Potashcorp – The Global Potash Leader

The World of Potash and Our Place in It

PotashCorp is the world's largest potash producer, with almost one-quarter of global capacity. We own and operate six mines in Saskatchewan and New Brunswick, with mineral rights at another Saskatchewan mine. We have announced plans to raise production potential by more than 70 percent from 2007 levels by the end of 2012 and, by 2015, up to 90 percent.

Potash: The Best Long-Term Fertilizer Enterprise

Potash has many structural advantages over the other primary nutrient businesses.

Good Deposits Are Rare

Few good potash deposits exist that are economical to mine, so only 12 countries produce significant amounts. Two-thirds of world production and three-quarters of reserves are in Canada, Russia and Belarus.

Ownership Is Primarily Private

Most global potash ownership is in the private sector, where decisions are more likely to be made for economic rather than political reasons. This means that reinvestment and supply fundamentals are more market-oriented and predictable. Only in Belarus is there significant government ownership, and its economy and GDP growth depend heavily on US dollar potash sales.

Significant Barriers to Entry

With limited quality deposits worldwide and high and rapidly increasing costs for a greenfield mine, entry into the potash business is a formidable undertaking. Companies considering new mines in Saskatchewan and elsewhere face capital costs estimated at $2.5 billion or more and five to seven years in development time. This excludes infrastructure costs outside the plant for such necessary items as access roads, power and natural gas lines, rail lines and cars, and port facilities and related storage, which could significantly exceed $500 million, depending on location. With no positive cash flow over the lengthy construction period, a greenfield mine carries considerable risk.

PotashCorp: A Long-Term Potash Enterprise

With 22 percent of world potash capacity, significant plans for growth and plentiful high-quality reserves, PotashCorp can provide this vital nutrient to the world's farmers far into the future. While we are a major supplier to North America, we sell nearly two-thirds of our potash offshore, particularly to developing nations. Their demand is rising sharply, and our sales are increasing with it. Our potash-related investments reinforce this major segment of our enterprise.

Potash Sales and Logistics: Offshore

PotashCorp is the largest contributor (55 percent) to Canpotex Limited (Canpotex), the offshore marketing company for Saskatchewan's three producers (others: Mosaic, Agrium). Other global marketing agencies such as Belarusian Potash Company (for Belaruskali and Uralkali) and International Potash Company (for Silvinit), and producers such as ICL and K+S, compete with Canpotex in the key offshore markets of China, India, Brazil and Southeast Asia. The location of our New Brunswick operation gives PotashCorp an advantage in supplying Brazil and other Latin American countries.

The largest offshore customers purchase in different ways.

• China buys from Canpotex under three-year memoranda of understanding, with pricing negotiated annually. The current memorandum expires at the end of 2009.
• India has traditionally bought from Canpotex as needed under six- to 12-month price and volume contracts.
• Brazil buys from Canpotex and PCS Sales on the spot market, as do Southeast Asian countries from Canpotex.

By marketing jointly through Canpotex we reduce our transportation and distribution costs, which can be considerable when shipping product from Canada's interior. Approximately 40 percent of Canpotex customers buy at the port where the product is loaded and pay their own freight costs (FOB). Canpotex pays the freight for customers who buy on a delivered (CFR) basis. Thus, changing ocean freight rates can substantially affect margins.

Potash Sales and Logistics: North America

We sell to the eastern United States from our New Brunswick operation and to the rest of the US from Saskatchewan – particularly our Rocanville plant, which is just 95 miles from the US border. Our North American customers, who buy mainly on a CFR basis, are wholesalers, retailers and cooperatives that purchase on the spot market from PCS Sales. We do not sell directly to farmers. We own or lease more than 200 distribution points in the US, with most leases the variable cost type – available if needed and paid for only when used. We own or lease almost 8,600 railcars. Product flow is managed by our transportation and distribution group.

Global and North American Competitors

China, India, Brazil and Southeast Asia are the principal markets for both FSU producers and Canpotex, and FSU producers also ship into the European Union. Europe and Brazil are the main K+S markets, while ICL ships to India, China, Southeast Asia, Brazil and Europe.

Our main North American competitors are Mosaic and Agrium. Our share of Canadian producers' sales to the North American market was 42 percent in 2007.

Strategic Investments Enhance Our Enterprise

Investments in global potash-related companies provide strategic opportunities and significant contributions to our bottom line. Our 32 percent ownership of SQM in Chile gives us an influential position in the world's leading producer of specialty potassium, iodine and lithium products. With 28 percent ownership of Arab Potash Company Ltd. (APC) in Jordan – which has a significant logistical advantage in delivering to India and other Asian markets – we appoint the top four management positions. We own 10 percent of ICL in Israel, and now own 20 percent of fertilizer distributor Sinofert Holdings Limited (Sinofert) in China, the largest potash distributor in the world's fastest growing market. Sinofert distributes approximately 60 percent of the fertilizer imported into China. It handles all product of Qinghai Salt Lake Potash Company (QSLP), the country's largest producer, in which it owns an 18 percent interest. The largest offshore purchaser of Canadian potash, Sinofert generates more than half its gross margin through potash sales.