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Yara open to Potash assets, gives upbeat outlook
OSLO (Reuters) - Fertilizer giant Yara International (YAR.OL) said it was open to buying Potash Corp (POT.TO) assets after third-quarter earnings beat expectations on the strength of improved margins and higher demand in a tighter grain market.
Yara, keen to take part in a wave of consolidation sweeping the world's crop nutrient industry, said prospects were bright with strong food demand and a healthy longer-term outlook for the nitrogen fertilizer sector.
Against a backdrop of BHP Billiton's (BHP.AX) $39 billion hostile bid for fertilizer group Potash Corp, Yara CEO Joergen Ole Haslestad said it was open to buying assets from Canada's Potash. [ID:nOSN004770]
"If they came to us we would consider that and do calculations to see how that would fit into our system," he told Reuters on the margins of the group's results presentation.
Haslestad said Yara had "quite considerable possibilities to increase" its presence in North America or elsewhere.
"Yara will grow all over the world," he said, adding it would exercise "capital discipline" and not overpay, a determination it showed in the Terra case this year by walking away after being outbid.
Yara's finance chief said the firm could make an acquisition of up to $1.5 billion without raising additional equity in the aftermath of its failed bid for U.S.-based Terra Industries.
If it did not make acquisitions, CFO Hallgeir Storvik said, it would be happy to pay a cash dividend to shareholders.
Neither executive said which type of assets could make an attractive purchase.
Earnings before interest, tax, depreciation and amortization (EBITDA) rose to 2.49 billion Norwegian crowns ($425.3 million) in July-September from 860 million a year ago, beating the 2.36 billion crown average estimate in a Reuters poll of 13 analysts.
"Fertilizer margins improved, sales volumes increased and our plants are running close to full capacity," Haslestad said.
Shares in Yara were up 1.4 pct to 289.2 crowns at 1123 GMT while the Oslo benchmark index .OSEBX edged down 0.4 percent.
"Energy prices are increasing but I believe we will see some positive revisions to Yara's EBITDA, particularly the estimates for the fourth quarter and maybe for 2011 and 2012 as well due to higher-than-expected margins," said Argo Securities analyst Marianne Skeisvoll Bjoernsen.
Storvik told Reuters that Yara foresees acquisitions and organic growth in the next five or 10 years that would boost annual production to 40 million tonnes of fertilizer from today's 25 million tonnes.
That would increase Yara's market share in nitrogen-based fertilizers to about 10 percent from today's 7 percent.
Thomas Lorck, an analyst at Arctic Securities, said the company's numbers were "north of expectations."
"Their market outlook is quite supportive for being optimistic, both on the grain market as well as the market balance for nitrate fertilizers," he said.
Yara said Chinese exports of urea fertilizer were constrained by increasing coal prices, thereby boosting demand fo Yara's products.
"Chinese urea production has declined steadily since July, as authorities for the first time have been initiating production curtailments at major plants to reduce emissions and improve energy efficiency," Yara said.
(Additional reporting by Gwladys Fouche in Oslo; Editing by David Cowell and Michael Shields)
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