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Nutrien sells stake in Chilean lithium producer for US$4.1-billion

An aerial view of the brine pools and processing plant of the SQM lithium mine in northern Chile.

Ivan Alvarado/Reuters

Nutrien Ltd. is selling most of its 32-per-cent stake in Chilean fertilizer and lithium producer Sociedad Química y Minera de Chile S.A. (SQM) in a US$4.1-billion deal, which may soon put Nutrien in a position to make a sizable acquisition of its own.

The stock sale to China’s Tianqi Lithium Corporation was a regulatory requirement stemming from the recent merger of Agrium Inc. and Potash Corporation of Saskatchewan Inc., which birthed Nutrien.

Earlier this year, Nutrien sold its stake in Israel Chemicals Ltd. for US$700-million, a transaction that was also necessitated by regulators.

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The Saskatoon-based fertilizer behemoth has also been seeking buyers for its stake in Jordan-based Arab Potash Company, which Raymond James analyst Steve Hansen estimates could bring in about US$470-million.

Nutrien is selling its SQM shares for US$65 apiece, a premium of 12 per cent compared with SQM’s Wednesday closing price on the New York Stock Exchange.

Nutrien must sell its remaining shares in SQM, worth about US$1.3-billion based on Thursday’s deal price, by the middle of next year to satisfy regulators.

In a note to clients, Laurentian Bank Securities analyst John Chu said while the SQM sale price was less than a recently rumoured US$4.3-billion, “investors will take comfort that this transaction was completed, and for a good premium.”

Nutrien didn’t state its intended use of the proceeds, but lately it has been allocating excess capital on a number of measures, including buying back shares, growing its dividend and expanding its retail network.

Mr. Chu said he also expects Nutrien to “be more aggressive with its growth strategy,” which may include the acquisition of Brazilian fertilizer distributor Fertilizantes Heringer S.A, a deal that would be a “natural fit” for Nutrien and give it a meaningful presence in Brazil.

Nutrien is currently Heringer’s third biggest shareholder thanks to a 9.5-per-cent stake acquired by Potash Corp. in 2015 for US$56-million.

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A buyout of the remaining 90.5-per-cent stake in Heringer would cost Nutrien about US$650-million, according to Mr. Chu.

The Potash-Agrium merger, which closed in January, was pitched as a way to cut costs by combining Agrium’s formidable fertilizer retail network with Potash’s prowess in mining.

The deal, which was announced in September, 2016, but took well over a year to close partly due to a morass of red tape, came in the midst of a multiyear funk in the global fertilizer market, that had seen the price of potash fall significantly from its peak.

Shares in Nutrien were flat Thursday on the Toronto Stock Exchange but are down around 4 per cent this year.

Nick Szucs, a buy side analyst with Leith Wheeler Investment Counsel Ltd., which owns shares in Nutrien, said the stock has been volatile this year, partly because Nutrien has been a “show me story” since the mega merger closed.

But Mr. Szucs has been encouraged that Nutrien has been offloading assets at prices that have been above expectations, and on timelines that have been quicker than anticipated.

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The Potash Agrium merger created a company with a market capitalization of $42-billion, which makes it Canada’s largest materials player by a country mile, double the size of the next biggest, Teck Resources Ltd.

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