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JUL 29 2010

Q2: PotashCorp Reports Second-Quarter Earnings of $1.55 Per Share

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Jul 29 10

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Saskatoon, Saskatchewan — Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported second-quarter earnings of $1.55 per share1 ($472.0 million), more than double the $0.61 per share ($186.2 million) earned in the same period last year. This result was the second-highest second-quarter total in company history and raised first-half 2010 earnings to $3.02 per share ($921.2 million). Our performance for the quarter reflected the continuing recovery in fertilizer demand and was enhanced by a $69.6 million special dividend (equivalent to approximately $0.17 per share) from our investment in Israel Chemicals Ltd. (ICL) in Israel.

Second-quarter gross margin of $583.6 million, driven largely by potash, was more than triple the $169.1 million earned in the same period last year and raised total gross margin for the first six months to $1.3 billion. Earnings before interest, taxes, depreciation and amortization2 (EBITDA) of $768.9 million and cash flow prior to working capital changes2 of $642.3 million were more than double the $354.4 million and $304.7 million, respectively, generated in the same quarter last year.

Improved earnings from our offshore investments in Arab Potash Company Ltd. (APC) in Jordan and Sociedad Química y Minera de Chile S.A. (SQM) in Chile, together with higher dividend payments from ICL, contributed $158.8 million to other income in the quarter. This compared to $70.2 million in last year’s second quarter, which included a dividend payment from Sinofert Holdings Limited (Sinofert) in China. First-half 2010 contributions to other income from these companies totaled $185.0 million. The market value of our investments in these companies was $7.4 billion as of market close on July 28, 2010, equating to approximately $24 per PotashCorp share.

“The undeniable need for sustainable food production continued to drive fertilizer demand and our performance in the second quarter,” said PotashCorp President and Chief Executive Officer Bill Doyle. “As we have stated in the past, fertilizer applications can be deferred, but cannot be ignored. With growing demand for food and supportive crop economics, farmers have been motivated to begin addressing nutrient deficiencies in their soils. We believe this has established a strong foundation for improved fertilization practices and for the growth of our company.”

Market Conditions

While concerns about the debt levels of certain European nations and the pace of global economic recovery weighed heavily on financial markets during most of the second quarter of 2010, the fundamentals for fertilizer were strengthening. Demand for food continued to rise and grain inventories were expected to tighten, creating an environment that supported the ongoing rebound in fertilizer demand and operating rates.

In North America, domestic potash producers shipped 1.5 million tonnes in the second quarter, more than double the same period last year but below historical average levels as buyers worked through record first-quarter shipments to ensure inventory levels were largely depleted when the spring planting season ended. First-half domestic shipments of 4.5 million tonnes approached the five-year average (first half, 2004-2008) of 4.9 million tonnes, reflecting the return to more normal fertilizer applications. Offshore buyers bought 2.3 million tonnes from North American producers in the second quarter, more than five times the 0.4 million tonnes shipped in the same period last year and near the five-year average (second quarter, 2004-2008) of 2.5 million tonnes. China continued to take shipments under quarterly and annual contracts but at reduced levels, primarily because of severe weather issues that impeded planting and fertilizer applications in certain growing regions. Purchases in India and other Asian countries3 remained strong while Latin American demand accelerated late in the quarter in advance of its typically strong third quarter. Despite the improvement in demand, without the global restocking that has been seen in certain mineral and metal commodities the pattern of just-in-time purchasing did not provide consistent engagement supportive of upward pricing momentum.

Domestic shipments of solid phosphate fertilizer from US producers totaled 1.2 million tonnes, up slightly from last year’s second quarter. Although US producers have committed large volumes to offshore markets, primarily India, this was only partially reflected in second-quarter shipments, leaving offshore volumes 23 percent below the same period last year. Still, robust demand and tight inventories helped support pricing through most of the quarter and limited the seasonal weakness that historically follows North American spring planting. In nitrogen, second-quarter ammonia and urea domestic shipments increased 13 percent and 30 percent, respectively, reflecting improved industrial demand and strong spring applications driven by excellent early-season US planting conditions and the need to address nutrient requirements after a shortened fall application window in 2009. Nitrogen prices remained strong for most of the second quarter before typical seasonal softening towards the end of June.

Potash

Significantly improved sales volumes in second-quarter 2010 — 1.9 million tonnes compared to 0.4 million in 2009 — generated potash gross margin of $396.6 million, nearly four times the $106.2 million earned in the same period last year. This result raised the first-half gross margin to $913.0 million on sales volumes of 4.4 million tonnes.

Second-quarter North American sales volumes of 0.6 million tonnes were nearly triple the same period last year but, as anticipated, were below historical average levels following record first-quarter shipments. Offshore sales volumes reached 1.3 million tonnes, with improved demand in all major markets. Canpotex Limited, the offshore marketing company for Saskatchewan potash producers, shipped more than two-thirds of its product to India (20 percent) and other Asian countries (47 percent) to meet their strong demand, while Latin America (18 percent) increased purchasing late in the quarter and China (8 percent) purchased small quantities under an extension to its previous quarterly contract.

Our realized potash price for the second quarter was $309 per tonne, a 35 percent decline from the same period last year as new pricing was established in all major markets following the global economic downturn. The average realized price was slightly below first-quarter 2010 levels as sales volumes were more heavily weighted to lower-netback offshore markets.

Potash operating rates improved in the second quarter in response to increased sales. We produced 2.2 million tonnes and took only 4.6 shutdown weeks, compared to 0.6 million tonnes of production and 49.7 shutdown weeks in the same quarter last year. Our per-tonne cost of goods sold was significantly lower than in the same quarter of 2009 as a result of fixed costs being allocated over more tonnes and lower prices reducing potash royalties. The benefit was partially offset by the translation of Canadian dollar production costs due to a weaker US dollar quarter over quarter.

Phosphate

Our diversified product mix helped generate gross margin of $62.0 million in the second quarter of 2010, more than triple the $19.0 million earned in the same quarter last year. Animal feed supplements ($19.2 million), liquid fertilizers ($17.4 million) and industrial products ($15.7 million) were the largest gross margin contributors, while solid fertilizers added $5.3 million. In first-half 2010, our phosphate business generated $128.1 million in gross margin. In the second quarter, it incurred charges associated with increased asset retirement obligations and asset writedowns of $15.6 million (equivalent to approximately $0.04 per share).

Although second-quarter sales volumes of 0.7 million tonnes were flat compared to the same period last year, our total of 1.6 million tonnes for the first six months remained ahead of the 1.3 million tonnes sold in the first half of 2009. Average realized phosphate prices for the second quarter reached $458 per tonne, up 13 percent from the same quarter last year. Prices for liquid and solid fertilizers were up 51 percent and 55 percent, respectively, from second-quarter 2009, driven primarily by tightening fundamentals due mainly to improved customer demand. Feed and industrial prices were down 10 percent and 18 percent, respectively, on a quarter-over-quarter basis, reflecting the time lag in pricing for these segments. These products are typically sold on a contract basis (including cost-plus or market-index provisions for some industrial customers), therefore 2009 prices did not reflect the significant price reductions that impacted solid and liquid fertilizers.

Improved operating rates were the primary driver for reduced phosphate cost of goods sold on a per-tonne basis for the second quarter of 2010 compared to the same period last year.

Nitrogen

Higher prices helped raise second-quarter nitrogen gross margin to $125.0 million, nearly triple the $43.9 million generated in the same period last year. Our Trinidad operation, which benefits from long-term, lower-cost natural gas contracts, generated $68.5 million in gross margin during the quarter, while our US operations contributed $56.5 million. This result raised first-half nitrogen gross margin to $257.6 million.

Nitrogen sales volumes of 1.3 million tonnes during the second quarter improved slightly from the 1.2 million tonnes sold during the same period last year and brought our six-month total to 2.6 million tonnes. Stronger demand for all nitrogen products resulted in a 20 percent improvement in average realized prices compared to the same quarter of 2009. Ammonia prices increased approximately 39 percent, reflecting improved agricultural and industrial demand. Second-quarter prices were higher for urea (10 percent) and nitrogen solutions/nitric acid/ammonia nitrate (14 percent) than in the same period last year due to strong agricultural demand and increased sales volumes to higher-netback domestic markets.

Our total average natural gas cost included in production, including our hedge, for the second quarter was $4.77 per MMBtu, an increase of 27 percent over the same period last year. Our Trinidad gas cost moved higher in response to improved Tampa ammonia prices — the benchmark to which our Trinidad gas costs are primarily indexed — while US gas prices increased on improving industrial demand.

Financial

Provincial mining and other taxes for second-quarter 2010 totaled $17.2 million. This compared to a recovery of $18.1 million in the same period last year — a quarter that included an adjustment to provincial mining tax accruals made earlier in 2009. While several discrete income tax charges (including charges related to prior-year liabilities totaling $16.8 million, equivalent to $0.05 per share) impacted income tax expense for the quarter, discrete charges were lower than in the same period last year. This was offset by improved earnings and a higher estimated annual effective tax rate on ordinary earnings in 2010, which increased second-quarter income tax expense to $174.3 million from $71.6 million during the same period last year.

Capital expenditures on property, plant and equipment totaled $436.5 million in the second quarter, the majority of which related to our ongoing potash expansion projects.

Outlook

While the powerful long-term drivers of the fertilizer business — population growth and economic expansion in developing nations that are creating demand for more and better food — changed little as a result of the global downturn, the catalysts expected to fuel near-term demand appear to be accelerating. Strong grain consumption continues to tighten global supplies, despite consecutive record harvests in many key growing regions in recent years that have drawn down soil nutrient levels. With weather-related crop production concerns in many growing regions, including Canada, Europe and the former Soviet Union, the world is starting to focus once again on agriculture. As a result, prices for crop commodities are strengthening — returns for key crops such as corn are projected to be the second highest on record — providing farmers with greater motivation to maximize yields. This is creating a platform for growth for the fertilizer sector — and particularly potash, where nutrient imbalances are most pronounced.

With first-half potash demand estimated between 25 and 27 million tonnes, the recovery in demand continues to be aligned with our expectation that global shipments in 2010 will be approximately 50 million tonnes. Fertilizer buyers have re-engaged and consumption in most major potash markets — the primary exception being China — is forecast to return to levels near those prior to the global economic downturn. India is expected to approach record demand in 2010 as a result of forecast normal monsoon rains and the need to increase yields to stem rising food price inflation. We expect demand from other Asian countries to also remain strong for the remainder of the year due to supportive grower economics and the need to satisfy potassium-intensive crops such as oil palm. Higher soybean prices have improved farmer returns in Latin America and, with significant fertilizer requirements to feed their nutrient-deficient soils, we expect demand to increase in the third quarter, their key purchasing season. In North America, we believe a number of factors will encourage strong second-half demand, including supportive crop commodity prices, an anticipated early harvest providing an extended window for fall fertilizer applications and limited distributor inventories. With scheduled summer maintenance shutdowns expected to result in lower operating rates, we anticipate that potash supply — and producer inventories — will tighten in the third quarter.

The return to a 50-million-tonne global potash market reflects more normal consumption patterns in most major markets — and is being achieved despite limited shipments to China and without a demonstrated commitment to restocking the global supply chain.

While China has been the slowest market to return, several factors give us confidence in the future growth of demand in that country. Increasing pressure on its grain and oilseed inventories is leading to rising soybean imports and the first meaningful corn imports since 1996. Corn reserves — already under pressure from a production shortfall in 2009 — are reportedly under additional stress this growing season because of adverse weather conditions and nutrient deficiencies. This is leading to higher domestic commodity prices that are well above global averages and, we believe, will provide incentive for farmers to improve production. At the same time, the Chinese government is investing significantly in agricultural support and education. We expect China may need to supplement its potash supply with additional imports in 2010 and, more significantly, that 2011 consumption will rebound to pre-downturn levels.

With the expectation of full engagement from all key markets, we anticipate that demand will be approximately 55 million tonnes in 2011, closer to the historical trend-line level. While this would be a significant rebound, it would not address the need to restock the global distribution chain. In an industry that we believe will have an estimated operational capability of approximately 60 million tonnes in 2011, this is expected to result in significantly tighter supply/demand fundamentals (operating rates above 90 percent of capability) and the potential for margin improvement.

We estimate our 2010 potash segment gross margin will be $1.4-$1.7 billion and total shipments within the range of 7.5-7.8 million tonnes. In phosphate, limited producer inventories, strong demand and the expectation of lower input costs for sulfur are anticipated to create strong margins for the balance of the year, while nitrogen gross margin is expected to be supported by strong demand, higher natural gas costs in key exporting regions and tight inventories. We anticipate phosphate and nitrogen to generate combined total gross margin of $600-$800 million for the full year. Other income for 2010 is now forecast to be $250-$300 million and our effective tax rate for the second half to approximate 25 percent.

Given these factors, PotashCorp forecasts 2010 net income per share to be in the range of $5.00-$5.50, including third-quarter earnings of $0.80-$1.20 per share.

Conclusion

“With the worst of the global recession behind us, the inevitable need for increased food production and proper fertilizer use is being re-established,” said Doyle. “The demand for food has tightened global grain supplies, increasing the importance of addressing nutrient deficiencies in the soil. This is expected to strengthen demand for all nutrients, especially potash, in the near and long term. We believe this increased demand gives us the opportunity to demonstrate our unmatched ability to meet the needs of our customers and deliver value to our shareholders.”

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."
3.  “Other Asian countries” exclude China and India.

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.

For further information please contact:

Investors Media
Denita Stann
Senior Director, Investor Relations
Phone: (847) 849-4277
Fax: (847) 849-4691
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 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: 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.

Webcast Details

Jul 29 10

Forward-Looking Statements

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