Q2: PotashCorp Reports Second-Quarter Earnings of $0.24 per Share

Webcast Details

Jul 27 17

Forward-Looking Statements

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Key Highlights

• Second-quarter earnings of $0.24 per share, including a previously disclosed $0.08 per share income tax provision recovery
• Cash provided by operating activities of $328 million
• Canpotex sales entitlement increased to approximately 55 percent beginning the second half of 2017, following successful Rocanville capacity audit
• Expect merger of equals with Agrium to close late in the third quarter of 2017
• Full-year 2017 guidance maintained at $0.45-$0.65 per share, including merger-related costs of $0.06 per share

CEO Commentary

'In the second quarter, we continued to benefit from stronger potash market conditions and our improved cost position in this nutrient,' said PotashCorp President and Chief Executive Officer Jochen Tilk. 'Robust potash demand - especially in offshore markets, where Canpotex achieved its second highest first-half shipment total - supported a constructive market and is expected to carry through the remainder of the year. We anticipate more subdued nitrogen and phosphate markets in the second half to offset strength in potash and, as a result, have maintained our full-year earnings guidance range.

'During the second quarter, we safely and successfully completed our capacity audit at Rocanville. The results exceeded our expectations as nameplate capacity reached 6.5 million tonnes, increasing our Canpotex sales entitlement to approximately 55 percent effective July 1. This result is a significant accomplishment that would not have been possible without the steadfast commitment of our Rocanville employees to safe and efficient production. With our lowest cost operation now ramped up, we are on track to reduce potash cost of goods sold by $10 per tonne this year.

'We continued to work through regulatory and integration planning processes related to our merger with Agrium and we expect the transaction to close late in the third quarter of 2017. We also announced that following the expected closure, the newly formed company will be named Nutrien. We are excited for the opportunities of the combined company and the value Nutrien can provide to all of its stakeholders,' said Tilk.

Saskatoon, Saskatchewan - Potash Corporation of Saskatchewan Inc. (PotashCorp) reported second-quarter earnings of $0.24 per share ($201 million), which included an $0.08 per share income tax provision recovery, bringing the first-half total to $0.42 per share ($350 million). Results for both the quarter and the first six months surpassed the $0.14 per share ($121 million) and $0.23 per share ($196 million) earned in the respective periods of 2016.

Gross margin for the quarter ($255 million) and first six months ($523 million) exceeded 2016 levels ($243 million and $477 million, respectively), as higher potash contributions more than offset weaker nitrogen and phosphate prices. Despite higher earnings in the second quarter and first six months of 2017, cash from operating activities of $328 million and $551 million trailed last year's totals, primarily due to changes in accounts receivable and the non-cash impact of our income tax provision recovery.

Investments in Arab Potash Company (APC) in Jordan, Israel Chemicals Ltd. (ICL) in Israel and Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile contributed $51 million to our second-quarter earnings, bringing first-half totals to $97 million. Totals for both the second quarter and first half exceeded the respective amounts generated last year, which also included a dividend from Sinofert Holdings Limited (Sinofert) in China. The market value of our investments in these four publicly traded companies was approximately $4.8 billion, or $6 per PotashCorp share, at market close on July 26, 2017.

Market Conditions

Global potash markets continued to improve through the second quarter as agronomic need and affordability supported demand, especially offshore, and contributed to modestly higher prices. In North America, a good spring application season led to healthy shipment levels - although below the particularly robust second quarter of 2016 - and reduced inventory throughout the supply chain. Offshore imports to the US reached record levels through the first half, resulting in lower domestic producer sales volumes.

In nitrogen, the startup of new global capacity had a negative impact on market fundamentals during the quarter. Notwithstanding strong consumption in most key regions, new supply outpaced growth in demand and pressured prices. As this supply transition unfolded, US urea prices fell to multi-year lows while ammonia and UAN were pushed to their lowest prices of the year.

Despite strong demand in Latin America, global phosphate markets remained subdued in the second quarter, largely due to increased supply and lower shipments to India. In this environment, prices for most phosphate fertilizer products declined slightly. While prices for feed and industrial products were modestly higher than in the first quarter, they remained well below prior-year levels, due primarily to increased supply from offshore producers.

Potash

Potash gross margin of $213 million for the second quarter and $373 million for the first six months of 2017 reflected increased prices, reduced per-tonne costs and higher offshore sales volumes. Results in both periods were well above the respective totals of $123 million and $211 million generated in 2016.

Sales volumes for both the quarter (2.4 million tonnes) and first half (4.5 million tonnes) exceeded those for the comparable periods in 2016 (2.1 million tonnes and 3.9 million tonnes, respectively). While North American volumes were 23 percent lower than in the comparatively strong second quarter of 2016, offshore shipments increased by 34 percent, led by strong demand in Brazil. The majority of Canpotex's volumes for the quarter were sold to Latin America (40 percent) and Other Asian markets outside of China and India (40 percent), while India and China accounted for 10 percent and 3 percent, respectively.

Our average realized potash price of $174 per tonne for the second quarter reflected a continued recovery in global spot prices and exceeded the $154 per tonne realized in the same period last year ($169 per tonne in 2016's second quarter excluding PotashCorp's share of Canpotex's Prince Rupert project exit costs).

Manufactured cost of goods sold for the quarter averaged $82 per tonne - including $23 per tonne of depreciation - down from $91 per tonne in the same period last year due to a greater share of production from our lower-cost mines, particularly Rocanville.

Nitrogen

Weaker nitrogen prices and higher US natural gas costs resulted in gross margin of $68 million for the quarter and $165 million for the first six months, trailing last year's comparable periods by 48 percent and 30 percent, respectively. Our US operations accounted for 51 percent of our nitrogen gross margin for the quarter, with our Trinidad operations providing the remainder.

Sales volumes of 1.6 million tonnes for the quarter were 6 percent higher than those in the same period of 2016, largely due to stronger fertilizer demand. For the first half, shipments of 3.2 million tonnes were relatively flat compared to 2016.

Our average realized price of $223 per tonne during the quarter declined from $244 per tonne in the same period last year as increased global supply weighed on benchmark pricing, pulling down realizations for nearly all our products.

Cost of goods sold for the quarter averaged $182 per tonne, up from $160 per tonne in 2016's second quarter, driven primarily by higher US natural gas costs.

Phosphate

In phosphate, weaker prices more than offset the benefit of lower input costs, resulting in negative gross margin of $26 million for the second quarter and negative $15 million for the first half of 2017. Both totals trailed those of the prior year and included non-cash notable charges of $28 million for the quarter and $32 million for the first half of 2017, which were lower than the comparative periods in 2016.

Sales volumes of 0.6 million tonnes for the quarter were higher than the 0.5 million tonnes sold in the prior year's second quarter, mainly due to stronger North American agriculture demand, while first-half deliveries of 1.2 million tonnes were flat when compared to the same period in 2016.

Our average realized phosphate price for the quarter was $407 per tonne, down from $485 per tonne in the same period last year as prices for nearly all products decreased - most notably, liquid fertilizers.

Cost of goods sold was $452 per tonne for the second quarter, lower than $506 per tonne in the same period of 2016, primarily due to lower input costs and non-cash notable charges.

Financial

Provincial mining and other taxes for the quarter totaled $44 million, higher than the $26 million in last year's corresponding period, predominantly due to higher potash prices.

A $68 million non-cash income tax provision recovery relating to provincial tax changes that will be realized in future years led to an overall income tax recovery for the second quarter of $62 million, compared to a $24 million income tax expense realized in 2016's second quarter.

Potash Market Outlook

We expect strong potash demand to continue in the second half of 2017 and have increased our anticipated global shipment range to 62-65 million tonnes for 2017, well above the 60 million tonnes shipped last year.

In North America, we had a very successful summer fill program and are now fully committed through the end of September. We believe supportive crop prices and the need to replenish soil nutrients will support consumption through the remainder of the year and continue to anticipate total demand to this market of 9.3-9.8 million tonnes, similar to 2016.

In Latin America, supportive crop economics are expected to maintain a positive demand environment for the remainder of 2017. Following robust first-half deliveries, we now expect record full-year shipments of 12.0-12.5 million tonnes.

With recently settled contracts in China - including those with Canpotex - we expect strong deliveries in the second half of 2017. We now estimate demand for the full year in the range of 15.5-16.5 million tonnes, above 2016 levels, as nutrient affordability and a move to balanced fertility continue to drive robust consumption.

In India, we anticipate that a good monsoon, agronomic need and increased acreage will offset the impact of lower subsidies. Following strong first-half shipments, we now expect deliveries of 4.0-4.5 million tonnes for the year, above 2016 levels.

In Other Asian markets, we expect healthy palm oil prices, improved moisture conditions and favorable economics for other key crops to support demand for the remainder of 2017. We maintain our estimated shipment range of 9.0-9.5 million tonnes for the full year, higher than last year's total.

Financial Outlook

Taking the above market factors into consideration, we have raised the bottom end of our guidance range for potash sales volumes (9.0-9.4 million tonnes) and increased the range for potash gross margin ($650-$850 million). Our estimates include the benefit of the Rocanville capacity audit results, which increased our Canpotex sales entitlement to approximately 55 percent for the second half of 2017.

In nitrogen, we expect recent capacity additions to continue to pressure prices and alter trade flows, keeping margins below those of 2016. In phosphate, we anticipate that challenging market fundamentals will continue to impact prices and our profitability. Given these considerations, we have lowered the top end of our combined nitrogen and phosphate gross margin range and now estimate $150-$300 million in 2017.

With lower annual earnings forecast in the US, we now anticipate an income tax recovery and have adjusted our effective income tax rate to a negative range of 3-6 percent.

We now expect higher provincial mining and other taxes in the range of 19-22 percent of potash gross margin for 2017, primarily due to an increased profit tax forecast resulting from lower estimated capital depreciation.

Income from equity investments is now anticipated in the range of $170-$190 million, above the previous guidance range, largely due to the strength of SQM earnings.

Due to the recent strength of the Canadian dollar, we have revised our full-year foreign exchange rate assumption to CDN$1.32 per US dollar.

Based on these factors, we have maintained our full-year 2017 earnings guidance of $0.45-$0.65 per share, including merger-related costs now expected to be $0.06 per share.

All annual guidance numbers - including those noted above - are outlined in the table below.

2017 Guidance
Annual earnings per share	$0.45-$0.65
Potash sales volumes	9.0-9.4 million tonnes
Potash gross margin	$650-$850 million
Nitrogen and phosphate gross margin	$150-$300 million
Capital expenditures*	~$600 million
Effective tax rate	Negative 3-6 percent
Provincial mining and other taxes**	19-22 percent
Selling and administrative expenses	$220-$230 million
Finance costs	$225-$235 million
Income from offshore equity investments***	$170-$190 million
Annual foreign exchange rate assumption	CDN$1.32 per US$
Annual EPS sensitivity to foreign exchange	US$ strengthens vs. CDN$ by $0.02 = +$0.01 EPS
Annual EPS sensitivity to potash exchange	Increases by $20 per tonne = +$0.14 EPS
* Does not include capitalized interest ** As a percentage of potash gross margin *** Includes income from dividends and share of equity earnings

Notes

1.	All references to per-share amounts pertain to diluted net income per share.
2.	Canpotex Limited (Canpotex), the offshore marketing company for PotashCorp and two other Saskatchewan potash producers.
3.	Agrium Inc. (Agrium)
4.	Nutrien Ltd. (Nutrien)

PotashCorp is the world's largest crop nutrient company and plays an integral role in global food production. The company produces the three essential nutrients required to help farmers grow healthier, more abundant crops. With global population rising and diets improving in developing countries, these nutrients offer a responsible and practical solution to meeting the long-term demand for food. PotashCorp is the largest producer, by capacity, of potash and one of the largest producers of nitrogen and phosphate. While agriculture is its primary market, the company also produces products for animal nutrition and industrial uses. Common shares of Potash Corporation of Saskatchewan Inc. are listed on the Toronto Stock Exchange and the New York Stock Exchange.

For further information please contact:

Investors	Media
Denita Stann Senior Vice President, Investor and Public Relations Phone: [phone] Fax: [phone] E-mail Denita	Randy Burton Director, Public Relations and Communications Phone: [phone] Fax: [phone] E-mail Randy

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