BMO Capital Markets. Global Metals & Mining Conference. February 28, Jochen Tilk President and CEO. PotashCorp.com

Transcription

1 BMO Capital Markets Global Metals & Mining Conference February 28, 2017 Jochen Tilk President and CEO PotashCorp.com

2 Forward-looking Statements This presentation contains forward-looking statements" (within the meaning of the US Private Securities Litigation Reform Act of 1995) or forward-looking information (within the meaning of applicable Canadian securities legislation) that relate to future events or our future performance. These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements often contain words such as should, could, expect, forecast, may, anticipate, believe, intend, estimates, plans and similar expressions. These statements are based on certain factors and assumptions as set forth in this document, including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, including the completion of the proposed merger of equals with Agrium, and effective tax rates. While we consider these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements are subject to risks and uncertainties that are difficult to predict. The results or events set forth in forward-looking statements may differ materially from actual results or events. Several factors could cause actual results or events to differ materially from those expressed in forward-looking statements including, but not limited to, the following: our proposed merger of equals transaction with Agrium, including the failure to satisfy all required conditions, including required regulatory approvals, or to satisfy or obtain waivers with respect to all other closing conditions in a timely manner and on favorable terms or at all; the occurrence of any event, change or other circumstances that could give rise to the termination of the arrangement agreement; certain costs that we may incur in connection with the proposed merger of equals; certain restrictions in the arrangement agreement on our ability to take action outside the ordinary course of business without the consent of Agrium; the effect of the announcement of the proposed merger of equals on our ability to retain customers, suppliers and personnel and on our operating future business and operations generally; risks related to diversion of management time from ongoing business operations due to the proposed merger of equals; failure to realize the anticipated benefits of the proposed merger of equals and to successfully integrate Agrium and PotashCorp; the results of our impairment assessment regarding the carrying value of certain assets; the risk that our credit ratings may be downgraded or there may be adverse conditions in the credit markets; variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; fluctuations in supply and demand in the fertilizer, sulfur and petrochemical markets; changes in competitive pressures, including pricing pressures; risks and uncertainties related to any operating and workforce changes made in response to our industry and the markets we serve, including mine and inventory shutdowns; adverse or uncertain economic conditions and changes in credit and financial markets; economic and political uncertainty around the world; changes in capital markets; the results of sales contract negotiations; unexpected or adverse weather conditions; risks related to reputational loss; the occurrence of a major safety incident; inadequate insurance coverage for a significant liability; inability to obtain relevant permits for our operations; catastrophic events or malicious acts, including terrorism; certain complications that may arise in our mining process, including water inflows; risks and uncertainties related to our international operations and assets; our ownership of non-controlling equity interests in other companies; our prospects to reinvest capital in strategic opportunities and acquisitions; risks associated with natural gas and other hedging activities; security risks related to our information technology systems; imprecision in reserve estimates; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; changes in, and the effects of, government policies and regulations; earnings and the decisions of taxing authorities which could affect our effective tax rates; increases in the price or reduced availability of the raw materials that we use; our ability to attract, develop, engage and retain skilled employees; strikes or other forms of work stoppage or slowdowns; rates of return on, and the risks associated with, our investments and capital expenditures; timing and impact of capital expenditures; the impact of further innovation; adverse developments in new and pending legal proceedings or government investigations; and violations of our governance and compliance policies. These risks and uncertainties are discussed in more detail under the headings Risk Factors and Management s Discussion and Analysis of Results and Operations and Financial Condition in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, the joint information circular of the company and Agrium, filed as Exhibit 99.1 to the company s Current Report on Form 8-K dated October 6, 2016 and with Canadian provincial securities commissions, in connection with the proposed merger of equals with Agrium and in other documents and reports subsequently filed by us with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as of the date hereof and we disclaim any obligation to update or revise any forwardlooking statements in this release, whether as a result of new information, future events or otherwise, except as required by law. Slide #2

3 Company Overview

4 Company Overview World Class Potash Assets and Advantaged Positions in Nitrogen and Phosphate Six mines in Canada with over 19 MMT of nameplate capacity Highest-quality, lowest-cost North American potash producer with significant platform for growth Three facilities in the US and a large-scale facility in Trinidad Lower-cost natural gas, proximity to key markets and more stable industrial customer base Two mining/processing plants and five upgrading facilities in the US Most diversified product offering in the industry; historically higher margins and more stable returns Four strategic investments: APC (Jordan) 28%, ICL (Israel) 14%, Sinofert (China) 22% and SQM (Chile) 32% Market value of $4.6 billion*, or $5 per PotashCorp share * At market close on February 21, 2017 Source: PotashCorp Slide #4

5 Company Overview Potash Priorities Product Sales Volumes (2016) Market-responsive potash approach 10% Strike the right balance between: Maximizing flexibility (operational capability to respond to demand growth) Minimizing costs (optimization of production to lowest cost mines) Fertilizer 90% Feed & Industrial Enhance market opportunities and distribution capabilities Geographic Sales Volumes (2016) Explore additional opportunities to enhance our potash enterprise 39% 61% North America Offshore Source: PotashCorp Slide #5

6 Company Overview Nitrogen Phosphate Priorities Product Sales Volumes (2016) Nitrogen Enhance our cost position by achieving energy and labor efficiencies Maintain/enhance product flexibility Optimize Trinidad production and explore new market opportunities Phosphate Improve cost position by refining mining techniques and procurement initiatives Evaluate new market viability and product differentiation opportunities 39% 37% 61% 63% Fertilizer Feed & Industrial Fertilizer Feed & Industrial Geographic Sales Volumes (2016) 16% 28% 84% North America Offshore 72% North America Offshore Source: PotashCorp Slide #6

7 PotashCorp s Nutrient Profile Potash is Our Core Nutrient Sales Volumes (2016) Contribution to Gross Margin (2016) 10 8 Million Metric Tonnes 4% % 53% 2 0 Potash Nitrogen Phosphate Potash Nitrogen Phosphate Source: PotashCorp Slide #7

8 Strategy and Focus Areas

9 Strategy and Key Focus Areas Positioning our Company for Long-term Success Market Responsive Potash Approach MMT potash operational capability in 2017 Initiated operational changes at Cory mine; move to white potash only Announced inventory shutdowns at other SK mines Portfolio Optimization - ~$10/mt estimated reduction in potash cost of goods sold in 2017 Suspended production in New Brunswick Ramping up Rocanville in 2017; largest and lowest cost potash mine Focusing on continued operational excellence across all three nutrients Financial Flexibility - ~$600 million forecast capital expenditure in 2017 Completion of multi-year potash expansion program Realigned dividend in 2016 Merger of Equals with Agrium - Up to $500 million of estimated annual operating synergies Received regulatory clearances in Brazil and Russia; anticipate mid-2017 close Evaluating synergies, processes and best practices for adoption by the new organization Source: PotashCorp Slide #9

10 Market Responsive Potash Approach Paid-for Capacity a Platform for Growth Million Tonnes KCl Operational Capability* Nameplate Capacity** Rocanville Allan Lanigan Cory New Brunswick Patience Lake * Estimated annual achievable production level at current staffing and operational readiness (estimated at beginning of 2017). Estimate does not include inventory-related shutdowns and unplanned downtime. ** Estimates based on 2017 capacity as per design specifications or Canpotex entitlements once determined. In the case of New Brunswick, nameplate capacity represents design specifications for the Picadilly mine, which is currently in care-and-maintenance mode. In the case of Patience Lake, estimate reflects current operational capability. Source: PotashCorp Slide #10

11 Portfolio Optimization Optimizing Potash Production Toward Lowest-Cost Operations US$ Per Tonne (Potash) Cash-related Cost of Goods Sold* Depreciation and Amortization Rocanville % of Total Operational Capability Percent Rocanville cash costs anticipated to be ~$45- $50 per tonne when ramped up F** 0 * Refers to total cost of goods sold less depreciation and amortization ** Assumes Rocanville production of approximately 5mmt in 2017; FX rate of CDN 1.32 per 1 USD; 2017 sales volumes based on guidance as of January 26, 2017 Source: PotashCorp Slide #11

12 Financial Flexibility Focusing on Financial Flexibility and Investment-Grade Credit Rating US$ Millions 3,000 2,400 Dividend CAPEX - Sustaining * CAPEX - Opportunity * 1,800 1, F** * Does not include capitalized interest ** Based on CAPEX guidance as of January 26, 2017 Source: PotashCorp Slide #12

13 Recent and Upcoming Event Timeline Commitment to a Proactive Approach; Merger Expected to Close Mid-2017 Reduced quarterly dividend to $0.25/share 2016 Reduced quarterly dividend to $0.10/share Announced Merger of Equals with Agrium Expect up to $500M in annual synergies Shareholders overwhelmingly voted to approve merger with Agrium Rocanville Ramp-up Expect Canpotex allocation increase for 2H Q1 Q2 Q Q4 Q1 Q2 Q3 Announced Inventory Shutdowns at Allan & Lanigan Suspended potash operations at Picadilly, NB 2.0 mmt of nameplate capacity Hammond Warehouse/ Distribution Centre Complete enhancing US distribution Announced Operational Changes & Inventory Shutdowns move to white potash only at Cory Merger Regulatory Review and Integration Planning Processes Expect to be complete in mid-2017 Source: PotashCorp Slide #13

14 Market Update

15 Dec 17 Nov 17 Oct 17 Nov 17 Global Agriculture Backdrop Supportive Agriculture Fundamentals in Most Key Regions Selected Crop Prices 3-Year Average Futures $3.84 $3.96 $10.46 $10.14 $0.16 $0.20 $2,442 $2,621 Corn (US$/bu) Regional Assessment Soybean (US$/bu) Sugar (US$/lbs) Palm Oil (MYR/mt) North America Latin America China India Other Asia Potential pull back in corn acres and increase in soybeans could be slight headwind for N and neutral for P & K Tightening credit for highly-levered growers but strong fertilizer affordability supports application rates Strong crop margins and nutrient affordability supporting record fertilizer demand Acreage expansion to continue although at slower pace Market adjusting to tightened credit availability Farm consolidation supporting improved fertilization practices Government reducing subsidized local prices, most notably for corn Continued shift to highvalue, nutrient-intensive crops Improved subsidy support for agriculture including farm credit Better moisture conditions contributed to increased Rabi crop acreage and improved fertilizer demand Palm oil prices currently at very supportive levels Plantations implement yield recovery programs following drought in 2016 Higher application rates key driver of fertilizer consumption growth * As at February 21, 2017 Source: S&P Global Market Intelligence Slide #15

16 Fertilizer Affordability Index Fertilizer Represents Good Value for Farmers Price Index (January 2015 = 100%) 150% Crop Price Index* Fertilizer Price Index** 125% 100% 75% 50% Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 * Based on corn, soybean and wheat prices (weighted by global consumption). ** Based on urea, DAP and KCl prices (weighted by global consumption). Source: Bloomberg, Fertilizer Week Slide #16

17 Global Potash Inventory Changes Inventory Has Been Drawn Down at Both Producer and Distribution Level Million Tonnes KCl 5.0 Estimated Producer Inventory Change (Production less Sales) Estimated Distributor Inventory Change (Shipments less Consumption) E Source: CRU, TFI, Company Reports, PotashCorp Slide #17

18 2017 Highlights Potash Shipments by Region Expect Demand of Million Tonnes in 2017 Million Tonnes KCl Previous Record: 6.3mmt (2010) Previous Record: 9.5mmt (2014) Previous Record: 11.1mmt (1997) Previous Record: 11.7mmt (2014) Previous Record: 15.8mmt (2015) E 17F E 17F E 17F E 17F E 17F India Other Asia North America Latin America China mmt mmt mmt mmt mmt Improved moisture conditions and reduced inventory levels to support demand Demand supported by good crop economics and improved moisture conditions Supportive nutrient prices and significant removal of nutrients following record crop expected to support demand Agronomic need, favorable crop economics, and lower inventories expected to support demand growth Lower inventories and strong consumption expected to support demand growth Note: Shaded bars represent shipment forecast range as of January 26, Source: Fertecon, CRU, Industry Publications, PotashCorp Slide #18

19 Global Crop Production and Potash Consumption Production of Nutrient Intensive Crops Underpins Potash Consumption Growth Crop Production Million Tonnes Potash Consumption Million Tonnes KCl Equivalent 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Fruits & Vegetables Grains & Oilseeds Other Crops Potash Consumption F 2019F 2021F CAGR F & V G & O 2.8% 2.3% Other 1.6% Potash 2.7% Other crops include fiber crops, pulses, roots and tubers. Source: Fertecon, CRU, USDA, FAO, PotashCorp Slide #19

20 Global Potash Supply and Demand Expect Relatively Balanced Supply/Demand Over Medium Term Million Tonnes KCl 80 Shipments 70 POT Shipment Forecast Range Operational Capability* F 2019F 2021F * Estimated annual achievable production level from existing operations; announced probable and possible projects; assuming typical ramp-up periods for new capacity. Probable and possible projects based on PotashCorp s view of project probabilities. Source: Fertecon, CRU, IFA, PotashCorp Slide #20

21 Global Nitrogen Market Overview Adjusting to New US Capacity; Reduced Chinese Urea and FSU Ammonia Exports 2017 Ammonia Capacity Changes* Million Tonnes Net Additions = +6.8 Mmt (~3%) Market Factors to Watch 8 6 L. America Africa Russia Other Asia Black Sea Ammonia Exports Constrained ~1.0Mmt Estimated reduction in 2016 Black Sea exports compared to previous 5-year high 4 Middle East 2 0 US China** Chinese operating rates*** at historical lows ~55-60% Current operating rate vs typical average ~75% -2 Ammonia demand growth projected at ~2% in 2017 * Based on industry consultant estimates; capacity is prorated for start-up timing in 2017 ** Net of additions and permanent closures *** Based on industry consultant estimates Source: CRU, Fertecon, Company Reports, PotashCorp Slide #21

22 Global Phosphate Market Overview Adjusting to New Capacity in Morocco & Saudi Arabia; Weak Near-term Indian Demand 2017 Phosphate Capacity Additions* Million Tonnes P 2 O 5 Net Additions = +1.5 Mmt P 2 O 5 (~3%) Market Factors to Watch Others 35% 42% Morocco Elevated Indian inventory levels to begin 2017 ~1.4Mmt DAP inventory on hand (57% above trailing 3-year average) Low Chinese operating rates** ~65-70% Current operating rate vs typical average ~77% 23% Saudi Arabia Phosphate demand growth projected at ~2% in 2017 * Based on industry consultant estimates; capacity is prorated for start-up timing in 2017 ** Based on industry consultant estimates Source: CRU, Katana, Profercy, PotashCorp Slide #22

23 Appendix: Merger of Equals with Agrium

24 Combination Creates a World-Class Integrated Global Supplier of Crop Inputs Largest Crop Nutrient Company in the World & 3 rd Largest Natural Resource Company in Canada Combined market capitalization of $30 billion and enterprise value of $40 billion (1) Low-Cost, World-Class Producer of Key Crop Nutrients Highest-quality, lowest-cost North American potash producer Low-cost North American nitrogen platform; diverse phosphate product portfolio Leading Retail Distribution Platform Global retail distributor of crop input products, services and solutions for growers Platform for future high-value product innovation and growth Up to $5 Billion in Value Creation from Run-rate Synergies (2) ~$500 million of estimated annual operating synergies Implies ~20% value creation for the combined enterprise All-stock transaction allows all shareholders to participate in the benefits of the combination Compelling Growth Opportunities Recently completed capacity expansions, particularly in potash, provide platform for growth Continue retail's highly successful organic growth and acquisition strategy Strong Balance Sheet with Significant Cash Flow Generation ~$3bn-4bn operating cash flow (3) with significant upside potential upon cycle recovery Flexibility to grow and return excess capital while maintaining strong credit ratings Large capital projects complete for both companies Strong cash flows to support attractive dividends, expected to be equal to the current Agrium level (4) Note: Dollars in U.S. dollars. (1) Based on Agrium and PotashCorp enterprise values as of 2/22/17 (2) Assumes $500 million of annual synergies capitalized at a blended EV / 2017E EBITDA multiple of 10x, not including costs to achieve. (3) Range represents combined 2015 & 2016 cash provided by operating activities. (4) Adjusted for the new share count, subject to market conditions and Board approval at the time of closing. Slide #24

25 Low-Cost Potash Assets with High Quality Reserves Total combined potash nameplate capacity of 22.1 million tonnes (1) Capacity expansions provide platform for future growth Opportunities for procurement synergies through operational efficiency Vanscoy Cory Patience Lake Allan Lanigan Rocanville Agrium Potash Mine PotashCorp Potash Mine Pro Forma Potash Contribution Nameplate Capacity (1) (million tonnes) 3 Year Avg. EBITDA (2) 35% Source: Company filings and Company information. (1) Represents estimated nameplate capacity as of December 31, 2016, which may exceed operational capability. Please refer to PotashCorp s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and to Agrium s Annual Information Form for the year ended December 31, (2) Represents the average of the combined Agrium and PotashCorp historical EBITDA for fiscal years ending December 31, 2013, 2014 and Slide #25

26 Premier Integrated Global Ag Input Retailer Best-in-class products and services across a wide variety of crops Proprietary product lines provide differentiated solutions Leading edge investments in technology and innovation enhance total-acre offering for growers Attractive Geographic Footprint Complete Ag Solutions Offering EBITDA (2015) 89% North America / 11% Int l NORTH AMERICA Canada Crop Protection 39% Merchandise 4% Services/Other 16% Seed 10% Providing everything growers need to maximize yields 31% Crop Nutrients USA Broad Crop Diversity SOUTH AMERICA Brazil Chile Argentina Uruguay Over 1,400 facilities in 7 countries AUSTRALIA Veg 5% Perm Crops 8% Cotton 6% Canola 11% All Other 13% Soybean 16% Corn 23% Wheat 18% Crop inputs & services for over 50 different crops Source: Company filings. Slide #26

27 Retail Integration and Optimization Opportunities Lima, OH :- Ammonia, UAN Optimizable netback area: OH, IN # of Retail Facilities: 75 Annual volume: 120,000 tons Augusta, GA: UAN Optimizable netback area: East of MS River (Rail & Truck) # of Retail Facilities: 72 Annual volume: 150,000 tons Aurora, NC: MAP/DAP Optimizable netback area: East of MS River # of Retail Facilities: 267 Annual volume: 200,000 tons TRINIDAD Trinidad: Urea Optimizable netback area: River Network New Madrid ESN plant # of Retail Facilities: 280 Annual volume: 440,000 tons Geismar, LA: UAN Optimizable netback area: River Network # of Retail Facilities: 254 Annual volume: 325,000 tons Agrium Locations Agrium Nitrogen Production Agrium Phosphate Production Agrium Potash Production Retail: Crop Production Services (CPS) PotashCorp Locations PotashCorp Nitrogen Production PotashCorp Phosphate Production PotashCorp Potash Production Slide #27

28 Combination Provides Significant Synergy Opportunity Dedicated teams established at each company to identify synergy opportunities Synergy teams conducted assessments to quantify opportunities ~16.5 million tonnes 15,000+ 1,700+ North American product shipments Total railcars (~40% for potash) Distribution points in North America $1.4 billion $1.2 billion $1.2 billion Annual non-raw material / MRO purchases Annual sustaining capital spend Total combined freight and distribution costs Optimizing key areas to generate ~$500 million of annual operating synergies Note: Dollars in U.S. dollars. Source: Estimates Per Agrium and PotashCorp management. Slide #28

29 Strong Line of Sight to Capture Synergies of ~$500 million 1 Category Description Value Rail Fleet Optimization Own / lease 15,000+ railcars at an average annual cost of ~$115 million Shorter cycle times for nutrient shipments allow for rail car rationalization and a reduction in costs by approximately 20% ~$25M Distribution and Warehouse Optimization Eliminate duplicate warehouse locations including $20 million of Agrium leased warehouse costs ~$25M Distribution & Retail Integration / Optimization ~$150 million Logistics Savings Improve and optimize servicing of customers by sourcing product closer to production facilities (product repatriation) Reduce freight costs tied to volume-based benefits ~$50M Portfolio Integration Ability to optimize PotashCorp s crop nutrient production through Agrium retail; access to expanded product offerings ~$25M Product Mix Optimization Utilize retail network to optimize nitrogen and phosphate product mix ~$25M Note: Dollars in U.S. dollars. Source: Estimates Per Agrium and PotashCorp management. Slide #29

30 Strong Line of Sight to Capture Synergies of ~$500 million 2 Category Description Value Production Optimization ~$125 million Phosphate Integration Potash Cost Efficiencies Utilize PotashCorp s excess P 2 O 5 capacity at Aurora and White Springs to supply Agrium Redwater, eliminating higher-cost, thirdparty rock purchases (estimated cost reduction of $70 / MT on a rock equivalent basis) Operational planning efficiencies and savings derived from colocated assets, including improved mine planning, turnaround optimization and shift sequencing Expect to reduce cash fixed costs by ~10% or $4 / MT ~$80M ~$45M 3 Procurement ~$100 million Procurement Optimize purchases on $1.4 billion of annual non-raw material supplies and $1.2 billion in annual sustaining capital spend Expect to reduce purchasing costs by ~4% ~$100M 4 SG&A ~$125 million SG&A Optimization Eliminate duplicative public company costs (listing fees, audit costs, etc) Reduce discretionary, non-personnel G&A spending by $60 million Optimize headquarter functions ~$125M Note: Dollars in U.S. dollars. Source: Estimates Per Agrium and PotashCorp management. Slide #30

31 Transaction Creates a World-Class Integrated Global Supplier of Crop Inputs Compelling Strategic Rationale: Combines world-class nutrient production assets and agricultural retail network to forge integrated platform with multiple paths for growth Up to $5bn in Value Creation from Synergies (1) : Transaction expected to produce ~$500 million of annual operating synergies within 24 months of closing (~20% value creation) Enhanced Financial Flexibility: Strong pro forma balance sheet and enhanced cash flow to support growth initiatives and shareholder returns, including a robust dividend payout Best-in-Class Leadership and Governance: Combined team has a wealth of industry experience to support transformational integration Highly synergistic merger of equals expected to unlock significant value for shareholders Note: Dollars in U.S. dollars. Source: Company filings and FactSet as of 08/29/16. (1) Assumes $500 million of annual operating synergies capitalized at a blended EV / 2017E EBITDA multiple of 10x, not including costs to achieve. Slide #31

32 Thank you There s more online: PotashCorp.com Visit us online Facebook.com/PotashCorp Find us on Facebook Twitter.com/PotashCorp Follow us on Twitter

33 Contact Us Investor Relations (306) Denita Stann Senior VP, Investor & Public Relations Jeff Holzman Senior Director, Investor Relations & Sustainability Ryan Shacklock Director, Investor Relations Tim McMillan Manager, Investor Relations PotashCorp.com