K+S Signs Supply Deal with Koch Fertilizer for Potash from Legacy Mine
The US subsidiary of German potash and salt producer K+S has signed an exclusive supply agreement with Koch Fertilizer Trading for potash produced at its upcoming Legacy mine in Saskatchewan, Canada. The announcement of the deal comes just days after K+S’ private shareholders overwhelmingly supported the management’s rejection of a €7.9 billion takeover bid from Canadian rival PotashCorp.
K+S believes the current offer does not reflect the true value of the company; the agreement with Koch could certainly be seen as underlining the attractiveness of the Legacy mine to North American customers.
Koch Fertilizer Trading gets exclusive rights to a projected annual volume of around 453,000 t/y of granular potash for its US customers. Scott McGinn, president of Koch Fertilizer, said: “This is an exciting opportunity to grow our portfolio of fertilizer products to US retailers.”
The Legacy mine will reach an annual capacity of about 2 million t/y by the end of 2017. K+S said it was on track to commission the mine in the summer of 2016 with the first ton of potash due by the end of next year. A handling and storage facility is also under construction near Vancouver.
Burkhard Lohr, chief financial officer at K+S, described Legacy as a real game changer for the company. “It will be one of the lowest cost mines in Canada with a life of over 50 years. The value and financial contribution of Legacy must not be underestimated,” he said.
The mine will generate free cash for the company by 2017 and break even by 2018. “It will help to increase our cash flow by more than 10% year by year,” noted Lohr.
Once Legacy is operational, K+S said it would be the only supplier in the potash market with production in Europe and the US. Norbert Steiner, chairman of the board of executive directors at K+S commented: “Legacy expands our global presence, expands the average lifetime of our mines and reduces the average cost of production, which will also benefit our German sites.”
Steiner added that the mine’s location in Canada would improve access to North America as well as to important markets in South America and Southeast Asia. He said: “Our existing customers in Brazil, Southeast Asia, China and India are already demanding more products from us and there are certainly US and Canadian customers who are eagerly awaiting a second choice.”
An investment of C$4.1 billion is being made in the mine, the first greenfield potash facility in Saskatchewan for nearly 40 years.