Agrium Inc. announced it has executed a long-term rock supply agreement with OCP S.A. to purchase phosphate rock to supply Agrium's Redwater, Alberta, phosphate facility. The phosphate rock from OCP will replace the phosphate rock currently supplied from its mine at Kapuskasing, Ontario. The move to utilizing rock from OCP is expected to take place in the second half of 2013 as economic rock reserves at Kapuskasing will be depleted at that time. Agrium believes that OCP will be a reliable long-term supplier of high quality phosphate rock.
The agreement covers rock supply for a period up to 2020 at prices that are based on a formula that tracks finished product pricing and key published input costs. It offers downside protection to Agrium in periods of low phosphate prices and also affords OCP an opportunity to benefit from the upside when phosphate prices are strong.
“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. This will allow us to maximize production of MAP at our Redwater facility in order to continue to meet the strong demand in our core markets. It will also allow us to continue to benefit from the significant sulphur and ammonia cost advantages and in-market location of the Redwater facility. We believe this agreement signifies the start of a significant partnership between Agrium and OCP, offering clear benefits to both parties,” stated Agrium’s President and CEO, Mike Wilson.
The supply agreement will come into full effect provided a number of conditions are satisfied prior to Dec. 31, 2011, including one relating to an Agrium Board approval.
Agrium’s Redwater phosphate facility accounts for approximately half of Agrium’s phosphate production capability. Redwater’s annual rock consumption is approximately one million tonnes and the plant has P2O5 capacity of 345,000 tonnes, virtually all of which is upgraded to MAP (MAP capacity of 660,000 tonnes). Our other significant phosphate facility is located in Conda, Idaho and has its own integrated phosphate rock mine.
Agrium developed the Kapuskasing mine in the late 1990’s to replace phosphate rock which had previously been purchased from Togo. The Kapuskasing, Ontario mine is located approximately 2,500 kilometres east of the Redwater facility. The mine provided an excellent return on investment over the past decade.