Attention PCS Investors

The United Steelworkers’ union has just issued the following release:



SASKATOON, SK — United Steelworkers’ (USW) Western Canada Director Stephen Hunt said Thursday that investors should use their influence to urge Potash Corporation of Saskatchewan (PCS) management to negotiate a settlement with Steelworkers on strike at three mines near Saskatoon.

“PCS stock has fallen since the dispute began,” said Hunt. “Agrium, the other major potash company traded on the Toronto Stock Exchange, has increased its share price during the same period. Shareholders need to understand that PCS is responsible for this dispute and is in a position to resolve it.”

USW members first picketed the Cory mine on July 28. On July 25, the last day of trading before strike action began, PCS shares closed at $205.89. Today, PCS shares closed at $190.26, down eight per cent.

By comparison, Agrium closed at $85.92 on July 25. Today, it closed at $86.86, up one per cent.

“While all potash companies are usually affected by the same industry trends, the discrepancy between PCS and Agrium suggests that the strike is impacting PCS share prices,” said USW economist Erin Weir.

The Allan, Cory and Patience Lake mines accounted for about 30 per cent of the company’s potash production. Potash, as opposed to phosphates and nitrogen, accounted for just over 60 per cent of PCS profits. Therefore, the closure of these three mines will eliminate nearly 20 per cent of total profits.

In the second quarter of 2008, PCS reported an after-tax profit of $905-million. This quarterly profit equals a weekly profit of $70-million. These figures imply that each week of the strike is costing PCS approximately $14-million in lost profits.

During all of 2007, the 450 USW members employed at Allan, Cory and Patience Lake were paid wages of $32-million. In terms of lost profits, the cost of proposed improvements to the collective agreement is far less than the cost of continuing the strike.

“PCS management has drawn an arbitrary line in the sand,” said Hunt. “PCS shareholders would be better served if management made a reasonable offer to get union members back to work.”

“Some analysts have suggested that the strike will increase potash prices, compensating PCS for the lost volume. However, a more realistic assumption is that PCS was producing the profit-maximizing volume of potash before the strike,” said Erin Weir.

“In this case, the lost volume will outweigh any price increase. Furthermore, PCS competitors will reap the full benefit of any price increase without suffering a loss of volume.”


UPDATE (August 15): Although both PCS and Agrium fell today, it’s worth noting that the gap between them widened. PCS stock closed at $179.90, thirteen percent below its pre-strike level. Meanwhile, Agrium stock closed at $83.20, only three percent below its pre-strike level.

In other words, PCS has dropped ten points more than Agrium. As Reuters reported today, “The stock has been retreating since the dispute began.”

There is an excellent article in today’s Globe and Mail outlining the union’s bargaining position and the value of stock options collected by PCS management.  Astute readers will note that PCS could easily finance the union’s proposals by scaling back executive compensation, with no effect on company profits.

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