The Mosaic Co. and Investment Saskatchewan announced on July 14 a definitive agreement to sell Saskferco Products ULC (Saskferco) to Yara International ASA (Yara) for approximately US$1.6 billion (C$1.6 billion).
“We are pleased to reach an agreement for the sale of Saskferco,” said Jim Prokopanko, Mosaic president and CEO. “The timely sale of Saskferco will allow us to focus on our core potash and phosphate businesses, with the proceeds from the sale to be used for the planned expansions of our Saskatchewan potash mines and other non-U.S. assets.”
“This sale represents fair value for Saskferco,” said Minister Lyle Stewart, the Minister Responsible for Investment Saskatchewan. “We are pleased to welcome Yara to the Saskatchewan business community. The company’s investment in Saskferco and Mosaic’s plans to expand its operations in our province are very positive events that will further enhance our thriving economy.”
“This acquisition represents another significant step in Yara’s growth strategy, and Saskferco’s production and distribution capabilities are an excellent strategic fit with our existing assets in North America,” said Yara President and CEO Thorleif Enger. “It provides a strong foundation for further growth through an efficient manufacturing facility located close to major gas production and with proximity to an important regional agricultural market for urea and UAN.”
Yara will acquire a world-class nitrogen manufacturing plant near Belle Plaine, Sask., and storage facilities in Saskatchewan and Manitoba. The Saskferco plant is one of the world’s most gas efficient producers of ammonia, urea, and UAN, with strategic proximity to western Canada’s large and cost competitive gas reserves. When completed, the deal will add 650,000 mt of ammonia, 980,000 mt of urea, and 230,000 mt of UAN in annual production capacity. In addition to this, current capacity expansion projects will increase ammonia and urea production to 725,000 and 1,115,000 mt annually from mid-2009, for an investment cost of C$84 million. Natural gas supply to the plant is linked to AECO Hub, whose prices have historically run $1-$2/mmBtu below Henry Hub.
Saskferco, a private company owned 50 percent by Mosaic, 49 percent by the provincially-owned Investment Saskatchewan, and one percent by Canadian Imperial Bank of Commerce (CIBC), was established in 1988.
The Saskferco facility is one of the newest nitrogen complexes in North America, coming online in October 1992 (GM Oct. 16, 1992) and costing some $425 million to build at the time. As one of the newest facilities, industry sources said it is also probably one of the most efficient. Industry veterans will remember that back then the plant was very controversial and was opposed by both environmentalists and competitors. The latter group alleged that its partial ownership by the Government of Saskatchewan would also mean subsidies, which Saskferco denied. In addition, other nitrogen producers argued that the additional capacity would glut the market.
An expansion was made in 1997 that made it the largest urea granulation unit in North America. A UAN plant was added to the facility in 2004, and in 2007 a new expansion project was started to further boost ammonia and urea production. The company, which has approximately 150 employees, generated revenues of C$505 million and an EBITDA of C$202 million for the fiscal year ended May 31, 2008.
The transaction, which will be funded through existing credit lines, is expected to close in third quarter 2008, subject to fulfillment of closing conditions ?Çô including approval by the relevant regulatory authorities in Canada and the U.S.
The Saskferco purchase was the third big Yara announcement in North America in the past two weeks, as it earlier announced a new terminal near Savannah and a warehouse on the Mississippi River (GM July 14, p. 1).
Sources say the $1.6 billion price tag for this existing plant will likely serve as a benchmark for those considering the construction of new greenfield facilities. However, this purchase has the advantage of immediate production during a period of strong market conditions, whereas new greenfield production would take a few years. Sources also expressed surprise over the speed of the sale, as the sellers had just publicly announced the sale back in June (GM June 23, p. 14). Observers noted the value of the sale to Yara, which has in the past been known as an importer, with this deal giving it a firm foundation in North America as a producer. Just recently, Yara had further solidified its position in Canada by taking a 25 percent stake in Agrico Canada (GM June 2, p. 1).