K+S AG, Europe’s largest potash maker, delayed the starting date of a new plant in Saskatchewan by about six months as spending on the project will exceed targets by 26 percent. The stock fell to a five-month low.
The budget for developing the Canadian site was increased to C$4.1 billion ($4 billion) from the C$3.25 billion announced in November 2011, Kassel, Germany-based K+S said today in a statement. Operations will start in mid-2016 rather than at the end of 2015, the company said.
“The new plant will be the main source for distributing to the emerging regions in Asia” and South America, and as well to North America, Chief Executive Officer Norbert Steiner said in the statement. The plant “will earn a 15 percent premium on the cost of capital before taxes.”
The company is expecting volume for potash, a fertilizer ingredient, to hold steady this year after 2012 was the second-best year ever for the unit. K+S is placing what it calls the Legacy Project in Saskatchewan at the heart of plans to expand globally as ore grades decline in older German mines, limiting production, which currently stands at 7.5 million tons of potash and magnesium products.
K+S fell as much as 4.1 percent to 32.21 euros, the lowest intraday price since Nov. 22, and was 4 percent lower at 4:05 p.m. in Frankfurt. The stock has dropped 8 percent this year, valuing the company at 6.17 billion euros ($8.04 billion).
By 2023, the German crop nutrient supplier plans to add 2.86 million metric tons in potash capacity annually from the site, with potential for volume to rise to 4 million tons by about a decade later. The new mine will help the company maintain a global market share of more than 10 percent, K+S said when it announced the investment in 2011.
The higher costs, which stem from infrastructure investment, plant component modifications and higher material and labor costs, will be funded partly by new debt, K+S said today. The Legacy Project will still achieve 2 million tons of production capacity by the end of 2017, it said.
“The dividend policy of the company will remain unaffected by the decision to increase the capital expenditure,” Steiner said.
K+S’s potash business has performed better than rivals because it’s less focused on the two large consumer countries China and India, Steiner said in March. Potash Corp. of Saskatchewan Inc. and Russia’s OAO Uralkali have both cut production amid faltering export volumes.