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K+S Stick to Mine Project Amid ‘Incomprehensible’ Pricing

K+S abandoned its 2013 forecast for sales and earnings growth a week ago after Russia’s OAO Uralkali pulled out of a trade cartel for the crop nutrient, causing the German company’s stock price to slump about 30 percent since the end of July. Photographer: Hannelore Foerster/Bloomberg
K+S abandoned its 2013 forecast for sales and earnings growth a week ago after Russia’s OAO Uralkali pulled out of a trade cartel for the crop nutrient, causing the German company’s stock price to slump about 30 percent since the end of July. Photographer: Hannelore Foerster/Bloomberg

Aug. 13 (Bloomberg) -- K+S AG, Europe’s biggest potash producer, said its new Legacy mine in Canada is proceeding on schedule and that prices cited in the industry for the fertilizer ingredient “are incomprehensible.”

There’s “no reason to call this forward-looking project into question because of mere speculation,” Chief Executive Officer Norbert Steiner said in a video on the Kassel, Germany-based company’s website. “Reported” potash prices don’t correspond to the current demand and supply situation, K+S said. The stock declined as much as 5.6 percent.

K+S has traded near a seven-year low since abandoning full-year earnings forecasts a week ago after Russian competitor OAO Uralkali pulled out of a potash trade cartel. Small deals early this month for the crop nutrient indicated a price drop of about $50 a ton, Jeremy Redenius, an analyst at Sanford C. Bernstein Ltd., said in a report on Aug. 9. That compares with $400 a ton for previous cartel shipments to China.

Uralkali CEO Vladislav Baumgertner said in late July that the price of potash, which helps strengthen plant roots and improve resistance to drought, may plunge to less than $300 a ton as the Berezniki-based company moves to full production to gain market share. Until the partnership’s breakup, Uralkali’s venture with a company in Belarus, and a separate group comprising Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc., limited output and exports to match demand and prevent price swings.

Shares Drop

K+S fell as much as 1.04 euros to 17.55 euros and was trading down 1.8 percent as of 12:12 p.m. in Frankfurt. The stock has lost 48 percent this year, the steepest decline on Germany’s benchmark DAX Index, whittling the company’s market value down to 3.49 billion euros ($4.65 billion). The shares reached the lowest price since October 2006 on Aug. 6, when K+S said it won’t meet a forecast for earnings to rise “slightly” this year.

Second-quarter earnings before interest, tax and some hedging transactions, which K+S calls EBIT1, dropped 26 percent to 162.6 million euros, the company said today. Profit missed an average analyst estimate of 175.2 million euros in a survey compiled by Bloomberg. Sales fell 12 percent to 874.5 million euros, compared with a 918.3 million-euro estimate.

Titanic Comparison

The quarterly numbers showed a “roughly in-line result, but the Titanic was making good time on the way to New York too,” Bernstein’s Redenius said in a report to clients today. The analyst, who has a sell recommendation on the stock, said he has several “big-picture” questions for management, including on options to defer developing the Legacy mine. K+S plans a conference call with analysts at 3 p.m. Frankfurt time.

In contrast to competitors exclusively focused on potash, K+S has a “second pillar” in the form of its salt business, CEO Steiner said today. K+S generated about 38 percent of revenue from the salt unit last year.

The company is sticking to plans for about 375 million euros in investments this year at the Legacy mine in Saskatchewan, K+S said.

“We have seen phases of market disruption in the past and we know how to deal with them,” Steiner said in today’s video.

K+S also said the mines in its home country are the only ones in the world with a mineral composition including magnesium and sulfur in addition to potassium. The specialized fertilizer it derives from that make-up is only affected to a limited extent by volume competition from standardized products.

To contact the reporter on this story: Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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