Watch above: Saskatchewan is proposing changes to the royalty structure when it comes to potash companies. Wendy Winiewski finds out how Wednesday’s news in the provincial budget is being received.
REGINA – Shares in Potash Corp. of Saskatchewan Inc. (TSX:POT) and other potash producers were under pressure Thursday, a day after Saskatchewan announced budget changes that will collect an additional $150 million from the industry. The provincial government also announced in its budget late Wednesday that it will review the potash royalty structure.
PotashCorp – the world’s largest producer of potash, which is used to boost crop production – said it expects the tax change will shave $75 million to $100 million from its pre-tax earnings for 2015.
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READ MORE: Saskatchewan budget holds line on taxes, but peels back incentives
PotashCorp president and CEO Jochen Tilk said in a statement that the company understands the provincial government’s revenue situation but added the change affects $6 billion of investments that assumed the rules would stay in place.
“Changing the rules midstream impacts the ability of our shareholders to earn a fair return on their capital and undermines Saskatchewan’s relative competitiveness,” Tilk said.
The Saskatchewan government said it was changing its potash production tax to help offset a sharp drop in revenue from oil.
Potash producers will receive the same total tax deductions for capital spending but they will be spread over a longer period of time.
The weakness in the potash stocks also came as the Belarussian Potash Co. and China settled potash contract negotiations at $315 per tonne for the first half of this year.
“Although the lower-than-expected contract price is not ideal and may add to near-term negative potash equity sentiment, we believe the settlement will provide price direction to the market and should alleviate some recent market concerns that this year’s contract prices could be flat or lower year-over-year,” RBC analysts said in a note.
PotashCorp shares were down $1.24 at $40.99 in trading on the Toronto Stock Exchange, while shares of Agrium (TSX:AGU) were down $2.89 at $137.01. Shares in the Mosaic Co. were down US$1 at US$46.55 on the New York Stock Exchange.
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