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Viterra fertilizer sales up, takes 4Q inventory write-down; another expected in 1Q

Viterra reported a C$100 million increase in fourth-quarter fertilizer sales, to $228.1 million versus the year-ago $126.8 million. Viterra said the sales for the quarter ending Oct. 31, 2008, were up largely due to higher prices on lower volumes. The company also noted its expanded network due to the merger of its predecessors, Saskatchewan Wheat Pool and Agricore United. Prices began declining toward the end of the quarter, prompting farmers to delay purchases. Additionally, excessive moisture levels in parts of Western Canada and a later harvest also led to reduced applications of anhydrous ammonia.

Viterra took a $24 million inventory write-down during the quarter to reflect the net realizable value of the fertilizer inventory as of Oct. 31, 2008. Based on current pricing, Viterra expects to take another inventory write-down of $30-$40 million in the first quarter ending Jan. 31, 2009.

As for the outlook for the growing season, Viterra said nitrogen prices may have reached bottom and have shown some rebound due to global production cutbacks of 10-15 percent. However, the company said phosphate pricing has further softened since Oct. 31. Viterra believes manufacturing cutbacks will lead to tighter supplies during the upcoming growing season. As a result, it expects demand will be strong and believes its retail distribution system is well positioned to deal with demand pressures. It reports that seed bookings for the spring have been progressing as expected and that sales of equipment, in particular corrugated storage bins, have remained strong due to increased producer cash flow in 2008.

Viterra reiterated that over 21,500 of its customers have already been pre-approved and conditionally approved for $1 billon in credit for the growing season. It expects some $1.4 billion will be extended to its customers during the season.

Fertilizer sales for the year ending Oct. 31, 2008, were $1.01 billion compared to the prior year $475.7 million. Sales for the prior year exclude seven months (Nov. 1, 2006-May 31, 2007) of pre-acquisition sales attributable to AU and the additional 57 percent ownership of Westco.

Overall, Viterra’s Agri-Product sector, which includes fertilizer and other inputs, recorded a gross profit of $89.8 million (EBITDA $44 million) on sales of $308.1 million for the fourth quarter, versus the year-ago $42 million (EBITDA $9.2 million) and $172.8 million, respectively. Full-year gross profits from the unit were $437.6 million (EBITDA $276.9 million) on sales of $1.7 billion, versus the prior year’s $219.2 million (EBITDA $124 million) and $934.6 million, respectively.

Company-wide, Viterra reported fourth-quarter net earnings of $46.8 million ($.20 per share and EBITDA of $100.2 million) on sales of $1.7 billion, versus the year-ago $842,000 ($.00 per share and EBITDA of $62.3 million) and $1.3 billion, respectively. Full-year net earnings were $288.3 million ($1.31 per share and EDIBTA of $532.6 million) on sales of $6.8 billion, compared to the prior year’s $166.5 million ($.84 per share and EBITDA of $265.8 million) and $3.5 billion.

Sales $1M 4Q-08 4Q-07 FY-08 FY-07
Fertilizer 228.1 126.8 1,012 475.7
Crop Prot. 41 26.4 416.8 342.1
Seed 1.59 1.61 174.5 65.7
Equipment 37.4 18.1 83.0 51.1

PCS receives water permit, expects Army Corps decision by end of April

PotashCorp’s PCS Phosphates-Aurora Division (PCS) has received a revised water quality certification from the state of North Carolina for the company’s planned mine expansion at the Aurora facility. The permit will be incorporated in the forthcoming U.S. Army Corps of Engineers decision on a federal permit for the expansion. PCS said last week it expects the Army Corps to act by the end of April.

In the meantime, local officials have been lining up in support of the mine expansion. PCS employs over 1,000 in Beaufort County, and is the county’s largest employer. Local environmental groups continue to oppose the mine expansion, fearing its impact on wetlands and streams.

The new permit is the latest development in PCS’s ten-year permitting process to expand the facility. Last June, the company modified its earlier expansion plans to mine fewer acres and impact less wetlands (GM June 2, 2008, p. 1). The new plan would undertake an approximate 11,909 acre mine advance into the approximately 15,100 acre project area surrounding its current mining operation north of Aurora. The expansion would accommodate 37 years of mining at 5 million st/y, and would impact approximately 4,135 acres of wetlands. Previously, PCS has sought to advance into 13,931 acres, impacting 5,667 acres of wetlands. In the interim, however, the Army Corps had asked PCS for alternatives.

Last June, PCS said it still had four years of mining at its existing Aurora operations.

PCS says that for each acre of wetlands disturbed, 1.8-2 acres would be restored or preserved by the company, which is similar to the company’s current permit. However, the Pamlico-Tar River Foundation, a local environmental group that has actively eyed the project, maintains it will be the largest destruction of wetlands in the state’s history. Pamlico also fears that PCS will mitigate wetlands elsewhere while the Aurora wetlands are needed for local flood control, and that high levels of cadmium, arsenic, and chromium will be in the soils used to reclaim mined lands and will leach into groundwater.

Enviros sue to block Idaho roadless rule, phos mining

A coalition of environmental groups on Friday, Jan. 16, sued federal agencies and officials to block Idaho rules for managing more than 9.3 million acres of the state’s roadless back country, including territory that could be used for phosphate mining, logging, and road building. The lawsuit could prove to be the first legal test in federal court for a state plan to manage individual roadless areas.

Before President Bill Clinton left office in January 2001, the Clinton administration imposed the federal Roadless Area Conservation Rule, which banned development and road building on nearly one-third of the nation’s 192 million acres of national forest land. President George W. Bush’s administration repealed that rule in 2005, allowing states to petition the federal government with their own management plans for individual forests.

Idaho and Colorado are the only two states so far to draft their own roadless rules. Roadless acreage in Idaho is second only to that of Alaska, where 14.8 million acres are designated as roadless. The Idaho rule designates 250 roadless areas and establishes five management themes that guide mineral development, timber cutting, and road construction.

The lawsuit, filed in U.S. District Court four days before Bush left office, challenges a plan the U.S. Forest Service completed in October 2008 following a lengthy process to determine how roadless areas and other untouched lands in Idaho would be managed, preserved, or opened to mining and other uses. While revisions to the proposed rule included more land protections and appeased some environmentalists, national conservation groups such as The Wilderness Society say it undercuts Clinton’s federal roadless policy.

“Idaho should not be the only state in the lower 48 to have roadless forest protection downgraded by the Bush administration,” said Craig Gehrke, The Wilderness Society’s regional director in Idaho.

Attorney Tim Preso of the EarthJustice law firm filed the lawsuit on behalf of The Wilderness Society, Greater Yellowstone Coalition, Natural Resources Defense Council, Sierra Club, Lands Council, and Idaho activist Gerald Jayne. Preso, who lives in Montana, also represents a coalition of environmental groups asking a federal judge to halt the expansion of the J.R. Simplot Co.’s Smoky Canyon phosphate mine in the Caribou-Targhee National Forest near the Wyoming border.

“We’re not sitting back and waiting for the Obama administration to solve our problems,” Preso said. “We think there is an illegal act here that needs to be remedied.”

The lawsuit argues the Fish & Wildlife Service violated the Endangered Species Act when it ruled the Idaho roadless plan wouldn’t jeopardize dwindling grizzly bear and caribou populations in northern Idaho. It names the heads of the U.S. Forest Service, U.S. Fish & Wildlife Service, U.S. Department of Agriculture, Agriculture Undersecretary Mark Rey, and Interior Secretary Dirk Kempthorne, a former Idaho governor.

“The more we’ve reviewed the Idaho rule the more concerned we are about the loss of protection for water quality, fish and wildlife habitat and wilderness,” said Marv Hoyt, Idaho director for the Greater Yellowstone Coalition. “Phosphate strip mining on 5,700 roadless acres will lead to even more selenium poisoning of streams.”

The Idaho rule was championed in 2006 by then-Gov. Jim Risch, now a U.S. senator, and supported by Trout Unlimited, the Idaho Conservation League, sportsmen, and public land users.

“This litigation is a slap in the face of all Idahoans who participated in the resolution of this long and on-going dispute,” Risch responded, calling it a model for other states. “To see this small group file a lawsuit is a disservice to the collaborative process and a step backward in resolving conflict in public lands management. It is particularly aggravating when those groups refused to participate even when specifically requested to do so.”

Newly-elected U.S. Rep. Walt Minnick, D-Idaho, a former timber industry executive, is a former board member of The Wilderness Society and the Idaho Conservation League. He continues to support Idaho’s roadless plan, which he called a collaborative effort that protects resources while still allowing appropriate use of public lands for industry and recreation.

The Forest Service says it has a $660 million backlog of road maintenance and improvement projects in Idaho, where it has 34,000 miles of national forest roads.

Organic industry indicates that investigation may soon disclose more fertilizer violations

The organic food industry apparently hasn’t seen the last of fertilizer spiking or other such irregularities. According to the Organic Materials Review Institute, the industry’s certification arm, other companies besides California Liquid Fertilizer are being investigated, and the findings are expected to be released soon. California Liquid was recently identified as having spiked its organic fertilizer for years with synthetic fertilizer, reportedly ammonium sulfate (GM Jan. 5, p. 10).

“We are looking at other companies right now,” OMRI spokesman Miguel Guerrero told Green Markets. “We can’t identify them exactly right now. We are moving ahead to remove other products from our list that have been shown to be in noncompliance. We expect to be releasing this in the next week or two.” Saying there aren’t many of them, Guerrero described those under investigation as competitors of California Liquid in making and selling liquid fertilizer in California.

“While we believe the organic industry is strong and healthy and there’s nothing fundamentally wrong with the private certification business, unfortunately, violations do occur from time to time. There is a huge incentive for companies to cheat, so we are always on the lookout. Once we determine that there is a problem with a product, we revoke our certification (de-list) immediately, fulfilling our duty to protect consumers and organic farmers,” Guerrero explained. “In addition to possible de-listing and prohibition decisions against companies that are found to spike their products with prohibited synthetic ingredients, we are prepared to pursue companies that misrepresent their products to us and violate our certification agreement.”

The California Dept. of Food and Agriculture, which validates and licenses fertilizer products and leaves certifying to the industry, also indicated in its response to questions submitted by Green Markets that there may be other violators. Mike Jarvis, who is a public relations assistant to the department secretary, confided that there were companies withdrawing their application on learning they had to reveal contents of their product. “Which tells us that they weren’t doing it right,” Jarvis commented.

CDFA’s written response to Green Markets stated that one firm has withdrawn its application at this point, and that the department is continuing to evaluate claims, guarantees, and derivation statements on organic fertilizer labels sold in the state for accuracy. “Investigators will continue to sample fertilizers for organic food production and check for the presence of synthetic substances,” the statement added.

Asked about reports that the distributor of another organic liquid fertilizer representing about 5 percent of the market pulled its product in November 2007 in the middle of another state investigation, and that rumors in the industry point to another major disclosure as soon as this month, CDFA responded, “As a policy, we do not discuss investigations that may be in progress.”

Asked about holding organic food suppliers responsible for using non-organic fertilizer, CDFA stated, “The monitoring of the organic food production is conducted by National Organic Program Accredited Certifying Agencies. CDFA carries out investigations of complaints and can hold organic food suppliers responsible for use of any farm inputs that are not allowed as defined by the National Organic Program.”

Green Markets posed the following questions and received the subsequent responses from CDFA.

GM: Why did CDFA let California Liquid Fertilizer off the hook with not even a small fine? Does the fact the company has been absorbed into Converted Organics have anything to do with it?

“CDFA does not certify fertilizers for organic food production. There are third-party organizations that follow guidelines put forth by the National Organic Program who certify organic fertilizers (e.g., OMRI, WSDA). CDFA is working with the Fertilizer Inspection Advisory Board to determine gaps and enhance how the program monitors fertilizers used in the production of organic foods. For the fertilizer inspection program, in early 2008, CDFA expanded staff and moved to change enforcement policies.”

In reversal, Mosaic wins mine approval

Manatee County, Fla.-Faced with a potential multi-million dollar lawsuit, the Manatee County, Fla., County Commission recently voted 5-2 to reverse a decision made last year (GM Sept. 22, p. 10) and approved The Mosaic Co.’s permit to mine the 2,000-plus acre Altman Tract. Before mining can begin on the tract, which will be connected to the Four Corners Mine, it must also be approved by the Army Corps of Engineers. After the county’s rejection last year, Mosaic had the property assessed in excess of $600 million and threatened to file a “taking suit” against the county (GM Oct. 6, p. 13). The county’s attorneys advised the county it could not win the case and advised approving the project. Environmentalists objected to the plan and said it would destroy about 400 acres of high-quality wetlands that feed the Peace River, which provides drinking water to portions of Southwest Florida. Opponents claimed wetlands restoration was not effective, despite Mosaic’s plan. To help gain approval, Mosaic said it would build a fire station and a park in the town of Duette, as well as other public recreational facilities. It will also give $75,000 for a county environmental education center.

Yara restarts production in Ferrara

Oslo-Yara International ASA said Jan. 22 that it has decided to restart production of urea and ammonia at its site in Ferrara, Italy. Start-up of the urea and ammonia plants is expected during February. The site has an annual production capacity of 600,000 mt of ammonia and 550,000 mt of urea. Yara said the decision to restart production is related to the general improvements in the international urea markets, and the specific situation in Italy with increased seasonal demand.

FBI raids California organic fertilizer maker

Bakersfield-The FBI and hazardous material crews raided Port Organic Products Ltd. on Thursday, Jan. 22, according to The Bakersfield Californian and local television stations. According to the paper, Port Organic, which produces fertilizer from ground fish and bat excrement, was fined $10,000 in 2007 when it was discovered that it had unreported chemicals on the site, including aqueous ammonia, sulfuric acid, and phosphoric acid.

Potash One to acquire Potash North

Vancouver-Potash One Inc. and Potash North Resource Corp. announced Jan. 22 that they have entered into a binding letter of intent (LOI) containing the principal terms by which Potash One will acquire all of the issued and outstanding common shares of Potash North. The LOI contemplates that each Potash North shareholder will receive 0.3125 common shares of Potash One for each common share of Potash North. In addition, all outstanding convertible securities of Potash North will be exchanged for comparable convertible securities of Potash One in an amount and at exercise prices adjusted in accordance with the same exchange ratio. The exchange ratio represents an approximate 29 percent premium for the shares of Potash North over the 20-trading day period prior to the execution of the LOI. There are currently 65,745,002 Potash North common shares issued and outstanding, 2,750,000 outstanding options to purchase Potash North common shares, 38,672,000 Potash North common shares issuable pursuant to outstanding share purchase warrants, and an additional 5,000,000 common shares and 5,000,000 common share purchase warrants issuable pursuant to an outstanding unsecured convertible note. Potash One owns 7,583,850 common shares of Potash North, which represents 11.5 percent of the currently outstanding shares of Potash North and an additional 7,583,850 share purchase warrants. Certain shareholders, including Potash One and all the directors and officers of Potash North, have agreed to vote their shares in favor of the combination. The transaction is expected to close by May 15, 2009. The companies say the combination will create one of the strongest junior potash development companies in Canada. Potash One will be fully funded through to completion of feasibility on its solution mining amenable potash development property located in southern Saskatchewan. Current cash of the resulting company would be approximately $50 million.

LSB comments on 4Q, stimulus package

Oklahoma City-LSB Industries Inc. said Jan. 22 that 2008 fourth-quarter sales were up in both its climate control and chemical segments. It expects to report a sales increase of approximately 33 percent for the fourth quarter of 2008 versus the fourth quarter of 2007. However, pre-tax income, although positive, will be lower, due in part to write-downs and valuation reserves of approximately $10 million as a result of steep declines in commodity prices and the market value of certain financial hedge positions. In addition, during the fourth quarter 2008, LSB completed planned maintenance at its El Dorado, Ark., and Cherokee, Ala., plants at a combined cost of approximately $4.5 million. The 2008 fourth-quarter write-downs and valuation reserves include estimated $3.7 million lower of cost or market inventory write-downs, $3.3 million mark-to-market losses on natural gas and anhydrous ammonia hedge positions relating to the chemical business, and $3.0 million mark-to-market losses on interest rate hedge positions. Included in the natural gas and anhydrous ammonia mark-to-market losses is $1.7 million in unrealized non-cash losses securing profit margins on certain orders that will be shipped at firm sales prices in 2009. Partially offsetting the $10 million write-downs and valuation reserves is a gain of $5.5 million from the repurchase of a portion of the company’s 5.5 percent subordinated debentures due 2012 at below face value. “The write-downs are caused by the unprecedented volatility in commodity markets that occurred in the fourth quarter of 2008,” said Jack Golsen, LSB chairman and CEO. “We are recently seeing some settling in this situation, and the market is moving forward with lower costs and lower selling prices of our chemical products. Our climate control business results were not significantly affected by the volatility in the commodity markets.” Golsen further stated, “In response to numerous inquiries following the release of the stimulus package proposed by the House of Representatives on Jan. 15, 2009, we believe that several funding initiatives and tax incentives could be favorable to our climate control business, particularly our geothermal heat pump business. The proposed package extends and expands federal tax credits for residential and commercial geothermal systems, and includes almost $33 billion to upgrade federal and state buildings, schools and universities, with emphasis on energy efficiency enhancements. Highly energy efficient products produced by LSB could be used in many of these upgrade and modernization projects.” Actual fourth-quarter results are expected to be released on or about March 12, 2009.

Workers remove AS barge from James River

Hopewell, Va.-Workers were reportedly removing a sunken barge of ammonium sulfate from the James River near here last week. The barge sank Jan. 12, with an estimated tonnage of 1,600 st of product. The product was from Honeywell International’s Hopewell plant, which produces caprolactam, with AS as its co-product. A salvage company reportedly was able to offload as much as 400 st of the AS, though much was expected to have dissolved in the water. Local environmental officials said so far there have been no indications of environmental impacts such as fish kills, according to the Richmond Times-Dispatch.