Agrium Repeats as Canada’s Top Miner with $16.7B in Sales
Agrium Ltd. is the king of the Canadian mining industry—judged by revenues and profitability—and the Calgary-based consortium’s position at the top of the heap is as solid as the rock of the Canadian Shield.
For one thing, Agrium is a vertical corporation that mines, manufactures, wholesales and retails, and it has operations in North and South America, Europe, Africa and Australia. Furthermore, it is in the fertilizer and plant-supplements business and, given that the world will always need food, the company is more or less shielded from the boom and bust cycles that torment so many other mining entities, large and small.
Agrium reported sales of $16.7 billion in 2012, up from $15.5 billion a year earlier and record profits of $1.5 billion, a slight improvement on its previous profits record of $1.4 billion established in 2011. Mining represents only a small piece of the overall action, but its mines in Kapuskasing, Ont., Conda, Idaho and Vanscoy, Saskatchewan, 32 kilometres southwest of Saskatoon, provide the essential raw materials that serve as the first link in a value chain that ends with retailers selling fertilizer by the bag and sometimes they truckload directly to farmers in hundreds of locales around the world.
Phosphate rock from the open pit mine in Kapuskasing is shipped to a processing plant in Redwater Alta. The Rasmussen Ridge mine in Idaho is also an open pit phosphate operation, but the reserves are expected to be depleted this year and the company has contracted to secure new supplies from a mine in Morocco.
The Vanscoy underground potash mine is Agrium’s longest-running and it is an enormous operation. It went into production in 1969, it has since yielded more than 18 million tonnes of ore and, according to the 2012 annual report, proven and probable reserves indicate a mine life of 46 years.
The reserves are located about a kilometre below ground and the passage ways and mining rooms now extend over 77 square kilometres. As well, the rounded, potash storage building is as long as three city blocks but for all its current size, a major expansion of the Vanscoy operation is nearly complete.
Surface works and underground infrastructure are expected to be complete by mid-2014 and the expansion will increase the mine’s output by about 750,000 tonnes per year output, bringing it to nearly three million tonnes in total.
The mines are part of Agrium’s wholesale division, which operates dozens of production and distribution facilities in North America, a smaller number in South America, mainly in Brazil, and one in Egypt. The company also distributes in Europe through a purchase for resale business.
The wholesale division’s 15 production facilities are capable of turning out some 9.3 million tonnes of major crop nutrients annually, including 5.4 million tonnes of nitrogen, two million tonnes of potash, a million tonnes of phosphate and 400,000 tonnes of ammonium sulphate.
Slightly over 85 per cent of the division’s output is destined for agricultural markets to improve the quality and increase the yields of grains, oilseeds and various other crops. The balance is sold for use in a broad range of industrial applications, including the production of resins used in the construction industry and potash for recycling aluminum.
Agrium’s retail division ensures that its reach extends from mine gate to farm gate. The company operates 1,220 retail locations in Canada, the U.S., Australia, Argentina, Chile and Brazil and they sell crop protection products, nutrients, seed and various other products as well as services.
Agrium may well be nearly immune to the ups and downs of commodity markets, but that does not mean it is always shielded from shareholder discontent. In late May, 2012, one of the company’s major shareholders—the New York-based hedge fund JANA Partners LLC—proposed that Agrium sell off its retail division in order to enhance shareholder value. That triggered a year-long battle between senior management and JANA.
There were two meetings between Agrium executives and representatives of JANA—one in mid-July, 2012 and another in August—and on both occasions Agrium rejected the proposal to break up the company. JANA responded by announcing that it would run its own slate of independent candidates for the board of directors and the battle heated up in earnest.
“The facts are straightforward,” company President and CEO Michael Wilson declared in a public statement issued in October, 2012. “Agrium remains committed to its highly successful integrated strategy. JANA has been trying for over six months to obtain support for its idea that Agrium should spin off its retail operations. Agrium’s shareholders have overwhelmingly rejected JANA’s ideas.”
That failed to end the dispute. JANA issued a number of its own statements to convince shareholders to support the break up and Agrium responded by moving its annual general meeting ahead by a month to early April 2013 in order to bring the matter to a close.
In March, Agrium Chairman Victor J. Zaleschuk publicly waded into the fight when he issued a public statement to the effect that: “Our shareholders make decisions based on value and credible analysis, not rhetoric, and they are fully capable of distinguishing fact from fiction. JANA has resorted to attempts to deceive our shareholders because its ever-changing arguments have gained no traction.”
The warring parties went beyond words to try to sway shareholders and win the vote. Agrium’s board authorized payments of $.25 per share to investment advisors whose clients voted for the full slate of company nominees to the board. Depending on how many share their clients owned, some advisors could have earned as much as $1,500 simply for urging a vote for the company candidates. JANA, meantime, offered its nominees a share of the profits from the sale of its Agrium stock, which was valued at over $1 billion.
At the end of the day, shareholders voted for the company’s slate of nominees and rejected JANA’s candidates and Agrium will remain intact and at the top of heap of Canadian miners for the foreseeable future.
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