October 26, 2017 / 10:21 AM / a year ago

Buyers circle Potash Corp stake in lithium producer SQM

(Reuters) - Potential buyers have shown big interest in Potash Corp of Saskatchewan Inc’s 32 percent stake in Chilean lithium producer SQM SA SQMa.SN, Potash’s chief executive said on Thursday, after reporting a lower than expected third-quarter profit.

Canada’s Potash POT.TOPOT.N, set to merge with rival Agrium Inc AGU.TO, must divest minority stakes in SQM SQMa.SN and fertilizer companies ICL Israel Chemicals (ICL.TA) and Arab Potash Co PLC APOT.AM within 18 months as a condition of India’s approval for the $25-billion deal.

“We see significant interest in general (for the SQM stake), which is based on the interest in lithium,” Potash CEO Jochen Tilk AGU.TO said on a conference call with analysts. “... The timing is perfect in that sense.”

Lithium is an essential element for batteries used in electric vehicles.

China’s state-owned Sinochem Group [SINOC.UL] this week appeared to deny a media report it was bidding for the stake.

Tilk, who will become executive chairman of the merged company Nutrien when the Agrium deal closes by year end, said it could use sale proceeds to repay debt, return cash to shareholders or acquire more farm retail stores.

Prices of crop nutrient potash have leveled off this year after hitting eight-year lows late last year due to low crop prices and excessive production capacity.

The slump has led Potash Corp to seek consolidation and idle capacity.

New York-listed shares of Potash dipped 1.7 percent to $19.34 in afternoon trading, after it reported its results and narrowed its full-year earnings guidance range.

Pressure on Potash stock is likely to be short-lived as investors quickly turn their attention to the merger, said Brian Madden, portfolio manager at Goodreid Investment Counsel, which owns Potash shares.

“The bigger prize is the combination of the two businesses,” Madden said. Nutrien “is going to be bigger, and less volatile.”

The company’s third-quarter revenue rose 8.6 percent to $1.23 billion, helped by higher sales volumes and average realized prices of potash.

However, the cost of goods sold rose 5 percent in the quarter, resulting in a smaller profit.

Net income fell to $53 million, or 6 cents per share, from $81 million, or 10 cents per share, a year earlier.

Potash Corp tightened its full-year adjusted earnings to 48 cents to 54 cents per share from 45 cents to 65 cents.

Excluding items, profit was 9 cents a share, lower than the 12 cents analysts expected, according to Thomson Reuters I/B/E/S.

Reporting by Akshara P in Bengaluru and Rod Nickel in Winnipeg, Manitoba; Editing by Jeffrey Benkoe and Susan Thomas

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