Potash Corp. is headed back to the top spot in Canada’s markets – and soon – its ebullient chief executive, Bill Doyle, predicts.
Never mind that Potash is currently in 10th place, has just come off a dismal quarter that saw it blow past expectations – the wrong way, with a 33-per-cent drop in first-year earnings, and a cut to its full-year forecast. Its shares are down nearly 7 per cent in the past month. It faces fertilizer buyers skeptical of demand amidst global economic turmoil.
Mr. Doyle has never shied away from a sunny look at the future. During his successful fight against the BHP Billiton takeover bid, at $130 per share, he suggested Potash’s value “far exceeds $170 per share.”
On Wednesday, with the company trading pennies below $130, in split-adjusted terms, Mr. Doyle told a Calgary audience that big things are still ahead.
“We were for about one nano-second in 2008, the largest market cap company in Canada, and we hope to get back to that level within the near term,” he said at a local Chamber of Commerce event.
Asked in an interview whether that was likely to happen in the next half-decade, Mr. Doyle, who has long promoted the virtues of selling potash into a world with a rising appetite for food, and therefore fertilizer, said: “Oh, yeah.”
“It’s really just growing earnings. Look at the capacity to grow – over the next three years, we’re going to grow tremendously,” he said. Potash is in the midst of a major $7.7-billion expansion, and Canada’s potash industry expects to grow its exports from 9.8-million tonnes last year to 20-million a decade from now.
Mr. Doyle added: “We’re the only producer that has five-fold leverage to our nutrient,” pointing to the company’s planned output increases, its international investments, its ability to spread fixed costs over more units as it grows, its belief that prices are on the rise and the fact that Potash doesn’t have to pay profit taxes on production over 5.7-million tonnes.
“It’s tremendous, the levers,” he said. “It’s like dominoes, they just all start working together. And when it kicks in, we’re off to the races.”
Still, the immediate outlook for Potash, and the commodity it draws its name from, is more muted. Though second-quarter earnings are expected to be much stronger, the company is not counting on major price increases as it enters negotiations later this year with key buyers in China and India.
Signing a new contract with China, whose current deal expires at the end of June, should happen without much delay, Mr. Doyle said. India could be more difficult, given distortions in that market that have come from government subsidies of nitrogen. Overall, though, Mr. Doyle expects a “modest increase, but enough that it makes a difference to us.”
“I think the Chinese are certainly aware of that,” he said. “The Indians may not like it. But I think they’re going to get themselves in the position where they’re looking to higher prices.”