Potash Corporation of Saskatchewan Inc. announced that it is taking the difficult but necessary step to indefinitely suspend its Picadilly, New Brunswick potash operations. The suspension is expected to result in a workforce reduction of approximately 420 to 430 people in New Brunswick. A core crew of approximately 35 employees will be retained at Picadilly to keep the operation in care-and-maintenance mode.
"This is a very difficult day for our employees and our company," said PotashCorp President and Chief Executive Officer Jochen Tilk. "While these are important steps in running a sustainable business and positioning the company to best meet the needs of its many stakeholders over the long term, such decisions are never easy. We understand the significant impact to our people in New Brunswick and the surrounding communities, and are committed to helping those affected through this challenging time."
With an aim of minimizing the impact to jobs, more than 100 open positions will be available for New Brunswick employees to join the company's Saskatchewan operations, along with relocation assistance. We are committed to making this transition the best it can be under the circumstances. Employees who do not remain at Picadilly or who choose not to relocate to Saskatchewan will be provided severance and assistance packages.
To assist employees and local residents, PotashCorp will also be establishing a CDN$5 million community investment fund which will include funding streams to:
- Help employees with job transition assistance, including skills training and educational support;
- Provide financial support to local businesses; and
- Support local charitable organizations.
We will work with local partners, including employees and local leaders, in the coming months on details of the fund.
Amidst a challenging macroeconomic backdrop, the suspension of our New Brunswick operations helps position the company to:
- Optimize production to our lower-cost potash operations;
- Realize meaningful capital savings;
- Maintain long-term operational flexibility; and
- Preserve jobs across the company over the long term.
By optimizing our production, we expect to increase our competitiveness and reduce cost of goods sold by$40-$50 million in 2016, although this will be partially offset by severance and transition costs.
The suspension of potash operations at Picadilly will also eliminate significant capital expenditures, including capital of approximately $50 million in 2016 and $135 million in 2017/18.
PotashCorp's international customers that were historically served by New Brunswick will now be served fromSaskatchewan through Canpotex. PotashCorp's storage and loading facilities at the port of St. John – including capacity of up to 2.5 million tonnes per year – will be made available to Canpotex. East Coast transportation costs – including rail costs and ocean freight – are expected to approximate levels currently realized through West Coast delivery. The company's volume entitlement within Canpotex will increase by 750,000 tonnes, representing an approximate 51.5 percent allotment beginning in 2016.
The Picadilly mine will be placed in care-and-maintenance mode at an estimated annual cost of $20 million in 2016 and $15 million in subsequent years. Should the company decide to resume operations at Picadilly, it would require a period of about one year.
Timeline and other details
Given that New Brunswick operations has been on inventory adjustment shut down since the end of November, the suspension of operations will be effective immediately. In addition to the core crew of people who will continue to be employed for care-and-maintenance, we anticipate up to 100 employees will remain in place through a transitional period of approximately 4 months.
As originally planned, environmental remediation work and care-and-maintenance at Cassidy Lake will continue, as will decommissioning at Penobsquis.
Severance and transition costs associated with the suspension of potash operations are expected to approximate $35 million and will be reflected in our first quarter 2016 earnings. We are currently reviewing the carrying value of our affected assets and will provide an update in our Jan. 28, 2016, earnings release.