Potash And Much More

Agrium Inc. of Calgary is one of the larger mining, retailing and wholesalers of nutrients used for agricultural purposes around the world. The company operates through three distinct business units — wholesale, retail and advanced technologies — that work independently but are vertically integrated and act within a common corporate strategy. The company’s wholesale unit produces, markets and distributes nitrogen, phosphate and potash for sale to domestic and international agricultural and industrial customers. In 2008, it produced 6.8 million tonnes of these primary crop nutrients, which is equal to about three percent of global capacity. The retail operation consists of 872 retail centres, 72 terminals and 19 distribution centres in North and South America. Agrium’s third and smallest business unit is advanced technologies, which develops and markets controlled- release fertilizer technologies. These products are used in broad-based agriculture, specialty agriculture, professional turf, horticulture and consumer lawn and garden markets in North America and in China.

As just outlined in the opening paragraph, Agrium’s wholesale unit has a multitude of operations in North and South America. In Canada, its Vanscoy potash operation, located 32 km southwest of Saskatoon, produces four sizes of potash for shipment to markets around the world. The operation directly employs more than 400 people.

The Vanscoy potash ore body is located approximately one kilometre below the surface. It is 3.3 m thick and runs more than 300 kms in an east-west direction and 150 kms north-south. Two mine shafts are used to access the mine. No. 1 shaft has two 30-tonne capacity skips which hoist the ore to the surface. No. 2 shaft has a large steel-enclosed cage elevator that transports workers and materials to the mining level.

Below the surface, a fleet of 4×4 vehicles transport workers and materials throughout the mine, which lies under approximately 35 sections of land about 77 km2 between Vanscoy and Saskatoon. Seven 168-tonne electric boring machines are used at the mine; six of which produce the ore while the seventh is being overhauled. Moving forward at speeds of about 300 millimetres per minute, the boring machines use two three-armed rotors with tungsten carbide bits to cut and break the ore. The rotors carve tunnel-like rooms approximately 3.3 m high, 5.5 m wide and up to 1600 m long.

The boring machines deposit the ore onto a conveyor system which moves it to underground storage bins close to the No. 1 shaft. Some 35 kms of underground conveyor belts are required to move the ore from mine face to the storage area near the shafts.

The mined ore is a mixture of 40 per cent potassium chloride, 55 per cent sodium chloride, and 5 per cent clay. Saleable potash is produced by removing the clay and salt. The milling process begins by crushing and screening the ore to produce a maximum particle size of 4.0 mm. The crushed ore is mixed with saturated brine in a scrubber to loosen the clay. The resulting slurry is treated in flotation machines to remove the clay.

The ore that remains is pumped to another part of the mine, where it is agitated with air in flotation machines. Potassium chloride particles attach themselves to air bubbles which rise to the surface, where they are skimmed off with rotating paddles.

The resulting potassium chloride slurry is sent to a centrifuge where it is put through gas-fired dryers. After drying, the potash-in-the-making passes through a series of screens which separate it by size into coarse, standard and special standard.

After a final screening and de-dusting treatment, the finished potash is loaded into rail cars and trucks for shipment to customers across Canada, the U. S., and as mentioned earlier, to a large offshore market.

In 2006, Agrium increased its production capacity of the mine from 1.74 million tonnes to 2.05 million tonnes. The company is currently conducting the engineering to complete an expansion that would increase Vanscoy’s capacity to 2.8 million tonnes.

It is also planning to evaluate the possibility of developing a new potash mine in Saskatchewan that would expand the company’s potash production capability by at least another 2.0 million tonnes per year.

The company story so far

The Vanscoy potash operation came into being, as another company, in 1969, which makes it one of the oldest parts of Agrium. Although potash mining and distribution make valuable contributions to the company, Agrium’s business is made up of much more than a single agricultural nutrient. In fact, the Agrium story is woven from many long and separate strands which came together only in the mid-1990s.

Starting with the wholesale unit, in the beginning there was Cominco Fertilizers Ltd., Agrium’s corporate grandfather, which was founded in 1931. In 1977, the Carseland (Alberta) nitrogen operation went into production, followed by the Joffre (Alberta) nitrogen operation in 1987.

Cominco Fertilizers changed its name to Agrium Inc. in 1995, and the new corporate entity began to flex its muscles right away. In 1996, Agrium started trading its shares on the New York Stock Exchange. In the same year it acquired a phosphate rock mine near its Conda facility in Idaho and merged with Viridan Inc, which increased the company’s size substantially. In 1999, Agrium began mining phosphate rock at Kapuskasing, Ontario.

In 2000, Agrium expanded into the Argentina market with a 50 per cent ownership investment in Profertil S. A. In 2005, Agrium acquired the Western Canadian fertilizer distribution arm of Imperial Oil. In 2008, it acquired a 70-percent equity position in Common Market Fertilizers S. A., one of Western Europe’s largest fertilizer distributors, and entered into an agreement with MISR Oil Processing Company, S. A. E. of Egypt, whereby Agrium owns a 26-per cent interest in the combined entity.

Agrium started its retail division in 1994. In 1995, it began operating in Argentina as Agroservicios Pampeanos S. A. In 2006, Agrium acquired the retail operations of Royster-Clark and in 2007 acquired 18 retail centres and 14 satel-lites in Kansas and Oklahoma from agribusiness conglomerate Archer Daniels Midland.

Last year the company acquired United Agri Products, which raised the number of its retail branches in the United States from 489 to 922.

Agrium’s advanced technologies business unit was established in 2006. In 2007, the company acquired a 19.6-per cent equity interest in Hanfeng Evergreen, a Chinese specialty fertilizer company. The business unit expanded again in 2008 with the acquisition of the Agronomics Division of Turf Care Products Canada Limited.

Agrium has been in the news recently for its enthusiastic attempt to take over CF Industries Inc., a large American manufacturer and distributor of fertilizers. According to Agrium, the two companies together would create a global leader in crop nutrient production and distribution with nearly $14 billion in annual revenues.

In a recent announcement, Agrium said, “A combined Agrium/CF will create a global producer of agricultural inputs with the industry’s broadest product offering. Together, we can combine our respective world-class distribution networks, knowledgeable and experienced employees and first-rate production capabilities to more efficiently and effectively serve the increasingly competitive global agribusiness industry. We expect to achieve annual operating synergies of approximately $150 million…”

As of early April 2009, the acquisition had not yet been made.

Agrium in the future

Stephen Dyer, VP Manufacturing of Agrium’s wholesale business unit in the company’s Calgary head office, said that, in the future, the company will continue to rely on its unique business model, which has proven to be very successful.

“Our business units are stand-alone operations that operate independently and conduct business with each other through arm’s-length transactions at market rates,
” said Dyer. Looking ahead, Agrium is focused on growth.

“Our corporate goal is to continue to grow aggressively to increase shareholder value and to provide growth opportunities to our employees,” he said.

In addition to the size of its ambitions, Agrium differs from its competitors in a number of other ways. One of them, according to the company, is that its products span the entire agricultural value chain.

“We have product and geographic diversity in our wholesale business, coupled with a stable base of retail and advanced technologies,” said Dyer. “This structure allows us to invest and grow across the value chain.”

Agrium’s level of diversity and rate of growth also differentiate it, he said.

“Growth has always been an important part of Agrium’s business strategy,” he said. “The result of our strategy is evident in the growth and diversity we’ve achieved across all three business units.”

Dyer said Agrium’s future investments must provide value-added growth and add stability to the company’s earnings.

“We make our investments countercyclically because we focus on all parts of the value chain,” he said. “Counter-cyclical investing means deploying cash flows from the more cyclical parts of our business into more stable and higher growth activities during peak-cycle conditions. We use cash from our more stable businesses to reinvest in more cyclical activities during trough-cycle conditions.”

In the future, Dyer said Agrium’s corporate goals are three-fold: To invest and grow across the agricultural value chain; to establish and maintain a low-cost-to-serve wholesale operation; and to diversify geographically.

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