Mosaic Shuts Down Colonsay Potash Mine Indefinitely

US-based Mosaic (NYSE:MOS) said it will shut down its Colonsay potash mine indefinitely due to excess inventory and poor market conditions. 

The Saskatchewan asset has been placed on care and maintenance, allowing the company to restart operations depending on customers’ needs.

“The ramping up of our Esterhazy K3 production combined with continued weak demand in North America has left Mosaic’s potash business with excess inventory and production capacity,” said President and CEO Joc O’Rourke. “This decision will regrettably impact employees, but allows us to optimize our Canadian production assets and improve our cost position in a competitive market.”

Colonsay was first put on pause in August of last year to allow the company to accelerate the development of its low-cost Esterhazy K3 asset, which is expected to have a production capacity of 7.1 million metric tons of potash per year.

The idling of Colonsay will result in a pre-tax charge of US$530 million for the company in the fourth quarter of 2019. Mosaic said the write off is principally the carrying value of a 2013 expansion project.

The expansion had increased Colonsay’s production capacity to 2.1 million metric tons, but the mine has been operating with a modified capacity of 1.5 million metric tons since 2016; the company does not expect to use the expansion capacity for the foreseeable future.

Back in December, Mosaic announced cuts for both potash and phosphate production due to weak demand and declining prices, saying that cold and wet weather conditions had impacted the market throughout 2019. At the time, the company said it expected the move to help balance the global supply/demand picture for the fertilizer sector.

Mosaic is the world’s fourth largest potash company in terms of production capacity, sitting at 11 million metric tons. The company is also a leading phosphate producer, with output of 16 million metric tons.

Despite making the call to idle the Colonsay potash mine indefinitely, O’Rourke said he expects to see robust global fertilizer demand and strong business conditions in 2020.

The New York-listed company is not the first fertilizer producer to shut down or reduce production in Canada, which is the world’s largest potash-producing country, accounting for 29 percent of global supply, or roughly 20.3 million metric tons.

Last year, the world’s top potash producer, Nutrien (NYSE:NTR, TSX:NTR), idled production at three mines in Saskatchewan, reducing its output by an estimated 700,000 metric tons. Like Mosaic, Nutrien expects agricultural fundamentals to strengthen and thinks 2020 will be a strong year for crop input demand.

Shares of Mosaic have been falling since mid-January, with the company’s share price down 9.89 year-to-date. On Wednesday (January 29), Mosaic closed down 0.21 percent in New York at US$19.31.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.