meet rising demand for biodiesel. This evolving shift to biofuels is tightening supply/demand fundamentals and, in the short term, is improving commodity prices for the crops involved. In the longer term, it will require even greater crop yields, which should be favorable for fertilizer consumption.

Natural gas futures for the next 12 months are trading at between $7 and $12 per MMBtu, which is expected to drive continued strong financial performance of our Trinidad asset. The debottlenecking of our Trinidad 02 plant was completed in the first quarter, increasing its annual ammonia production by 70,000 tonnes, or 17 percent. The 01 plant debottleneck will be implemented during a three-week turnaround starting in May 2006.

The current market value of our total North American 10-year gas hedge position is approximately $270 million.

Capital expenditures for 2006 are now expected to be $500 million. Selling and administrative expenses in the second quarter of 2006 are expected to be similar to the same quarter last year. This is again due to a non-cash expense associated with performance stock options that, upon shareholder approval, are expected to be granted in that quarter. However, our significant Saskatchewan potash operations may allow us further benefits from potential federal and provincial tax changes.

Based on a $1.15 Canadian dollar, PotashCorp is expecting second-quarter net income per share to be in the range of $1.25 to $1.50 per diluted share and continues to believe net income for the full year will be in the range of $5.25 to $6.25 per diluted share.

"The first quarter demonstrated the value of our superior assets, our strategies designed to capitalize on our strengths and the successful execution of our plans. It was a testament to our belief that price is more important than volumes," said Doyle. "We anticipate that the remainder of the year will highlight our strength in potash. Our first-quarter performance was achieved with our largest potash customers on the sidelines. The lull in potash is very near its end, and we are prepared to produce and deliver - for our customers and our shareholders."

1. See reconciliation and description of non-GAAP measures in the attached section titled "Selected Non-GAAP Measures and Reconciliations."

Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash, third largest in phosphate and fourth largest in nitrogen; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and one of only three North American suppliers of industrial phosphates.

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