Agrium Inc. said Dec. 18 that it expects to adjust the carrying cost of its Kapuskasing phosphate rock mine and associated Redwater phosphate facility, resulting in a non-cash, after-tax charge of approximately $100 million in the corporation’s fourth-quarter financial results.
Recent quality issues with the rock from Agrium’s Kapuskasing phosphate mine resulted in a comprehensive drilling program as part of an extensive reevaluation of the nature of the reserves. The outcome of the drilling program has resulted in a reduction in the estimated economic ore reserve life from 2019 to 2013, which triggered an impairment review of Agrium’s Canadian phosphate operations’ carrying cost. The impairment reflects the reduction in economic ore reserves, a pricing forecast for phosphate fertilizers that reflects significant new global supply additions in 2011, and a forecast of a strong Canadian dollar.
Agrium said it will continue to evaluate longer-term solutions for the ongoing operation of the Redwater phosphate facility beyond 2013, including alternative sources for phosphate rock. It believes that upgrading the flotation system in early 2007 and moving into a higher quality ore area later in the year will improve the margins of its Canadian phosphate operations in the second half of 2007.
Agrium expects second half 2006 results to be at the lower end of the previously issued guidance range of $0.20 to $0.25 per share, excluding the impact of the adjustment in carrying cost of the Canadian phosphate assets as described above. Very wet weather in the Eastern U.S. Cornbelt and an early snowfall in Western Canada negatively impacted fall sales in these regions. Additionally, Agrium said its stock-based compensation expense is forecast to be higher. These negative effects are expected to be partially offset by a gain on a small, non-core asset sale and the expectation that the maintenance originally anticipated to occur in the fourth quarter at the Profertil facility will now be deferred until the first quarter of 2007.
Agrium told Green Markets that the actual non-core asset being sold will not be announced until the date of its fourth quarter earnings release Feb. 1. Agrium reiterated that the asset being sold would not be fertilizer or retail.