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OCT 28 2010

Q3: PotashCorp Reports Second-Highest Third-Quarter Earnings; Fertilizer Market Passes Inflection Point

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Oct 28 10

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Saskatoon, Saskatchewan — Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported third-quarter earnings of $1.32 per share1 ($402.7 million) — the second-highest third-quarter total in company history — as rapidly rising prices for crop commodities fueled strong demand for potash, phosphate and nitrogen products. This result far exceeded the $0.82 per share ($247.9 million) earned in the same period last year and raised earnings for the first nine months of 2010 to $4.34 per share ($1.3 billion), surpassing all previous full-year totals with the exception of the record 2008.

Buoyed by strengthening market conditions, we generated $563.3 million of gross margin in the third quarter, which brought our nine-month total to $1.9 billion. Although significantly higher spot-market potash pricing announced late in the quarter is not yet reflected in our results, our potash segment delivered nearly two-thirds of quarterly gross margin, and its year-to-date total exceeded the contribution generated by all three nutrients for the entire year of 2009. Third-quarter earnings before interest, taxes, depreciation and amortization (EBITDA)2 of $635.6 million ($2.2 billion year-to-date) and cash flow prior to working capital changes2 of $399.6 million ($1.6 billion year-to-date) were both higher than in the same periods in 2009.

Improving global fertilizer markets led to increased contributions from our strategic offshore potash-related investments. Arab Potash Company Ltd. (APC) in Jordan, Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile and Israel Chemicals Ltd. (ICL) in Israel delivered $75.6 million to other income in third-quarter 2010 and $260.6 million through the first nine months. The market value of these investments, plus our position in Sinofert Holdings Limited (Sinofert) in China, was $8.9 billion as of market close on October 27, 2010 — more than $2.2 billion higher than at the beginning of the third quarter — and equated to approximately $29 per PotashCorp share.

"The process of replenishing nutrients accelerated quickly and tangibly in the third quarter," said PotashCorp President and Chief Executive Officer Bill Doyle. "Rapidly rising prices for a number of key crop commodities pushed our industry past the inflection point, as demonstrated by stronger demand and the beginning of pricing momentum for all nutrients, including potash later in the quarter. Given the ongoing need to improve global food productivity and the significant void that must be filled after two years of reduced fertilizer movement and applications, we believe this quarter represented a meaningful step in our long history of value creation for our shareholders."

Market Conditions

The continuing challenge of meeting increases in food demand became more pronounced through the third quarter. Added strain from crop production issues in key producing regions — exacerbated by recent under-application of nutrients — reduced global grain inventories and drove crop prices higher. The positive impact of this on grower economics has historically been a powerful driver for the fertilizer sector, and that was the case again in this quarter. Improving agricultural fundamentals established a firm foundation for continuing growth in demand for nutrients and ongoing pricing momentum.

Further aided by an early harvest and extended fall application window, customers in North America moved quickly to secure potash following the announcement of summer-fill pricing programs in late July. On near-record demand, North American producers shipped 2.3 million tonnes to the domestic market, more than triple the shipments in the third quarter of 2009 and 42 percent above the previous five-year average. Year-to-date shipments reached 7.0 million tonnes, reflecting a return to normal demand in this mature agriculture market. North American producer offshore potash shipments totaled 2.3 million tonnes in third-quarter 2010, 85 percent higher than in the same quarter last year. As expected, Latin American buyers bought aggressively in preparation for their key planting season, while all other major offshore markets continued large purchases through the quarter.

The acceleration of demand combined with diminished distributor inventory levels and typical maintenance- related shutdowns pushed global potash producer inventories lower. Inventories of North American producers declined by 41 percent during the quarter and were 17 percent below the previous five-year average at its end. Tightening supplies caused shipping delays and shortfalls and, by the end of the quarter, some suppliers — including Canpotex Limited (Canpotex), the offshore marketing company for Saskatchewan potash producers — had largely allocated all available product through the end of the year. In the face of tightening fundamentals, pricing momentum escalated meaningfully by September and resulted in shipments being booked at higher prices in spot markets.

Phosphate and nitrogen markets also benefited from improved conditions. Robust North American fall demand for solid phosphate fertilizers left US producers with limited product for offshore markets, which resulted in significantly higher domestic shipments and relatively flat offshore movement compared to the same period last year. Inventories continued to decline and reached record lows in the third quarter, supporting an improved phosphate pricing environment.

In nitrogen, strong agricultural demand pushed third-quarter urea shipments from US producers 41 percent higher on a quarter-over-quarter basis. Stronger prices — due to robust demand, tight producer inventories and higher gas prices in key exporting regions — coupled with softer US gas prices toward the end of the quarter, improved domestic producer margins.

Potash

The significantly improved demand environment pushed third-quarter 2010 potash gross margin to $363.5 million on sales volumes of 1.9 million tonnes. This raised our year-to-date potash gross margin to $1.3 billion and our sales volumes to 6.3 million tonnes — both totals far above those of the same periods last year.

Despite reduced product availability, our third-quarter North American sales volumes of 0.7 million tonnes were nearly triple those of the third quarter of 2009. This raised our nine-month sales volumes to this key market to 2.6 million tonnes, more than quadruple the same period last year. Record quarterly shipments by Canpotex to Latin America (38 percent of total Canpotex sales), along with strong sales to India (16 percent), China (10 percent) and other Asian countries (28 percent), raised PotashCorp’s offshore sales volumes to 1.2 million tonnes for the quarter — 59 percent higher than in the same period in 2009 — and 3.7 million tonnes for the first nine months of the year.

Our average third-quarter realized price of $306 per tonne was lower than in the same period last year, reflecting the recalibration of prices late in 2009 due to the global economic downturn. Pricing trends improved significantly with September and October announcements of higher spot-market prices, although third-quarter realized prices did not yet reflect the shipment of tonnes booked at these higher levels.

Regular maintenance-related downtime, in addition to 17 weeks of capital-related work at our Allan SK and Cory SK mines, limited third-quarter production to 1.3 million tonnes. While this was more than double third-quarter 2009 production, strong demand pressured our supply, especially for granular potash.

Third-quarter per-tonne cost of goods sold declined compared to the same quarter last year, due primarily to the allocation of fixed costs over higher production tonnage and lower potash royalties included in the cost of goods sold as a result of lower potash prices. This was partially offset by an unfavorable impact from the translation of Canadian-dollar production costs to a weaker functional US dollar.

Phosphate

Strong contributions from all our phosphate products led to third-quarter 2010 gross margin of $99.5 million, more than double the same period last year. Solid and liquid fertilizer products reflected improvements in agricultural fundamentals and contributed $28.6 million and $26.1 million in gross margin, respectively. Industrial and feed products, which have historically been more stable contributors, generated $22.0 million and $18.6 million of quarterly gross margin, respectively. Total phosphate gross margin for the first nine months of 2010 reached $227.6 million, more than triple the $69.0 million earned in the same period last year.

Our third-quarter phosphate sales volumes rose to 1.1 million tonnes, up 23 percent from third-quarter 2009, due primarily to increased North American fertilizer demand. This raised our year-to-date total to 2.7 million tonnes, up from 2.2 million tonnes sold in the first nine months of 2009.

Average realized phosphate prices for third-quarter 2010 rose to $446 per tonne, up 25 percent from the same quarter last year. Prices for solid and liquid fertilizers rose 63 percent and 41 percent, respectively, from last year’s third quarter. Realized prices for feed products increased 10 percent compared to the same period in 2009, while industrial prices were 9 percent lower, as they are primarily based on contracts that lag current market conditions.

While higher production levels had a favorable impact on our per-tonne fixed costs, increases in prices for ammonia and sulfur inputs resulted in higher cost of goods sold on a quarter-over-quarter basis.

Nitrogen

Higher realized prices across all our nitrogen product categories helped generate $100.3 million in gross margin during third-quarter 2010 — nearly double the same period last year — and raised our first nine months total to $357.9 million. For the quarter, our Trinidad operation, which benefits from longer-term, lower-cost natural gas contracts, generated $68.7 million in gross margin while our US operations contributed $31.6 million.

Third-quarter nitrogen sales volumes of 1.3 million tonnes reflected a slight decline on a quarter-over-quarter basis as they were impacted by limited product availability, especially for urea, as we worked through a scheduled 52-day maintenance shutdown at our Lima OH plant. Sales for the first nine months of the year totaled 3.9 million tonnes, slightly ahead of the previous-year level.

Favorable agricultural fundamentals and improving industrial demand pushed average realized prices for all nitrogen products in third-quarter 2010 to $271 per tonne, 33 percent above the same quarter last year. Ammonia accounted for the largest increase, reflecting the sharp rise in the Tampa benchmark price. Urea prices rose 10 percent and prices for the remaining products collectively increased 33 percent.

Our third-quarter total average cost for natural gas used in production, including our hedge, was $5.03 per MMBtu, an increase of 36 percent compared to the same period last year. With our Trinidad gas costs primarily indexed to the Tampa ammonia price, the increase in this benchmark raised our costs for this key input, while improved demand for natural gas since the third quarter of 2009 has driven prices higher for our US production facilities.

Financial

Improved earnings raised our income tax expense for the third quarter to $120.0 million, 54 percent higher than third-quarter 2009.

Selling and administrative costs totaled $75.2 million compared to $35.9 million for the third quarter last year, largely a result of increased incentive accruals driven primarily by a higher share price.

During the quarter, we invested $504.6 million for capital expenditures on property, plant and equipment, the majority of which was related to our potash expansions in preparation for expected future demand growth. The first stage of a two-part expansion at our Cory SK facility neared completion by the end of the quarter, marking another milestone in our potash expansion program.

Outlook

As the long-term food requirements of a growing population continue to intensify, fresh momentum is igniting the agricultural sector. Although 2010 global crop production is expected to reach the third-highest level on record, grain stocks are declining, which reinforces the escalating importance of potash, phosphate and nitrogen fertilizers to improve production.

While US corn prices are commonly used as a barometer of nutrient demand, the wave of interest in fertilizers is much larger than a single crop or a single growing region. It is supported by widespread demand for an array of global agricultural food products, most of which compete for limited arable land and are currently selling at prices well above historical levels. Since the end of the second quarter of 2010, prices for a basket of diverse crops — corn, sugar, wheat, rice, palm oil, soybean and cotton — have increased nearly 30 percent, demonstrating the widespread improvement in agricultural economics.

In our view, rising agricultural markets are not simply the result of short-term production challenges. The pressures of feeding a growing population, coupled with expanding economies and a desire for protein-rich diets, have been increasing for many decades and cannot be alleviated overnight. This long-term demand story is fueled by the inescapable fact that food production must increase on a sustainable basis. This requires crop prices that encourage farmers to commit to improving productivity over the long term, which includes making necessary investments in proper fertilization.

We believe the fertilizer industry has passed an important inflection point and is returning to a period of powerful growth. We see parallels to the demand-driven environment that led our company to five consecutive years of record performance prior to 2009. The difference today is the added challenge of replenishing the fertilizer pipeline — from farmers’ soils to the distributor supply chain — which will be essential to meeting global food demand. We believe all involved have only begun to undertake this essential challenge.

We see an exciting outlook for both the short- and long-term prospects for our company. A strong and growing agricultural economy benefits all three nutrients, as all are essential to improving yields and increasing food quality. As the third-largest global producer of both phosphate and nitrogen, we anticipate significant opportunities at a time of buoyant demand and high industry operating rates, enabling each of these nutrients to make a significant contribution to our earnings as we move forward.

Nonetheless, we believe our greatest opportunity is in potash. For decades, this important nutrient was under-applied in a number of key developing markets, but today these regions have growing economies, increasing demand for higher-quality food and greater ability to make the necessary investment in potash. Global potash production capabilities, however, are limited and bringing a greenfield mine into production is a seven- to 10-year proposition. As the world’s largest producer, with more than 50 percent of global brownfield expansion capacity under development, we believe we have a unique opportunity in the coming years to capture a significant share of new growth in demand for potash.

Our long-term approach to business reflects our belief that time is one of our most powerful allies. We have been patient stewards of our resources in all conditions, striving to maximize value for our stakeholders. Now, with the fertilizer industry — and potash, in particular — poised for what we believe will be an extended period of higher demand and operating rates, we have unique five-way potash leverage to improve our performance: 1) the potential to capture higher prices as demand improves; 2) the ability to sell more volumes; 3) the ability to lower our per-tonne costs for production; 4) the potential to reduce per-tonne profit tax on higher sales volumes; and 5) the benefit we gain from greater value and earnings contributions from our offshore potash-related investments. While this is a long-term growth opportunity, we expect the powerful fundamentals and market trends in place will also generate stronger immediate returns.

In North America, we anticipate robust potash demand through the fourth quarter as growers take advantage of a wider window for fall applications as a result of the early harvest. Although some customers are trying to rebuild inventories for the first time since 2008, limited product availability has meant that most shipments are heading straight to farmers' fields. As a result, distributor inventories remain low and we expect strong shipments for 2011. We believe the price increase announced in September ($50 per short ton) will begin to be reflected later in fourth-quarter shipments, while the October announcement (an additional $75 per short ton) will be realized after bookings at the previous price are shipped, likely in first-quarter 2011.

In offshore markets, China is beginning to demonstrate its commitment to redressing the under-application of potash and to securing its supply for the future. A three-year agreement between Canpotex and Sinofert signed in October outlines Sinofert’s minimum potash volume requirements for 2011-2013 (3.15 million tonnes), with pricing negotiated on a semi-annual basis. Negotiations are under way for pricing and volumes for the first half of 2011. In India, potash imports are expected to reach record levels in 2010 and remain strong in 2011 as this country works to improve food production capabilities and limit food price inflation. We expect robust demand from other Asian countries to continue, buoyed by highly supportive crop economics across all key crops grown in this region. Even as Latin America exits its high-demand season, shipments are expected to remain above historical fourth-quarter levels and be strong into 2011 as a result of low inventories, supportive grower economics and robust demand for applications on Brazil’s safrinha crop — the March corn planting that continues to grow in importance. Price increases announced by Canpotex in late September (on average, $50 per tonne in both Southeast Asia and Brazil) are expected to be fully realized with January shipments. We believe the potential exists for additional price increases, resulting from strong demand continuing to pressure supply and the need to transition toward prices supportive of new capacity development.

In this environment, we estimate our 2010 potash segment gross margin will be between $1.65 billion and $1.75 billion on total shipments in the range of 8.3-8.5 million tonnes.

Tight product inventory, strong demand and firm pricing are expected to result in a positive phosphate market through the North American spring season. In nitrogen, these same conditions, along with favorable US natural gas costs relative to key exporting regions, should continue to support a positive demand and pricing environment. We now forecast 2010 phosphate and nitrogen gross margin between $750 million and $850 million.

We expect 2010 net income to be in the range of $5.75-$6.00 per share.

In this tightening environment, we anticipate that restocking of the distribution chain will begin in 2011 and, accordingly, have raised our global potash demand forecast to between 55 million tonnes and 60 million tonnes in the next calendar year. Given our expectation that current conditions represent the front end of an escalation in demand and pricing for our products, we are providing 2011 earnings guidance in the range of $8.00-$8.75 per share.

Conclusion

"Our strategies are designed to maximize earnings in the strong market conditions we see unfolding today," said Doyle. "As we have demonstrated in the past, we have an unmatched ability to move quickly to capture value when demand and prices are on the upswing. Looking ahead, we believe market conditions will provide an extended opportunity to show the full strength of our operations in all three nutrients — particularly potash — and to deliver substantially greater value to our shareholders. This is our time to demonstrate how our patient, long-term approach delivers returns for all stakeholders."

Notes

1.  All references to per-share amounts pertain to diluted net income per share.
2.  See reconciliation and description of non-GAAP measures in the attached section titled "Selected Non-GAAP Financial Measures and Reconciliations."

Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise by capacity 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 each of nitrogen and phosphate; 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 the world's largest capacity for production of purified industrial phosphoric acid. PotashCorp's common shares are listed on the Toronto Stock Exchange and the New York Stock Exchange.

For further information please contact:

Investors Media
Denita Stann
Senior Director, Investor Relations
Phone: (306) 933-8520
Fax: (306) 933-8844
E-mail Denita
Bill Johnson
Director, Public Relations
Phone: (306) 933-8849
Fax: (306) 933-8844
E-mail Bill

This release contains forward-looking statements or forward-looking information (forward-looking statements). These statements are based on certain factors and assumptions including foreign exchange rates, expected growth, results of operations, performance, business prospects, evaluations and opportunities and effective income tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Several factors could cause actual results to differ materially from those expressed in the forward looking statements, including, but not limited to: future actions taken by BHP Billiton, PotashCorp or shareholders of PotashCorp in connection with, or in response to, BHP Billiton's unsolicited offer to purchase PotashCorp's outstanding common shares; fluctuations in supply and demand in fertilizer, sulfur, transportation and petrochemical markets; changes in competitive pressures, including pricing pressures; the recent global financial crisis and conditions and changes in credit markets; the results of sales contract negotiations with China and India; timing and amount of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets and corresponding effects on the company's investments; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflow; strikes and other forms of work stoppage or slowdowns; changes in and the effects of, government policy and regulations; and earnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2009 under captions "Forward-Looking Statements" and "Item 1A — Risk Factors" and in our other filings with the US Securities and Exchange Commission and Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Important Information

This release is neither an offer to purchase nor the solicitation of an offer to sell any securities. On August 23, 2010, PotashCorp filed a solicitation/recommendation statement on Schedule 14D-9 with the Securities and Exchange Commission (the “SEC”) with respect to the offer to purchase commenced by BHP Billiton Development 2 (Canada) Limited, a wholly-owned subsidiary of BHP Billiton Plc. Investors and security holders of PotashCorp are urged to read the solicitation/recommendation statement and any other relevant documents filed with the SEC, which contain important information.

Investors and security holders may obtain a free copy of the solicitation/recommendation statement and other documents that PotashCorp files with the SEC through the website maintained by the SEC at www.sec.gov and through the website maintained by PotashCorp at www.potashcorp.com. In addition, the solicitation/recommendation statement and other documents filed by PotashCorp with the SEC may be obtained from PotashCorp free of charge by directing a request to Potash Corporation of Saskatchewan Inc., 122 – 1st Avenue South, Suite 500, Saskatoon, Saskatchewan, Canada S7K 7G3, (306) 933-8500.

Webcast Details

Oct 28 10

Forward-Looking Statements

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