Fertilizer company Agrium Inc. (AGU) announced that it has entered into a long term supply agreement with OCP S.A. to purchase rock phosphate for its Redwater, Alberta phosphate facility.
The mineral rock from OCP will replace the rock currently supplied by Agrium's mine in Kapuskasing, North Ontario. The company will buy rock phosphate from OCP S.A. in the second half of 2013. Financial terms of the supply deal were not disclosed.
According to Agrium, the agreement covers rock supply upto 2020 at prices that are based on a formula that tracks finished product pricing and key published input costs. Agrium uses the rock to produce mono-ammonium phosphate, or MAP, a fertilizer.
Redwater's annual rock consumption is approximately one million tons and the plant has a capacity of 345,000 tons, virtually all of which is upgraded to MAP (MAP capacity of 660,000 tons).
The supply agreement is subject to a number of conditions to be satisfied prior to December 31, 2011, including Agrium's Board approval.
Agrium has worked diligently to obtain a long-term phosphate rock contract and expects the move back to utilizing imported rock to be a seamless one.
Last month, the company released its second quarter 2011 results. Agrium reported record net earnings of $718 million or $4.54 per share in the second quarter of 2011, surpassing the Zacks Consensus Estimate of $4.21 per share.
It also exceeded the prior-year net earnings of $518.0 million or $3.28 per share. Excluding one-time charges, Agrium recorded net earnings of $728 million or $4.60 per share in the second quarter of 2011.
The second-quarter results include a pre-tax share-based payment expense of $10 million or 4 cents diluted earnings per share.
Results benefited from record high crop prices and overall strong fundamentals for agriculture and the crop input market.
Revenues in the quarter rose 39.9% year over year to $6.2 billion. The company’s gross profit increased by $612 million to $1,675 million, primarily due to higher gross profit across all major products.
With the strength in markets across most products and services, Agrium expects a solid third quarter and believes industry fundamentals will remain strong in 2011.
Agrium faces stiff competition from CF Industries Holdings Inc. (CF) and Potash Corp. of Saskatchewan Inc. (POT).
Currently, Agrium maintains a Zacks #1 Rank (short-term Strong Buy recommendation) over the next one-to-three months.
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