PotashCorp Projects Low Royalties
Todayâ€™s fourth-quarter report indicates that PotashCorp paid â€œprovincial mining and other taxesâ€ of $194 million on potash sales of $3 billion in 2013. In other words, Saskatchewanâ€™s resource surcharge and potash production tax amounted to just 6.5% of the value of potash sold.
Adding the basic Crown royalty (which PotashCorp includes in â€œcost of goods soldâ€) and subtracting New Brunswick potash suggests that Saskatchewan is collecting no more than a dime per dollar of potash extracted from the province.
PotashCorpâ€™s guidance for 2014 projects â€œprovincial mining and other taxesâ€ not as a percentage of potash sales, but as a percentageÂ of potash gross margin. While Saskatchewanâ€™s resource surcharge is 3% of sales, the potash production taxâ€™s statutory rate is 35% of mine profits (i.e. gross margin).
YetÂ PotashCorp predicts that both payments combined will actually amount to between 16% and 18% of potash gross margin this year. The old excuse for such low royalties was that potash companies were making large investments in Saskatchewan (which the provincial government allowed them to write off at 120%).
But PotashCorp has completed its major investments. Far from expanding, it is laying off workers. So, why does it expect to pay only about half of Saskatchewanâ€™s potash production tax rate?
The biggest problem is that potash companies enjoy an endless holiday from Saskatchewanâ€™s potash production tax on all tonnes in excess of the average sold in 2001 and 2002. The solution to Saskatchewanâ€™s upcoming budget crunch is to close such loopholes in the provincial royalty structure.
UPDATE (Jan. 31): Quoted on page D1 of todayâ€™s Saskatoon StarPhoenix and Regina Leader-Post.