PotashCorp sues Mosaic for $1B
Conflict over potash produced at Esterhazy
By Cassandra Kyle, of The StarPhoenixFebruary 18, 2010
A billion-dollar battle is underway between the world's two largest potash producers in a conflict over mineral reserves at a Saskatchewan mine.
Potash Corp. of Saskatchewan Inc. is suing Mosaic Potash Esterhazy LP --a wholly owned subsidiary of Mosaic Co. -- over the remaining amount of potash it has ownership rights to under an agreement between the companies dating to 1971.
According to an amended statement of claim approved by Saskatoon Court of Queen's Bench Justice Neil Gabrielson on Jan. 19, Mosaic intends to end the mining agreement on Aug. 30 -- a move PotashCorp says is at least two years too early and concerns more than $1 billion worth of the key fertilizer ingredient.
Mosaic, in its statement of defence, denies the allegations, saying not only that the agreement should end on Aug. 30, but that it has sent PotashCorp nearly eight million extra tonnes of potash ore worth several billion dollars -- in essence loaning the world's largest potash company the product.
Mosaic has also filed a counterclaim against PotashCorp, alleging the Saskatoon-based company failed to receive delivery of all the potash it ordered from Mosaic for the 2009 year, a breach of its obligation under the long-standing deal and leaving Mosaic with the burden and cost of storing the product.
None of the allegations in either case have been proven in court.
Unable to agree
For nearly 40 years, Mosaic has mined and processed PotashCorp reserves at its Esterhazy operation in east-central Saskatchewan under an agreement that sees Mosaic ship between 453,600 tonnes and 1.3 million tonnes of finished potash product to PotashCorp on an annual basis.
The agreement, which covers PotashCorp's more than 15,000 acres of raw potash ore reserves at the Esterhazy mine, was signed between International Minerals & Chemical Corp. (Canada) Ltd., or IMC, the predecessor to Mosaic, and AMAX Potash Ltd., which eventually sold its claims to PotashCorp in 1971.
In 1979, Mosaic and PotashCorp became the parties to the agreement, which was amended in 1990 and 1998.
According to PotashCorp's claim, the two companies started discussing the timeline for the end of the mining agreement in December 2004, but the parties were unable to agree on both the remaining amount of potash PotashCorp has the right to receive from Mosaic and the date of the termination of the contract.
PotashCorp says in the claim it became apparent in April 2009 that a mutually acceptable resolution could not be reached and, at the same time, it became clear to the company that Mosaic intended to stop delivery of product on Aug. 30.
PotashCorp launched its original claim against Mosaic in May 2009, while Mosaic filed its statement of defence and counterclaim against PotashCorp in June of the same year.
PotashCorp has asked the Court of Queen's Bench to issue an order declaring the amount of potash product it has a right to receive from Mosaic.
"This is a matter of significance to PCS Inc.," the statement of claim says. "Unless the requested relief is granted, PCS Inc. is in jeopardy of suffering effective forfeiture of its important and highly valuable rights in the PCS reserves (at Esterhazy)."
Mosaic denies it has breached the agreement in any way.
How much potash remains?
One of the main issues in the lawsuit is determining how much potash remaining at Esterhazy belongs to PotashCorp.
In its statement of defence, Mosaic says it calculated that as of April 30, 2009, 4.7 million ore tonnes remained to be mined from the PotashCorp reserves at Esterhazy, which should provide about 1.7 million tonnes of finished potash product after the eight million tonnes earlier loaned by Mosaic to PotashCorp are considered.
At a delivery rate of 1.24 million tonnes of product per year, Mosaic says PotashCorp's entitlement to finished potash will end by Aug. 30.
PotashCorp, however, takes issue with Mosaic's determination of its remaining potash ore at the mine. The fertilizer giant says in its claim Mosaic's finding of remaining PotashCorp ore was not based upon good mining practices required in the mining agreement.
Before the courts
Representatives from both companies said they could not make specific comments about the case as it is before the court. However, said Bill Johnson, spokesperson for PotashCorp, the case is "moving along quite well.
"Companies in commercial arrangements sometimes have disagreements and you'd like to be able to work them out privately, but sometimes you need to refer these matters to the courts for opinion," Johnson said.
Mosaic spokesperson Brad DeLorey said the company is abiding by the court process.
"We are co-operating completely with the courts until this matter is resolved," he said.
Potash transfers between Mosaic and PotashCorp, DeLorey added, ceased in April 2009.
