POTASH CORPORATION OF SASKATCHEWAN. Vikram Sinnathamby October 1, 2009

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1 POTASH CORPORATION OF SASKATCHEWAN NYSE: POT Vikram Sinnathamby October 1,

2 Company Overview Produces crop nutrients: Potash (world s largest producer) Phosphates Nitrogen Established in 1975 by the government of Saskatchewan Became publicly traded in 1989 gov. no longer owns any of the firm. Most of management has been with the company since 2000 or earlier. 2

3 Company Overview Potash First main focus on potash due to highest margins. Competes with Mosaic (MOS) and Agrium (AGU). All three produce Potash (KCl), Phosphate (P), and Nitrogen, in varying proportions. According to management, on track to double potash production capacity by 2012, to 18 million tons. 3

4 Stock Overview 52 week range: $ Oct. 1: Market Cap: $26.9 B P/E: EPS: 8.20 Average Volume: 7,631,840 Dividend: 0.4% 4

5 Balance Sheet PERIOD ENDING 31-Dec Dec Dec-06 Assets Current Assets Cash And Cash Equivalents 276, , ,700 Short Term Investments 6,400 30,800 50,900 Net Receivables 1,098, , ,300 Inventory 715, , ,900 Other Current Assets 79,200 36,700 40,900 Total Current Assets 2,176,400 1,812,000 1,354,700 Long Term Investments 2,788,300 3,688,000 69,400 Property Plant and Equipment 4,669,400 3,746,400 3,409,800 Goodwill 50,300 50,300 50,300 Intangible Assets 21,500 24,500 29,300 Accumulated Amortization Other Assets 183, ,400 2,125,400 Deferred Long Term Asset Charges Total Assets 9,889,400 9,483,600 7,038,900 Liabilities Current Liabilities Accounts Payable 1,175, , ,500 Short/Current Long Term Debt 1,401,800 90, ,300 Other Current Liabilities Total Current Liabilities 2,577, ,700 1,131,800 Long Term Debt 1,799,200 1,339,400 1,339,800 Other Liabilities 697, , ,900 Deferred Long Term Liability Charges 612, , ,500 Total Liabilities 5,686,100 3,620,000 3,636,000 Stockholders' Equity Common Stock 1,402,500 1,461,300 1,431,600 Retained Earnings 2,184,000 2,161,300 1,996,100 Capital Surplus 227, , ,100 Other Stockholder Equity 389,200 2,071, ,900 Total Stockholder Equity 4,203,300 5,863,600 3,402,900 Net Tangible Assets $4,131,500 $5,788,800 $3,323,300 5

6 Charts 6 months 6

7 Charts 2 years 7

8 Thesis Points 1. Demand for crop nutrients will grow in the long term. 2. Potash Corporation will be the most profitable potash producer. 8

9 Potash on the Decline USD/ton

10 Potash Demand MUST rebound Farmers hesitant to reapply potash due to low food prices, demand. Each harvest removes nutrients from the soil. Farmers have been working through inventory, both in soil and physical storage. When demand picks up, they will have to reapply potash. A question of when, not if. 10

11 Emerging Markets Population growth, especially in developing countries. Growing middle classes. Better diets, more protein. 11

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13 More meat = More grain As third world countries become developed, protein consumption increases. Meat (especially beef) requires a lot of grain to produce it. 13

14 Biofuel As gas prices increase, incentives increase for biofuels. As demand for ethanol and biodiesel increases, demand for the crops to produce them increases. 14

15 Arable Land As world population grows, less farmable land available potash improves efficiency. 15

16 Effectiveness of Potash 2001 study on cabbage plants in Tianjin, China 16

17 Effectiveness of Potash 17

18 Effectiveness of Potash An optimum of potash increases crop quantity, quality, profit. Also led to early ripening, which allows preferred pricing by farmer. 18

19 Fertilizer Use and Crop Production China India 19

20 Why Potash Corp? Competes mainly with Mosaic (MOS) and Agrium (AGU). 20

21 More Profitable POT MOS AGU Revenue $9.4 B $9.8 B $10.3 B Net Income $3.5 B $2.1 B $1.3 B Profit Margin 37% 21.23% 12.87% Operating Margin 49.07% 28.60% 19.34% 21

22 Aggressive Expansion Mainly competes with Mosaic, and will continue to do so in the future with focus on potash. Planning to expand more aggressively 18 million tons capacity by 2012, compared to 17 million tons capacity by 2020 for Mosaic, according to management s projections. Currently operating at 30% of capacity to keep prices up, can ramp up production when demand picks up. Repurchased $3.4 Billion of stock in

23 Moat Developing a new mine is expensive and time consuming. Both POT and MOS are expanding current mines rather than developing new ones. At least $3.5 Billion, 5-7 years. Not feasible unless potash is at least $950/ton. 23

24 No real substitutes No effective substitute for mined potash. Manure and biosolids work in some cases, but are expensive to transport and cannot be made in fixed proportions of KCl, P, and N. Remember cabbage example. 24

25 Buyout Rumors that mining giants BHP Billiton or Vale would acquire an established potash producer. Billiton is considering building its own mine, but it wouldn t start production until

26 Risks Eggs in one basket. Owns 28% of Arab Potash Company in Jordan, 10% of Israel Chemicals Limited, 20% of Sinofert in China. Monsanto Antitrust investigation Organic movement 26

27 Recommendations Wait until Chinese government set prices for 2010 (November or December). 27