20031506 Ver 1_COMPLETE FILE_20090101

IN REPLY REFER TO
Regulatory Division
DEPARTMENT OF THE ARMY
WILMINGTON DISTRICT, CORPS OF ENGINEERS
Washington Regulatory Field Office
P.O. Box 1000
Washington, North Carolina 27889-1000
January 19, 2005
Action ID No. 200310539 and State Permit No. 05-05
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)AN 2 4 2005
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d171Ja AND S-1 ORMOWER BRANCH
PCS Phosphate Company, Incorporated
Attn: Jeffrey C. Furness
Environmental Affairs Department
Post Office Box 48
Aurora, North Carolina 27806
Dear Mr. Furness:
Reference your application for a Department of the Army permit to place fill material
within wetlands and relocate an existing railroad spur, on property located off State Road 1941,
adjacent to Whitehurst Creek, near Aurora, in Beaufort County, North Carolina.
Your proposal has been reviewed and found to be consistent with the provisions and
objectives of general permit No. 198000291. Therefore, you may commence construction
activity in strict accordance with applicable State authorization and the approved plan. Failure to
comply with the State authorization or conditions of the general permit could result in civil
and/or administrative penalties.
If any change in your work is required because of unforeseen or altered conditions or for
any other reason, plans revised to show the change must be sent promptly to this office and the
North Carolina Division of Coastal Management prior to performing any such change or
alteration. Such action is necessary as revised plans must be reviewed and the authorization
modified.
Questions or comments may be addressed to Mr. Raleigh Bland, Washington Field Office,
Regulatory Branch, telephone [phone], extension 23.
Sincerely,
Raleigh Bland, P.W.S.
Regulatory Project Manager
-2-
Copies Furnished without enclosure:
Ms. Cyndi Karoly
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Mr. Ronald J. Mikulak, Chief
Wetlands Regulatory Section
Water Management Division
U.S. Environmental Protection Agency
61 Forsyth Street, SW
Atlanta, Georgia 30303
Mr. Doug Huggett
Division of Coastal Management
North Carolina Department of Environment
and Natural Resources
Hestron Plaza II, 151-B Highway 24
Morehead City, North Carolina 28557
Mr. Pete Benjamin
U.S. Fish and Wildlife Service
Fish and Wildlife Enhancement
Post Office Box 33726
Raleigh, North Carolina 27636-3726
Mr. Ron Sechler
National Marine Fisheries Service
Pivers Island
Beaufort, North Carolina 28516
Mr. David Rackley
NMFS, Habitat Conservation Division
219 Fort . JohnsonRoad
Charleston, South Carolina 29412-9110
-3-
Mr. Terry Moore, District Manager
Washington Regional Office
North Carolina Division of Coastal Management
943 Washington Square Mall
Washington, North Carolina 27889
CY1lht 4 ?61
Permit Class Permit Number
NEW 05-05
STATE OF NORTH CAROLINA
Department of Environment and Natural Resources`
and t
Coastal Resources Commission
,%M " t
PP
for
X Major Development in an Area of Environmental Concern
pursuant to NCGS I I3A-118
Excavation and/or filling pursuant to NCGS 113-229
Issued to PCS Phosphate Company, Inc., PO Box 48, Environmental Affairs Department, Aurora, NC 27806
Authorizing development in Beaufort County at Whitehurst Creek, Near HWY 306 and SR
1941, Aurora , as requested in the permittee's application dated 2/19/03, including the
letter dated 10/24/03 and attached workplan drawings (4), 3 dated 10/14/03 and 1 dated 1/11/02
This permit, issued on January 12, 2005 , is subject to compliance with the application (where consistent
with the permit), all applicable regulations, special conditions and notes set forth below. Any violation of these terms may
be subject to fines, imprisonment or civil action; or may cause the permit to be null and void.
Wetland Fill
1) No excavated or fill material shall be placed at any time in any vegetated wetlands or surrounding
waters outside of the alignment of the fill area indicated on the workplan drawings.
2) The temporary placement or double handling of fill materials within waters or vegetated wetlands is
not authorized.
3) All fill material shall be clean and free of any pollutants except in trace quantities.
(See attached sheets for Additional Conditions)
This permit action may be appealed by the permittee or
other qualified persons within twenty (20) days of the issuing
date. An appeal requires resolution prior to work initiation or
continuance as the case may be.
This permit must be accessible on-site to Department
personnel when the project is inspected for compliance.
Any maintenance work or project modification not covered
hereunder requires further Division approval.
All work must cease when the permit expires on
December 31, 2008
In issuing this permit, the State of North Carolina agrees
that your project is consistent with the North Carolina Coastal
Management Program.
Signed by the authority of the Secretary of DENR and the
Chairman of the Coastal Resources Commission.
L -LIZ VZ
`/` harles S. Jones, Director
Division of Coastal Management
This permit and its conditions are hereby accepted.
Signature of Pei

PCS Phosphate Company, Inc.
Permit # 05-05
Page 2 of 3
ADDITIONAL CONDITIONS
Culvert Placement
4) In order to ensure adequate hydraulic exchange between the wetlands on either side of the Whitehurst
Creek crossing, three culverts with a minimum diameter of 36" shall be placed as indicated on the
attached workplan drawings.
5) Culvert inverts shall be set at least one foot below normal bed elevation at the time of installation .to
allow for aquatic organism passage.
6) ' Appropriate bedding material shall be placed beneath the culverts to prevent structural subsidence.
Wetland Mitigation
7) In accordance with commitments made by the permittee, impacts to wetlands within the project area
shall be mitigated through the use of the entire 4.8 acre Bailey Creek Bottomland Hardwood Wetlands
Creation Site. This mitigation site shall be maintained in perpetuity in its restored state. In order to
ensure compliance with this condition, a perpetual conservation easement or similar legal document
shall be in place for the mitigation site, and copies of all such documents provided to the Division of
Coastal Management, prior to the initiation any activities authorized by this permit.
Sedimentation and Erosion Control
NOTE: An Erosion and Sedimentation Control Plan will be required for this project. This plan must be
filed at least thirty (30) days prior to the beginning of any land disturbing activity. Submit this
plan to the Department of Environment and Natural Resources, Land Quality Section, 943
Washington Square Mall, Washington, NC 27889.
8) In order to protect water quality, runoff from construction must not visibly increase the amount of
suspended sediments in adjacent waters.
9) Appropriate sedimentation and erosion control devices, measures or structures must be implemented to
ensure that eroded materials do not enter adjacent wetlands, watercourses and property (e.g. silt fence,
diversion swales or berms, etc.).
Stormwater Management
10) The N.C. Division of Water Quality approved this project under stormwater management rules of the
Environmental Management Commission under Stormwater Permit No. SW7030413 on 10/3/03. Any
violation of the permit approved by the DWQ shall be considered a violation of this CAMA permit.
FPCSPhosphate Company, Inc. Permit 4 05-05
Page 3 of 3
ADDITIONAL CONDITIONS -
General
11) The permittee shall maintain the authorized work in good condition and in conformance with the terms
and conditions of this permit. The permittee is not relieved of this requirement if he abandons the
permitted activity without having it transferred to a third party.
NOTE: This permit does not eliminate the need to obtain any additional state, federal or local permits,
approvals or authorizations that may be required.
NOTE: Future development of the permittee's property may require a modification of this permit.
Contact a representative of the Division at [phone] prior to the commencement of any
such activity for this determination.
"NOTE: The N.C. Division of Water Quality has authorized the proposed project under General Water
Quality Certification No. 3400, with conditions (DWQ Project No. 030447), which was issued
on 12/8/03.
NOTE: The U.S. Army Corps of Engineers has assigned the 'proposed project COE Action Id. No.
200310539.
imap://bob.zarzecki %40dwq.denr.ncmail.net @ cros.ncmail.net:143/fe...
Subject: DRAFT' Summary of 17th Meeting Minutes
From: [e-mail]
Date: Tue, 18 Jan 2005 13:25:36 -0500
To: [e-mail], [e-mail], [e-mail],
mike [e-mail], [e-mail], [e-mail],
[e-mail], [e-mail], [e-mail],
[e-mail], [e-mail], [e-mail],
[e-mail], [e-mail], [e-mail],
[e-mail], [e-mail], [e-mail], [e-mail],
[e-mail], [e-mail], [e-mail],
[e-mail], [e-mail], [e-mail]
EIS Team;
Please review the attached pdf DRAFT Summary Minutes of the 14 December 2004 meeting
(17th) and provide comments to our office by 1 February 2005. Refer to your
Pre-meeting package dated 3 December 2004 for reference.
Thank you,
Cheryl Mullen
for
Julia Berger
CZR Incorporated
4709 College Acres Drive
Wilmington, NC 28403
phone: [phone]
fax: [phone]
1 of 1 1/18/2005 1:47 PM
DRAFT
MEMORANDUM
TO: See Distribution
FROM: Samuel Cooper, Julia Berger
DATE: 18 January 2005
RE: Summary Minutes of the 14 December 2004 meeting for the PCS Phosphate
Mine Continuation permit application review.
1 The 17th meeting for the review of PCS Phosphate's Mine Continuation permit application
2 was held from 10:30 to 3:00 at the NCDENR offices in Washington NC on 14 December 2004.
3 The following people attended:
4
5 Tom Walker - USACE
6 Mary Alsentzer - PTRF
7 Heather Jacobs - PTRF
8 Richard Atwood.- PCS Phosphate
9 Bill Schimming - Potash Corporation
10 Ross Smith - PCS Phosphate
11 Jeff Furness - PCS Phosphate
12 Jerry Waters - PCS Phosphate
13 David Moye - NCDCM
14 John Dorney - NCDWQ
24
15 Kelly Spivey - NCDCM
16 Kyle Barnes - NCDWQ
17 Jimmie Overton - NCDWQ
18 Tom Steffens - NCDWQ
19 Maria Tripp - NCWRC
20 Mike Wicker - USFWS
21 Samuel Cooper - CZR
22 Julia Berger - CZR
23 Jim Hudgens - CZR
25 Next Team meetings:
26 18th -10:30 am Wednesday 20 January 2005 at the Washington DENR office
27 19th -10:30 am Tuesday 8 February 2005 at the Washington DENR office
28
1
29 The meeting began at 10:40 am with Tom Walker presiding and followed the rough agenda
30 shown in Attachment 1. Due to schedule changes, the time and duration of the meeting had
31 been changed from 8:00 to noon to 10:30 through the afternoon.
32
33 ITEMS DISCUSSED AND/OR DECIDED BY TEAM
34
35 • Mr. Walker suggested that after all comments were received on the SC boundaries that
36 a public notice could go out to bring the public up to date with the EIS Team process and
37 status. He also reminded the group that during economic analysis and sequencing
38 considerations, some costs might not change despite different scenarios.
39
40 Mr. Smith informed the Team about a recent invitation that he accepted to meet with
41 members of the Environmental Review Commission on 28 November 2004. ERC
42 members had questions about the recent plant expansion announcement, Castle Hayne
43 depressurization water reuse, and the status of the mine continuation permit. Related to
44 the mine continuation permit, Mr. Smith explained that the permitting schedule is
45 extremely tight and that the company needed a permit decision by the end of 2006. Mr.
46 Smith also stated that all of the regulatory agencies are engaged in the process, and
47 none of the agencies have put up any "road-blocks" in the process. Mr. Smith also
48 described a recent invitation (7 December 2004) to brief Senator Marc Basnight and
49 other officials. The plant expansion announcement and the tight schedule for the mine
50 continuation permitting process were topics of discussion during this briefing. During a
51 follow-up meeting (9 December 2004) with Senator Basnight's Chief of Staff (Rolf
52 Blizzard), Mr. Smith reiterated that all regulatory agencies were engaged in the
53 permitting process. Specifically, DCM has remained engaged in the process while
54 litigation relating to public trust/property ownership issues is being resolved. Mr. Smith
55 also told the Team that they would receive copies of the corporation's sustainability
56 report by mail.
57
58 Mr. Smith prefaced his presentation with the announcement that for the first time, PCS
59 was sharing all costs in their model and the group was asked to please respect the spirit
60 of confidentiality in which this information was given. Mr. Waters said that the cost
61 model is the same one PCS is currently using for all its strategic planning and for its
62 2005 Mine budget preparations.
63
2 1/18/2005
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• Mr. Smith presented a Powerpoint presentation of cost model information. Discussion of
the cost model presentation clarified the following points:
1) Mine years 1-6 are the last years of Alternative E and show no change from slide
to slide.
2) The cost model has been used on the Applicant Preferred Boundary and the
applicant preferred sequence (NCPC, Bonnerton, S33).
3) Beneficiation. is the ore recovery optimization process by which the ore is
concentrated through separation and screening. Because the ore is bonded to
coarser material in S33, a new beneficiation process must be adopted to
maximize ore recovery when the draglines move to this area.
4) The capital cost of this new beneficiation process is spread out over the S33
segment only because the capital won't be spent until they get to that block.
5) Costs are shown in constant 2003 dollars and the model is based on the
production of an average of 5 million tons/year.
6) The company conducted an optimization study for the area South of Hwy 33.
The results of this study showed that relocation of beneficiation equipment was
not justified due to the capital requirement and the resulting materials handling
requirements.
7) The spike in NCPC operating costs reflects excavation of the more deeply buried
ore in the northeast. Lower costs in Bonnerton reflect the fact that there are
fewer utilities to move. The spike in operating costs for S33 reflects very poor ore
quality just south of the middle of the block.
• Mr. Smith summarized by reminding the group that there is an economic component to
practicability. Mr. Walker stated the purpose of the Team is to provide input to the Corps
and the applicant, on all phases of the process to ensure that the final decision was
environmentally sound and in the public interest.
• Discussion of the Sequencing portion of the PCS presentation clarified the following
points:
1) Although arrows are not shown for the areas on NCPC between the creeks, one
dragline would likely operate in those peninsulas.
2) The transition areas from block to block and sequence to sequence are where
the differences are on the cost graphs. It is not just a cut and paste exercise as
the sequence changes.
3 1/18/2005
99 3) Just as documented in the last EIS process, the costs of moving mining
100 equipment from the end of Alternative E to the next mining area have not been
101 included.
102 4) Escalation and discount factors used in calculating the Net Present Value data
103 are based on previously established accounting principles within the company.
104 In the wake of Enron and Worldcom, the 2002 Sarbane-Oxley Act governs
105 accounting guidelines and requires that money for all future obligations must be
106 set aside. PCS used a 2.5 percent escalation per year and a 6.75 percent
107 discount rate to get back to net present value. The discount rate, "opportunity
108 cost", is also based on the strength of the corporation.
109 5) Mr. Overton inquired as to why in some scenarios S33 was to be mined in one
110 southbound trip with a major equipment move at the end rather than a trip south
111 and a return. PCS responded that this was the best way to mine the area and
112 that the cost of moving the equipment was relatively inconsequential.
113
114 When asked by Mr. Moye if PCS could be mining S33 now at today's prices, PCS stated
115 that they cannot incur the additional $35M annual cost of going to S33 now as their
116 gross margin has been less than $35M for the last several years. Mr. Waters said that
117 because so many other countries are coming on line with fertilizer plants, PCS recently
118 committed to spending millions of dollars in improvements to increase their capacity for
119 food-grade and industrial-grade phosphoric products and widen their competition arena.
120 Mr. Walker asked if the profit figures quoted by Mr. Smith for 2001 and 2002 (that period
121 when mining operations were closest to S33) were after discounting capital outlays for
122 plant upgrades which occurred during that same time frame. Mr. Smith indicated that
123 they were.
124
125 • Mr. Walker hoped that the Corps accountant could have attended this meeting, but since
126 the Corps is also experiencing a financial downturn, the accountant had responsibilities
127 at another office.
128
129 • The next Team meeting will concentrate on the periodic conditions for a longer permit. If
130 the Team can get comfortable with those conditions, then a permit for the life of the mine
131 will likely be issued. Mr. Walker stated that regardless of the length of the permit,
132 cumulative impacts must be addressed in the document anyway.
133
4 1/18/2005
134 Mr. Waters requested clarification from Mr. Walker about how many sequences for
135 selected alternatives PCS might expect, since detailed analyses take a lot of time and
136 work. Mr. Walker said that with present scenarios, it may not be necessary to study a
137 sequence starting in NCPC and a sequence starting in Bonnerton provided impacts are
138 substantially similar. It is most important that a sequence starting in S33 and a
139 sequence which puts S33 in the middle is examined. For this reason, he requested that
140 the team consider over lunch whether Sequence 3 (S33, NCPC, Bonnerton) or
141 Sequence 4 (S33, Bonnerton, NCPC) in the PCS presentation could be dropped.
142
143 Mr. Walker asked if DWQ was suggesting development of a mine plan for the DWQ
144 intermittent stream avoidance boundary or if DWQ was suggesting that the SC boundary
145 should exclude all intermittent streams. Mr. Dorney responded that he would need to
146 consider this further before responding.
147
148 Group broke for lunch at 12:15 and reconvened at 1:30 pm.
149
150 • No objections were voiced about dropping either Sequence 3 or 4. Mr. Moye requested
151 that the document clearly describe the similarity of impacts between the sequences in
152 order to justify the Team's decision to remove one of these sequences from future
153 analyses.
154
155 Mr. Steffens inquired about rumors of a new methanol plant and was told by Mr. Smith
156 that an ethanol production facility is considering locating on adjacent property outside of
157 the holistic boundary and that it is not a PCS project.
158
159 DWQ does not think that the SC boundary can replace the DWQ intermittent and DWQ
160 perennial avoidance boundaries although the detail to which they are analyzed might
161 differ. Mr. Steffens indicated that additional information would be needed to determine
162 the practicability of alternatives based on buffer avoidance.
163
164 Mr. Moye said that DCM needed no other boundary as long as the SC boundary avoids
165 all CAMA areas. He requested that if the SC boundary goes forward that a note be
166 added to the figures stating that the SC boundary includes the DCM CAMA avoidance
167 boundary.
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5 1/18/2005
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• Mr. Schimming announced that he would not be able to attend the next two meetings but
wanted to stress to the group the importance of PCS' internal timetable. Millions of
dollars depend on the timing of EIS process and PCS needs to know in advance where
they are going at the end of Alternative E before they commit the dollars. He asked if
Mr. Smith could share the PCS schedule at the next meeting.
• Mr. Furness gave a Powerpoint presentation on PCS's mitigation approach. Discussion
of the presentation clarified the following points:
1) Restoration of hydrology on forested tracts equals restoration of the habitat.
2) DWQ and FWS expressed reservations about the potential use of EEP.
3) An isolated area to be preserved will require a higher mitigation ratio than a
preserved site that is contiguous with a restored area. In the latter circumstance,
the adjacent preserved area would increase wetland functions and have a lower
mitigation ratio than the former.
4) FWS does not endorse the concept of headwaters extension where streams are
created above former streams or headwaters.
5) A detailed mitigation plan for each alternative will not be required. However, the
EIS will require documentation of how much mitigation is needed, of what kind,
and where it is located. By the DEIS, there should be enough certainty for PCS
to be specific about identification of mitigation sites.
6) If agencies can figure out how to fit credit into the plan, PCS is willing to consider
inclusion of reclamation of the mine at the end of its life into the mitigation plan.
7) Mr. Smith asked for agencies to provide feedback on priority areas for inclusion
in the mitigation plan.
• CZR notified the group that figures showing ratings and sites evaluated for DWQ ratings
and WRAP were available as handouts. Corps, DWQ, DCM, and PTRF were provided
copies.
ACTION ITEMS (Team)
• All comments on SC boundary are due by 10 January 2005 with the exception of DWQ
comments which are due by 20 January 2005. Mr. Walker requested the group to point
out other areas to avoid because of their significance or difficulty to mitigate.
6
1/18/2005
M
204 Consider life of mine permit conditions.
205
206 ACTION ITEMS (Corps)
207 None specifically identified.
208
209 ACTION ITEMS (PCS)
210 None specifically identified.
211
212 ACTION ITEMS (CZR)
213
214 Mr. Moye requested a note be added to all figures indicating that the 75' offset was used
215 as a buffer from CAMA areas.
216
217 • Ms. Alsentzer requested acreage of the Parker Farm by drainage/river basin.
218
219 • Mr. Steffens requested impacts to buffers be enumerated on the summary impacts table.
220
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222 Meeting adjourned at 3:00 pm.
223
224 Attachment 1- Meeting Agenda
225 Please refer to pre-meeting package dated 3 December 2004 for:
226 PCS Mine Continuation Cost Model Update (Powerpoint-26 pgs)
227 PCS Mine Continuation-Mitigation Approach (Powerpoint-20 pgs)
228 SC Boundary Biotic Communities and Impacts Figures for NCPC, Bonnerton, and S33
229 (three color 11" x 17" figures)
230 Impact Summary Table (one 11" x 17")
DISTRIBUTION:
Ms. Mary Alsentzer Mr. Kyle Barnes
Pamlico Tar River Foundation North Carolina Division of Water Quality
Post Office Box 1854 943 Washington Square Mall
Washington, North Carolina 27889 Washington, NC 27889
7 1/18/2005
Mr. John Dorney
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
Wetlands/401 Wetlands Unit
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Ms. Becky Fox
Environmental Protection Agency
1349 Firefly Road
Whittier, NC 28789
Mr. Jeffrey C. Furness
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. James M. Hudgens
CZR Incorporated
1061 East Indiantown Road, Suite100
Jupiter, Florida 33477-5143
Mr. Scott Jones
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
Mr. David M. Lekson
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
Mr. Sean McKenna
Mr. David Moye
Division of Coastal Management
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Jimmie Overton
NC Division of Water Quality
Environmental Sciences Section
4401 Reedy Creek Road
Raleigh, North Carolina 27607
Mr. Jerry Waters
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Richard Peed
Division of Land Resources
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. William A. Schimming
Potash Corp.
Post Office Box 3320
Northbrook, Illinois 60062
Mr. Ron Sechler
National Marine Fisheries Service
101 Pivers Island Road
Beaufort, North Carolina 28516
Division of Marine Fisheries Mr. Ross Smith
North Carolina Department of Environment PCS Phosphate Company, Inc.
and Natural Resources Post Office Box 48
943 Washington Square Mall Aurora, North Carolina 27806
Washington, North Carolina 27889
Dr. David McNaught
Environmental Defense
2500 Blue Ridge Road, Suite 330
Raleigh, North Carolina 27607
Mr. Tom Steffens
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Terry Moore
Division of Coastal Management
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889

Ms. Maria Tripp
North Carolina Wildlife Resources
Commission
Habitat Conservation Section
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Tom Walker
U.S. Army Corps of Engineers
Regulatory Division
P.O. Box 1890
Wilmington, North Carolina 28402
Mr. Mike Wicker
U.S. Fish and Wildlife Service
Post Office Box 33726
Raleigh, North Carolina 27636-3726
Mr. Bob Zarzecki
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Mr. Ted Tyndall
North Carolina Division Coastal
Management
Morehead City District Office
151-B Hwy. 24 Hestron Plaza II
Morehead City, NC 28557
Mr. George House
Brooks, Pierce, McLendon, Humphrey &
Leonard
P.O. Box 26000
Greensboro, NC 27420

ATTACHMENT 1
MEETING AGENDA FOR 17TH PCS EIS TEAM MEETING
14 DECEMBER 2004
Re: FW: PCS Phosphate
Subject: Re: FW: PCS Phosphate
From: Bob Zarzecki <[e-mail]>
Date: Fri, 14 Jan 2005 09:56:55 -0500
To: "Walker, William T SAW" <[e-mail]>, Cyndi Karoly
<[e-mail]>
CC: john dorney <[e-mail]>
Tom,
I'm passing this email on to Cyndi, since she will be taking over after I leave. I'll see you next week.
- Bob
Walker, William T SAW wrote:
I believe we have assembled much of the information necessary to identify alternatives to be carried
forward for detailed study. I have spoken with many of you in the last few days
regarding developement / refinement of several potential alternatives, including the "SC boundary",
and feel that it would be a good idea to make our February meeting a two day affair. My intention
would be to set down with the various "boundary" maps and make some conclusive decisions. We
currently have February 8th scheduled. I would like to meet February 9th as well. We will talk more
about agenda for the February meeting at our meeting next Thursday. If you have any questions or if
any of you I have not been able to speak to regarding February have scheduling conflicts, please give
me a call. I will be in my office next Tuesday and Wednesday (Jan. 18 & 19).
Thank You
Tom Walker
[phone]
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1 of 1 1/17/2005 9:07 AM
ArM •
A-
NCDENR
North Carolina Department of Environment and Natural Resources
Division of Water Quality
Michael F. Easley, Governor
January 7, 2005
Mr. Jeffrey Furness
PCS Phosphate Corp.
P.O. Box
Aurora, NC 27806
William G. Ross, Jr., Secretary
Alan W. Klimek, P.E., Director
Dear Mr. Furness:
RE: Division of Water Quality comments on Boundaries for PCS Mine Expansion
Division of Water Quality staff have reviewed the information presented at the December
14, 2004 Mine Continuation Team meeting held at the Washington Regional Office. This letter
is in response to your request for DWQ's initial review of the boundaries presented at that
meeting -namely, 1) Applicant Preferred Boundary, 2) "SC" Boundary, 3) DCM/CAMA
Avoidance Boundary, 4) DWQ Perennial Stream Avoidance Boundary and 5) DWQ Intermittent
Stream Avoidance Boundary. We understand that most of these boundaries have been
developed in response to agency requests (including requests from DWQ) with respect to our
permitting responsibilities and that additional refinements will need to be done before cost
projections can be made for boundaries for the mine advance.
The purpose of this letter is to present the initial thoughts of DWQ staff with respect to
these boundaries as they pertain to compliance under the 401 Certification and Riparian Buffer
Protection Programs. We also recognize that the company needs some more direction from the
regulatory agencies so you can proceed with more detailed mine analyses. As you are aware,
this process has gone on for several years and we believe has now reached a critical junction
with respect to timing and decision-making. We also recognize that detailed analysis of
numerous mining boundaries is costly. We have reviewed the proposed boundaries with these
constraints in mind. Also, please be aware that this evaluation contains the Division's initial
thoughts and are therefore subject to modification with the benefit of additional information and
public review.
1) Applicant Preferred Boundary: We suggest that the applicant no longer pursue this
boundary. We believe that this boundary clearly involves a large amount of avoidable
impact to estuarine-type waters, estuarine wetlands, perennial streams, intermittent
streams, buffers of intermittent and perennial streams as well as large acreages of
riparian and non-riparian wetlands. DWQ staff strongly doubt that this boundary
could be permitted since it demonstrates so little minimization of impact.
Furthermore, we also doubt that the tremendous amounts of required compensatory
mitigation (particularly buffer mitigation) could be found to adequately compensate
for these losses. Finally, DWQ regulations (15A NCAC 02H .0506(d)(1)) do not
allow the Director to approve a 401 Water Quality Certification for any impacts to
coastal wetlands (Class SWL waters) except for those directly associated with "water
dependent" activities. The Division does not believe that the proposed impacts meet
the definition of "water dependent" as defined by either the DWQ or DCM. As such,
we believe that DWQ does not have the authority to approve any plan that would
propose impacts to coastal wetlands.
401 Wetlands Certification Unit
1650 Mail Service Center, Raleigh, North Carolina 27699-1650 One
2321 Crabtree Boulevard, Suite 250, Raleigh, North Carolina 27604 NofthCarolina
Phone: [phone] / FAX [phone] / Internet: http://12o.enr.state.ne.us/ncwetlands An Equal Opportunity/Affirmative Action Employer- 50% Recycled/10% Post Consumer Paper Awvrally
2) "SC" Boundary: We suggest that the applicant no longer pursue this boundary
unless additional efforts are made to avoid impacts to the following resources. This
boundary avoids impact to estuarine waters (and is therefore [as we understand]
allowable by DWQ rules) but still has large impacts to streams, buffers and high
priority wetlands. This boundary does not reflect any serious effort to avoid riparian
wetlands that usually have the greatest water quality benefit. This boundary also
does not appear to seek to minimize impacts to these resources that are important to
water quality. Again, given the large amount of impact to riparian wetlands, streams
and buffers, we doubt that adequate required compensatory mitigation could be
found to replace those resources.
3) DCM/CAMA Avoidance Boundary: As stated by David Moye of the Division of
Coastal Management at the last meeting, we concur that further analysis of this
boundary is not needed since the "SC" boundary and the DWQ boundaries address
DCM's concerns about permitting mining through coastal wetlands.
4) DWQ Perennial Stream Avoidance Boundary: This boundary avoids impacts to
perennial streams and estuarine wetlands. This is an important improvement over
the first two boundaries. However again this boundary does not make an effort to
avoid riparian wetlands. There is still a great deal of impact to intermittent streams
and their buffers and it is not clear whether sufficient compensatory buffer mitigation
could be found to offset these losses. We believe that this boundary should be
modified to avoid or further minimize impacts to riparian wetlands (namely
Bottomland Hardwood Forests). This would have the added benefit of reducing
stream impacts and the required mitigation. We believe that a one-dragline return
width needs to be seriously studied to assist with this avoidance and minimization
effort.
5) DWQ Intermittent Stream Avoidance Boundary: This boundary avoids impacts to
perennial and intermittent streams and their buffers as well as estuarine wetlands.
However, as with the Boundary in number 4, little effort has been made to avoid
impacts to riparian wetlands. Again, we believe that a one-dragline return width
needs to be seriously studied to assist with this avoidance and minimization effort.
We are open to discussing the impacts to intermittent streams relative to the impacts
on riparian wetlands and recognize that some impacts to intermittent streams may be
unavoidable and that retaining a larger area to maintain functioning watersheds
including riparian wetlands may be more important.
In summary, boundaries such as the Agency Priority Avoidance Boundary (which
appears not to be practicable from the company's position) and the Applicant Preferred
Boundary (which clearly does little to minimize and avoid important watershed features)
are currently under review. The NCPC tract, while having a valuable resource that is
easiest to mine, also has extremely valuable creeks that are critical to supporting
valuable aquatic ecosystems. Future mining (if any) on the peninsula needs to be
minimal and take into account the process for retreating to the next tract (determined by
the sequencing). Finally, the streams and associated buffers are minimum requirements
by rule to filter runoff throughout the watershed, which carries pollutants into the system
from a variety of perturbations. Therefore, maintaining minimum buffers in no way
replaces the need for a watershed. As was discussed in the last meeting regarding
replacement of Long Creek on the Charles Tract, there appears to be no way to
accomplish replacement of Long Creek due to the dike and altered topography
associated with the slime ponds. This would be the same situation in the future with the
creeks on the NCPC peninsula if mining dikes are built close to these creeks. Therefore,
we continue to believe that if further mining in the NCPC area is allowed, it should be
2
G
minimized as much as practical and then proceed to the South of 33 tract since the
wetland, stream and buffer impacts are clearly less there than in either the NCPC or
Bonnerton Tracts.
We believe that the next step in the process should be to develop further refinements
of the DWQ stream avoidance boundaries as outlined above. We would be glad to sit
down with representatives of PCS Phosphate to examine some of these refinements in
more detail. If such a meeting would be useful, please call me at 919-733-9646.
`T-
Cc:
Bob Zarzecki
Jimmie Overton
Tom Steffens
Tom Walker, US Army Corps of Engineers.
Sam Cooper, CZR - Wilmington
Mary Alsentzer, PTRF
Becky Fox, US EPA
David Lekson, US Army Corps of Engineers
Maria Tripp, NC Wildlife Resources Commission
David McNaught, Environmental Defense
David Moye, Division of Coastal Management - Washington Regional Office
Richard Peed, Division of Land Resources -Washington Regional Office
Ron Sechler, National Marine Fisheries Service
Sean McKenna, NC Division of Marine Fisheries
PCs
Subject: PCS
From: Bob Zarzecki <bob.zarzeckiC ncmail.net>
Date: Wed, 05 Jan 2005 15:00:31 -0500
To: Cyndi Karoly <cyndi.karoly C ncmail.net>
Cyndi,
I put my file/box of PCS stuff in your chair. Other DWQ files
include 96-1120, 00-0010, 00-1506, and other files that do not
pertain directly with the expansion project. We had a meeting with
Tom Walker today and it looks like another Public Notice will be
sent out shortly. The EIS should go out before too long. I think
that they want to be done with the permitting sometime in 2006.
They're looking for a "life of mine" permit. They're currently
working under a 20 year permit. John has all the institutional
knowledge of this project that you'll need. Have fun:o)
- Bob
1 of 1 1/5/2005 3:58 PM
NCDENR
North Carolina Department of Environment and Natural Resources
Division of Water Quality
Michael F. Easley, Governor
Mr. Jeffrey Furness
PCS Phosphate Corp.
P.O. Box
Aurora, NC
?=DRAFT
January 3, 2005
William G. Ross, Jr., Secretary
Alan W. Klimek, P.E., Director
Dear Mr. Furness:
RE: Division of Water Quality comments on Boundaries for PCS Mine Expansion
Division of Water Quality staff have reviewed the information presented at the December
14, 2004 Mine Continuation Team meeting held at the Washington Regional Office. This letter
is in response to your request for DWQ's initial review of the boundaries presented at that
meeting -namely, 1) Applicant Preferred Boundary, 2) "SC" Boundary, 3) DCM/CAMA
Avoidance Boundary, 4) DWQ Perennial Stream Avoidance Boundary and 5) DWQ Intermittent
Stream Avoidance Boundary. We understand that most of these boundaries have been
developed in response to agency requests (including requests from DWQ) with respect to our
permitting responsibilities and that additional refinements will need to be done before cost
projections can be made for boundaries for the mine advance.
The purpose of this letter is to present the initial thoughts of DWQ staff with respect to
these boundaries as they pertain to compliance under the 401 Certification and Riparian Buffer
Protection Programs. We also recognize that the company needs some more direction from the
regulatory agencies so you can proceed With more detailed mine analyses. As you are aware,
this process has gone on for several years and we believe has now reached a critical junction
with respect to timing and decision-making. We also recognize that detailed analysis of
numerous mining boundaries is costly. We have reviewed the proposed boundaries with these
constraints in mind. Also, please be aware that this evaluation is the Division's initial thoughts
and are therefore subject to modification with the benefit of additional information and public
review.
1) Applicant Preferred Boundary: We believe that this boundary clearly involves a
large amount of avoidable impact to estuarine waters, estuarine wetlands, perennial
streams, intermittent streams, buffers of intermittent and perennial streams as well
as large acreages of riparian and non-riparian wetlands. DWQ staff strongly doubt
that this boundary could be permitted since it demonstrates so little minimization of
impact. Furthermore, we also doubt that the tremendous amounts of required
compensatory mitigation (particularly buffer mitigation) could be found to adequately
compensate for these losses. Finally, DWQ regulations (15A NCAC 02H
.0506(d)(1)) do not allow the Director to approve a 401 Water Quality Certification for
any impacts to coastal wetlands (Class SWL waters) except for those directly
associated with "water dependent" activities. The Division does not believe that the
proposed impacts meet the definition of "water dependent" as defined by either the
DWQ or DCM. As such, we believe that DWQ does not have the authority to
401 Wetlands Certification Unit
1650 Mail Service Center, Raleigh, North Carolina 27699-1650 One
2321 Crabtree Boulevard, Suite 250, Raleigh, North Carolina 27604 NorthCarohna
Phone: [phone] / FAX [phone] / Internet: http://h2o.enr.state.nc.us/ncwetlands Natzmally
An Equal Opportunity/Affirmative Action Employer- 50% Recycled/10% Post Consumer Paper
approve any plan that would propose impacts to coastal wetlands. Therefore, we
suggest that the applicant no longer pursue this boundary.
2) "SC" Boundary: This boundary avoids impact to estuarine waters (and is therefore
[as we understand] allowable by DCM rules) but still has large impacts to streams,
buffers and high priority wetlands. No effort has been made to avoid riparian
wetlands that usually have the greatest water quality benefit. This boundary also
does not appear to seek to minimize impacts to these resources that are important to
water quality. Again, given the large amount of impact to riparian wetlands, streams
and buffers, we doubt that adequate required compensatory mitigation could be
found to replace those resources. Therefore we suggest that the applicant no longer
pursue this boundary.
3) DCM/CAMA Avoidance Boundary.: As stated by David Moye of the Division of
Coastal Management at the last meeting, we concur that this boundary not be
developed since the "SC" boundary and the DWQ boundaries address DCM's
concerns about permitting mining through coastal wetlands.
4) DWQ Perennial Stream Avoidance Boundary: This boundary avoids impacts to
perennial streams and estuarine wetlands. This is an important improvement over
the first two boundaries. However again this boundary does not make an effort to
avoid riparian wetlands. There is still a great deal of impact to intermittent streams
and their buffers and it is not clear whether sufficient compensatory buffer mitigation
could be found to offset these losses. We believe that this boundary should be
modified to avoid or further minimize impacts to riparian wetlands (namely
Bottomland Hardwood Forests). This would have the added benefit of reducing
stream impacts and the required mitigation. We believe that a serious examination
of a one-dragline return width needs to be studied to assist with this avoidance and
minimization effort.
5) DWQ Intermittent Stream Avoidance Boundary: This boundary avoids impacts to
perennial and intermittent streams and their buffers as well as estuarine wetlands.
However once again little effort has been made to avoid impacts to riparian wetlands.
Again, we believe that a serious examination of a one-dragline return width needs to
be studied to assist with this avoidance and minimization effort. We are open to
discussing the impacts to intermittent streams relative to the impacts on riparian
wetlands and recognize that some trade-off in this regard may be necessary.
In summary, boundaries such as the Agency Priority Avoidance Boundary (which
appears not to be practicable from the company's position) and the Applicant Preferred
Boundary (which clearly does little to minimize to avoid and minimize important
watershed features) are currently under review ...The NCPC tract, while having a
valuable resource that is easiest to mine, also has extremely valuable creeks that are
critical to supporting a valuable aquatic ecosystem... Future mining (if any) on the
peninsula needs to be minimal and take into account the process for retreating to the
next tract (determined by the sequencing). Finally, the streams and associated buffers
are minimum requirements by rule to protect runoff from the watershed that carry
pollutants into the system from a variety of impacts to the watershed. Therefore, they in
no way replace the need for a watershed. As was discussed in the last meeting
regarding replacement of Long Creek on the Charles Tract, there is no way to
accomplish replacement of Long Creek due to the dike and altered topography
associated with the slime ponds. This would be the same situation in the future with the
creeks on the NCPC peninsula if mining dikes are built in the proximate watershed of
these creeks. Therefore, we believe that mining in the NCPC area should be minimized
2
as much as practical and then proceed to the South of 33 tract since the wetland, stream
and buffer impacts are clearly less there than in either the NCPC or Bonnerton Tracts.
We believe that the next step in the process should be to develop further refinements
of the DWQ stream avoidance boundaries as outlined above. We would be glad to sit
down with representatives of PCS Phosphate to examine some of these refinements in
more detail. If such a meeting would be useful, please call me at 919-733-9646.
Sincerely yours,
John Dorney
Cc: Bob Zarzecki
Jimmie Overton
Tom Steffens
Tom Walker, US Army Corps of Engineers
Sam Cooper, CZR -Wilmington]
Mary Alsentzer, PTRF
Becky Fox, US EPA
David Lekson, US Army Corps of Engineers
Maria Tripp, NC Wildlife Resources Commission
David McNaught, Environmental Defense
David Moye, Division of Coastal Management - Washington Regional Office
Richard Peed, Division of Land Resources -Washington Regional Office
Ron Sechler, National Marine Fisheries Service
Sean McKenna, NC Division of Marine Fisheries
d
r 14 ew .11? 1/0
4"-P elv,
01
,? t
Team Meeting
imap://bob.zarzecki%40dwq. [e-mail]:143/fe...
Subject: Team Meeting
From: "Walker, William T SAW" <[e-mail]>
Date: Wed, 8 Dec 2004 12:24:12 -0600
To: "Becky Fox (E-mail)" <[e-mail]>, Bill Schimming <[e-mail]>,
Bob Zarzecki <[e-mail]>, David Cox <[e-mail]>, "David M SAW
Lekson (E-mail)" <[e-mail]>, David McNaught
<[e-mail]>, David Moye <[e-mail]>, George House
<[e-mail]>, Heather Jacobs <[e-mail]>, Jeff Furness
<[e-mail]>, Jerry Waters <[e-mail]>, Jim Hudgens
<[e-mail]>, Jimmie Overton <[e-mail]>, John Dorney
<[e-mail]>, "Maria Tripp (E-mail)" <[e-mail]>, Mary Alsentzer
<[e-mail]>, Mike Wicker <[e-mail]>, Richard Peed <[e-mail]>,
Ross Smith <[e-mail]>, Sam Cooper <[e-mail]>, "Scott SAW Jones
(E-mail)" <[e-mail]>, Sean McKenna <[e-mail]>,
"smtp-Sechler, Ron" <[e-mail]>, Ted Tyndall <[e-mail]>, Terry Moore
<[e-mail]>, Tom Steffens <[e-mail]>
All,
Everyone should have received a package of information from CZR yesterday. If you have not,
please contact CZR. We will be meeting next Tuesday (Dec. 14th) at the Washington DENR office main
conference room. The meeting will begin at 1030. Below is the proposed agenda.
1030-1100 Review Status update (Walker)
1100-1200 Cost model update, including sequencing (PCS)
1200 - 1300 Lunch
1300 - 1400 Alternatives - Holistic "SC" boundary (PCS)
1400 - 1500 Mitigation template (PCS / CZR)
Thanks
Tom Walker
1 of 1 12/10/2004 9:22 AM
CZR
INCORPORATED
?NMENTAL CONSULTANT;
4709 COLLEGE ACRES DRIVE
SUITE 2
WILMINGTON, NORTH CAROLINA 28403-1725
TEL [phone]
FAX [phone]
[e-mail]
LETTER OF TRANSMITTAL
TO: Ms. Mary Alsentzer (PTRF)
Mr. John Dorney (NCDWQ)
Ms. Becky Fox (USEPA)
Mr. Jeffrey C. Furness (PCS)
Mr. James M. Hudgens (CZR)
Mr. Scott Jones (USACE)
Mr. Tom Steffens (NCDWQ)
Mr. David M. Lekson (USACE)
Ms. Maria Tripp (NCWRC)
Mr. Mike Wicker (USFWS)
Dr. David McNaught (ED)
Mr. Ted Tyndal (NCDCM)
FROM: Samuel Cooper and Julia Kirkland Berger
DATE: 3 December 2004
Mr. David Moye (NCDCM)
Mr. Jimmie Overton (NCDWQ)
Mr. Richard Peed (NCDLR)
Mr. William A. Schimming (Potash)
Mr. Ron Sechler (NMFS)
Mr. Ross Smith (PCS)
Mr. Tom Walker (USACE)
Mr. Sean McKenna (NCDMF)
Mr. Bob Zarzecki (NCDWQ)
Mr. Terry Moore (NCDCM)
Mr. George House (PCS-Brooks Firm)
Mr. Jerry Waters (PCS)
SUBJECT: Pre-meeting package for review
WE ARE SENDING YOU: ® Attached via UPS
21R@L99M?p
DEC 0 6 2004
WETLANDS AND TORMWATER BR#n
Copies Date Description
1 PCS Cost Model Update (PowerPoint Presentation), 26 pages
1 PCS Cost Model Input Criteria - Appendix 2 NarratT've, 5 pages
1 PCS Mine Continuation-Mitigation Approach (PowerPoint
Presentation), 20 pages
1 18 November 2004 CZR - SC Boundary Biotic Communities and Impacts - NCPC, 1
figure
1 18 November 2004 CZR - SC Boundary Biotic Communities and Impacts - Bonnerton,
1 figure
1 30 November 2004 CZR - SC Boundary Biotic Communities and Impacts - S33, 1
figure
1 30 November 2004 CZR - Impact Summary Table, 1 page
THESE ARE TRANSMITTED: ® For review ® For your information
REMARKS:
All enclosures are for the 17" PCS Mine Continuation EIS Team meeting on 14 December 2004 at
DENR office, Washington, NC. C'
c
Signed. Julia Kirkland Berge
1061 EAST INDIANTOWN ROAD • SUITE 100 • JUPITER, FLORIDA 33477-5143
TEL [phone] • FAX [phone] • [e-mail] • www.CZRINC.com
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This enclosure is to be added as Appendix 2 to the 47-page
Cost Model Narrative that was attached to a June 25, 2003
e-mail from David Lekson to the interagency project team.
The narrative was titled "Mine Continuation Cost Model
Narrative for PCS Phosphate Aurora Division"
March 2003
Prepared by: Marston
APPENDIX 2
Cost Model Input Criteria
Mine Plan Parameters
• Mine plans are based on geological data for three areas (NCPC, Bonnerton, South 33)
• Modeled each overburden unit by horizon and thickness
• Modeled phosphate ore reserve by horizon and thickness
• Modeled phosphate ore reserve by quality values
• Mine advance simulation model for bucketwheel and dragline production sequencing
to support annual production of 5 million tons concentrate containing:
• In-situ overburden volumes by unit
• In-situ, recoverable, pumped, feed and concentrate ore volumes and tons
• In-situ, mined, feed and concentrate ore quality values
• Mine plans and layouts are based on maximizing the ore recovery and minimizing the
overburden rehandle.
• Prestripping maintains approximately 2,500 foot face ahead of the dragline mine
advance
• Maximum distance between prestrip and dragline mining faces of 5,000 feet.
• Mine bench is optimally designed depending upon overburden geology and geometry
• Maximum bucketwheel and dragline thickness based on equipment capabilities
• Allocates material handled to bucketwheels and draglines
• Permit boundaries are constrained by the mining alternative selected.
• Recoverable ore boundaries are based on the required utility corridors interior to the
permit boundary, pit wall slopes and backfilling requirements
• Mining recovery - Overall 85%
• Pit - 90%
• Bench - 95%
• Dragline material rehandle - 25%
• Overburden - 5%
• Ore - 20%
• Overburden pumping system utilized to increase prestrip capacity, handle small
outlying areas and minimize area moves. Overburden pumping system can be
utilized with draglines to handle excess overburden and removal of poor stacking
material.
• Prestripping production factors:
• Bucket Wheel Excavators 1,600 bcy/operating hour
without pumping with pumping
• 2 units 14 million bey 16 million bey
• 3 units 21 million bey 23 million bey
• Dragline production factors
• BE2500 overburden
• BE2500 ore
• Marion 8200 overburden
• Marion 8200 ore
• Marion 8050 overburden
• Marion 8050 ore
3,800 bcy/op hr
2,250 bey/op hr
3,900 bcy/op hr
2,650 bcy/op hr
3,000 bcy/op hr
2,100 bcy/op hr
• Maximum dragline production is dependent upon the combination of overburden and
ore handled (and rehandled) but generally maximum at 57 million bey of total
material.
• Mining equipment utilization factors
• Bucket Wheel Excavators
• 52% (conveyed)
• 65% (pumped)
• BE2550 69%
• Marion 8200 66%
• Marion 8050 68%
Annual Mine Plan Statistics Input to Cost Model
Prestripping
• Prestripping volume
• Overburden conveyed volume
• Overburden pumped volume
• Overburden pumped distance
• Prestrip overburden thickness
• Acres of sterilized (un-mined) ore
• Scheduled bucketwheel system shifts/moves
Mining
• Effective overburden and ore volume by dragline
• Mining Area
• Overburden stripping thickness
• Overburden pumped volume
2

• Overburden pumping distance
Mining (continued)
• Ore pumped tons
• Ore pumping distance
• Scheduled major dragline turnarounds
• Total concentrate produced
Mill Concentrator
• Single float feed tons
• Double float feed tons
• Sand tailings tons
• Sand tailings pumping distance
• Clay tons
• Gypsum tons
• Blend tons pumped
• Blend pumping distance
• Single float concentrate tons
• Double float concentrate tons
Mine Services
• Land clearing
• Mine dewatering
• Blend tons pumped
Cost Model Unit Costs
• The cost model utilizes objective and functional unit costs developed from the 2003
operating budget and are adjusted annually based on plan production statistics.
• Operating and maintenance labor costs are fixed by shift requirements and
determined annually.
• The following department shift schedules are determined annually in the mine plan
for determining labor costs:
• Bucketwheels
• Conveyed Overburden
• Pumped Overburden
• Draglines
• Ore Pumping
• Pumped Overburden
• Mine Services crew
• Mill Concentrator
3

• The following functional unit costs are treated as variable costs:
• Operating supplies
• General supplies (power)
• Contract maintenance
• Depreciation
• Depletion
• Flocculents
• Reagents/Fuel/Lime
• Sulfuric acid
• Other costs
• In the Mill Concentrator the operating supplies and other costs are considered fixed;
and general supplies (power) are fixed for Mine Services activities in relation to the
mine area.
• Contract operations are treated as fixed except contract operations costs related to
blend capping which is variable.
• Plant general area allocations are a fixed cost for the Mill Concentrator.
• Maintenance supplies are treated as 25% fixed and 75% variable; department
allocated overheads are fixed except the portion related to employee fringe benefits
which is variable and is estimated at 50.3% of direct labor costs.
Capital and Mitigation Costs
• The cost model includes cost recovery of capital expenditures for mine relocations,
pit openings and infrastructure relocations, including:
• NCPC - Alt-E development write-off
• NCPC - Alt-1A development requirements (infrastructure relocations)
• Bonnerton mine relocation and pit opening capital
• South 33 mine relocation and pit opening capital
• South 33 receding face capital requirements
• Current and planned wetland mitigation costs are included in the cost model for:
• NCPC - Alt-E
• NCPC - Alt-IA
• Bonnerton
• S33
Estimates of total wetland mitigation costs have been developed for each area and are
spread over total acres mined by mine area.
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Summary of Impacts for PCS Avoidance Boundaries
Linear Feet of Streams and Biotic Community Acreages Shown for
Applicant Preferred, SC, DCM/CAMA, DWQ Perennial, and DWQ Intermittent
Base Study Area (ac) (Ift) Applicant Preferred Boundary SC Boundary DCM/CAMA Avoidance Boundary
D Stream

vor `,
Boundary Perennial

Intermittent Stream Avoidance
Boundary
Impacts (ac) (If) Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (Ift)
Biotic Community Type Map ID NCPC 1 BT' S33 3 Total NCPC 4 BT 5 S336 Total
impacts Total
avoided NCPC 10 BT 18 S3319 Total
impacts Total
avoided NCPC T BT 8 S339 Total
impacts Total
avoided NCPC" BT" S3314 Total
impacts Total
avoided NCPC" BT 16 S3317 Total
impacts Total
avoided
Public Trust Waters
Linear Feet 1A
JA 44
,31502 0
1876 4
9680 48
43038 5
14564 0
1876 4
. 9660 9
26190 39
16938 0
0 0
0 0
0 0
0 48
43038 0
- 0 0
.; 0 0
0 0
0 48
4303,8. 0
0. 0
0 0
0 0
0 48
41038 0
.0 0
0 0
:- 0 0
0 48
43038
Perennial Stream
Linear Feet 1B
1B 3
7008 2
7419 5
28137 10
425" 3
7008 2
7419 4
70534 9
34961, 1
7603 0
2400 0
0 2
19776 2
22176 8
20388 3
5155 2
7207 4
20288 9
32650 1
99 0
0 0
0 0
0 0
0 10
42564 0
0 0
0
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0 0
0 10
42564
Intermittent Stream
UrlearFget 1C
1C 3
,17267 4
=5202 1
5429 8
. 27898 3
17267 4
5202 0
4079 7
- 26548 1
1350 3
16213 4
4200 0
2563 7
22976 1
4922 3
16934 4
-5202' 0
' 3997 7
26133 1
176 3
16265 4
5099, 0
`1437 7
22801 1
5rQ97 0
0 0
0 0
0 0
0 8
22898
Wetland Brackish Marsh Complex 2 87 0 0 87 38 0 0 38 49 0 0 0 0 87 0 0 0 0 87 0 0 0 0 87 0 0 0 0 87
Wetland Botfomland Hardwood Forest 102 71 :27 290 102 71 7 180` 20 83 50 7 140 60 9f 67 1 1& 82 59 p X141 56 46 44 0 84 " - 116
Wetland Herbaceous Assemblage 4 256 48 281 585 253 48 191 492 93 240 42 191 473 112 246 48 191 485 100 245 48 236 529 56 245 48 236 529 56
We

tlandShr u blscrub-Assembla`
?? g e;
5
213
277
86
576
202
277
81
510
66
189
275
31
495
81
192
' 277
31
500
76
191
277
. ` 29
497
79
175
273
29
477
99
Wetland Pine Plantation 6 529 206 127 862 514 206 111. 831 31 502 206 111 819 43 501 206 111 818 44 497 206 99 802 60 497 202 99 798 64
Wetland Hardwood Forest 7 516 527 694 1737 509 527 612 1648 89 482 469 603 1554 183 491 525 611 1627 110 487 522 533 1542 195 477 512 533 1522 215

Wetland Mixed Pine/hardwood Forest
8
579 -
498
249
1326
565 -
498
126
1189 -
137
469
484
123
1076 -
250
529
498 --
126
1153
173
526 -
497
98
1121 -
205
475
472
98
1045
281
Wetland Pixie for"est 9 197 211 170 578 195 211 44 450 128 162 207 44 413 165 188 211 -- 44 443 135 187 ' 211 4 402 176 188 208 4 400 178
Wetland Pocosin - Bay Forest 10 0 264 45 309 0 264 0 264 45 0 264 0 264 45 0 264 0 264 45 0 264 0 264 45 0 264 0 264 45
Wetland Sand Ridge Forest 11 0 22 , 11 33 0 22 0 22 11 0 22 0 22 11 0 22 0 22 11 0 22 0 22 11 0 22 0 22 11
Pond 12 20 0 1 21 19 0 0 19 2 16 0 0 16 5 15 0 0 15 6 15 0 0 15 6 17 0 0 17, 4
Wetland Maintained Area 13 0 0 0 0 0 0 0 0 0 0 0 0 0 ! o A 0 - 0 0 0 0 0 0 0 0 0 0 0 0 0
Upland Herbaceous Assemblage 14 242 5 238 485 234 5 230 469 16 211 5 224 440 45 230 5 225 460 25 229; -
5 229 463 22 226 6 229 461 _
24
Upland Shrub/scrub Assemblage 15 265 83 68 416 262 83 66 411 5 239 69 62 370 46 254 83 62 399 17 249 78 61 388 28 235 76 61 372 44
Upland Pine Plantation 16 61 67 622 750 55 67 608 730 19 47 45 566 658 92 49 67 607 723 27 47 67 585 699 51 47 65 584 696 54
Upland Hardwood Forest 17 79 43 325 447 67 43,
319
429
18
50
31
227
308
139
60
43
306
409
38
57
43
288
388
59
54
35
284
373
74
Upland Mixed Pine/hardwood Forest 18 155 120 489 764 140 120 420 680 84 116 111 358 585 179 133 120 414 667 97 131 120 398 649 115 111 94 397 602 162
Upland Pine Forest 19 ` 48 16 301 365 38 16 174 228 137 21 11 126 158 207 35 16 172 223 142 35 16 .173 224 141 34 14 171 ' 219 146
Upland Sand Ridge Forest 20 0 42 113 155 0 42 4 46 109 0 42 4 461 109 0 42 4 46 109 0 42 5 47 108 0 42 5 47 108
Upland Agricultural Land 21 117 247 4611 4975 117 247 4594 4958 18 116 244 4531 4891 84 114 247 4594 4955 20 114 247 4550 4911 64 100 239 4548 4887 88
Upland Non-vegetated/maintained Are 22 94 52 217 363 92 52 203 347 16 83 41 193 317 46 91 52 203 346 17 90 52 192 334 29 83 41 192 316 47
TOTAL (wetlands,waters,uplands 3610 ,,2805 8685 15190 3413 2,4061 71481 , 13966 1134 3029 2622 7403 13054 2046 3225 2799 7712 13736 1364 31,851 2780 7480 .13445 1655 3004 265171 , 7470 13131 1969

Total linear feet of streams (Ift)
Total wetlands/waters (ac
Total uplands (a,c)
Total recovered concentrate (million tons] 55777
2549
.1061
N/A 14497
2130
675
N/A 43226
1701
6984
N/A 113500
6380
8720
N/A 38839
2408
1005
77 14497
2130
675
46 34273
1130
6618
135 87609
5668
8298
258 25891
712
422
N/A 18613
2146
883
59 4200
2023
599
39 22339
1112
6291
125 45152,
5281
7773
223 68348
1099
947
NA 22089
2259
966
64 12409
2124
: 675
44 24285
1125
6587
130 58783
5508
8228
238 54717
872
492
N/A 16265
2233
952
61 5099
2110
670
41 1437
999
- 6481
118 22801
5342
8103
220 90699
1038
617
N/A 0
2114
890
50 0
2045
612
38 0
999
6471
117 0
5158
7973
205 113500
1222
747
N/A
Date of figure/drawing
' 07/28/04 3 08102104 5 08109/04 7 0813/04 9 08/2104 " 10/14104 13 08/2/04 15 10/14/04 17 10113104 1911/28/04
2 07127/04 4 08/02104 6 08101/04 a 08/3104 1011/18104 12 0812/04 14 08/2/04 16 10/13104 1811/18/04
NOTE: Total recovered concentrate information provided by PCS Phosphate.
Linear feet of streams provided by CZR graphics 18 October and 28 November 2004.
30 November 2004
C:IDocuments and SettingslAll UserslDocumentslMy Filesljobs1174511745.621091TEAM MEETINGS1Minutes PREPS\17\impact-summary-Nov30 DRAFT
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Z R 4709 COLLEGE ACRES DRIVE
SUITE 2
ti INCORPORATED WILMINGTON, NORTH CAROLINA 28403-1725
ENVIRONMENTAL CONSULTANTS TEL [phone]
FAX [phone]
[e-mail]
LETTER OF TRANSMITTAL
TO: Ms. Mary Alsentzer (PTRF)
Mr. John Dorney (NCDWQ)
Ms. Becky Fox (USEPA)
Mr. Jeffrey C. Furness (PCS)
Mr. James M. Hudgens (CZR)
Mr. Scott Jones (USACE)
Mr. Tom Steffens (NCDWQ)
Mr. David M. Lekson (USACE)
Ms. Maria Tripp (NCWRC)
Mr. Mike Wicker (USFWS)
Dr. David McNaught (ED)
Mr. Ted Tyndal (NCDCM)
FROM: Cheryl Mullen
DATE: 23 November 2004
SUBJECT: See Below
WE ARE SENDING YOU:
Mr. David Moye (NCDCM)
Mr. Jimmie Overton (NCDWQ)
Mr. Richard Peed (NCDLR)
Mr. William A. Schimming (Potash)
Mr. Ron Sechler (NMFS)
Mr. Ross Smith (PCS)
Mr. Tom Walker (USACE)
Mr. Sean McKenna (NCDMF)
Mr. Bob Zarzecki (NCDWQ)
Mr. Terry Moore (NCDCM)
Mr. George House (PCS-Brooks Firm)
Ms. Kathy Matthews (USEPA)
® Attached via UPS
Copies Date Description
1 16 November 2004 FINAL Summary Minutes of the 2 September 2004 PCS EIS Team
Meeting (15th meeting)
1 19 November 2004 DRAFT Summary Minutes of the 19 October 2004 PCS EIS Team
Meeting (16"' meeting)
THESE ARE TRANSMITTED: ® For review
REMARKS:
Q?r=oe??
c?
NOV 2 4 2004
DENR - WATER QUALITY
WETLANDS AND STORMWATER BRANCH
® For your information
Signed:
1061 EAST INDIANTOWN ROAD - SUITE 100 - JUPITER, FLORIDA 33477-5143
TEL [phone] - FAX [phone] - [e-mail] - www.CZRINC.com

E? \\` c a
m
ZR
N INCORPORATED
ENVIRONMENTAL CONSULTANT;
4709 COLLEGE ACRES DRIVE
SUITE 2
WILMINGTON, NORTH CAROLINA 28403-1725
MEMORANDUM
TO: See Distribute
FROM: Samuel Coop r, Julia Berger
DATE: 16 November 2004
TEL [phone]
FAX [phone]
[e-mail]
RE: Summary Minutes of the 2 September 2004 meeting for the PCS Phosphate
Mine Continuation permit application review.
1 The 15th meeting for the review of PCS Phosphate's Mine Continuation permit application was
2 held at the DENR Washington regional office on 2 September 2004. The following people
3 attended:
4
5 Tom Walker - USACE
6 Dave Lekson - USACE
7 Mary Alsentzer - PTRF
8 Heather Jacobs - PTRF
9 Bill Schimming - Potash Corporation
10 Ross Smith - PCS Phosphate
11 Jeff Furness - PCS Phosphate
12 Jerry Waters - PCS Phosphate
13 David Moye - NCDCM
14 Kelly Spivey- NCDCM
15 Ted Tyndall - NCDCM
16 Sean McKenna - NCDMF
17 Ron Sechler - NOAA Fisheries
30
1
18 John Dorney - NCDWQ
19 Jimmie Overton - NCDWQ
20 Tom Steffens - NCDWQ
21 Ed Warren - NCDWQ
22 Kyle Barnes - NCDWQ
23 Maria Tripp - NCWRC
24 Mike Wicker - USFWS
25 Richard Peed - NCDLR
26 Samuel Cooper - CZR
27 Julia Berger - CZR
28 Jim Hudgens - CZR
29 Becky Fox - USEPA via speakerphone
1061 EAST INDIANTOWN ROAD • SUITE 100 • JUPITER, FLORIDA 33477-5143
TEL [phone] • FAX [phone] • [e-mail] • www.CZRINC.com
31 The meeting began at 10:25 am on 2 September 2004 at the DENR Washington regional
32 office.
33
34 ITEMS DISCUSSED OR DECIDED:
35 ¦ Next EIS Team meeting (16th) was scheduled for 19 October 2004. It will be held from
36 10 am until 3 pm at the USDA Service Center in Washington North Carolina.
37
38 ¦ CZR distributed copies of the draft 14th meeting minutes in summary format. After some
39 discussion, the group decided on the summary format for future meeting minutes.
40
41 ¦ CZR distributed a table summarizing the 50-foot stream buffer acreage for perennial and
42 intermittent streams in the three blocks as requested by Bob Zarzecki at the 13th
43 meeting.
44
45 ¦ CZR indicated that WRAP data are available for the three mining areas and that they are
46 awaiting information (NCPC maps) and guidance from DWQ regarding use of wetland
47 evaluation procedures/methods.
48
49 PCS showed detailed mine plans for the Applicant's Preferred and DWQ Avoidance
50 Boundary options along with a comparison table of mined acreage compared to ore
51 recovery by avoidance boundary option (Attachment 1).
52
53 There was some confusion about the difference in the excavation acreages presented in
54 CZR's avoidance summary table and those shown in the PCS comparison table. The
55 excavation acreages in the CZR table represent draft maximum excavation limits, while
56 those shown in the PCS comparison table represent excavation acreages from a more
57 refined mining plan. The "total impacts" by community shown in avoidance summary
58 table represent the maximum impact within a specific avoidance boundary and include
59 all excavation and disturbance acreages. In future, CZR figures will only show "impact
60 acreage" which includes all mining and associated work (disturbance limits). PCS will
61 present information on recoverable ore.
62
63 After some discussion about how to display sequencing details, it was determined that
64 on detailed agency avoidance mine plans, PCS must show total mine years available
2 11/16/2004
65 per block, not a year-by-year sequence. At this time, the EIS Team is more interested in
66 establishment of a boundary not a specific mining plan or sequence.
67
68 PCS requested help from agencies on intermediate line development between the
69 agency avoidance and applicant preferred options. PCS was told that the "agency
70 avoidance areas" provided to PCS at the 2 June meeting were not absolutes; they were
71 more of a priority listing of communities to avoid.
72
73 PCS wants the team to understand that the revised figures of NCPC and Bonnerton
74 Agency Priority Avoidance boundaries handed out by CZR at this meeting do show
75 areas which "could" be mined as far as agencies are concerned, but are not necessarily
76 practicable from a mining perspective.
77
78 The Corps will not be permitting a specified time-frame to PCS, but will be permitting a
79 specified impact area and a specific mine sequence.
80
81
82 ACTION ITEMS (Corps)
83 ¦ Mr. Walker will provide Corps comments on draft 13th detailed meeting minutes for CZR
84 to distribute to team members.
85 ¦ Mr. Walker will email a spreadsheet of all contact information (phone, fax, email) for
86 team members.
87
88 ACTION ITEMS (Team)
89 Any team member who will attend a meeting by conference call should be sent all
90 handouts/presentations ahead of time (usually Becky Fox).
91 Members were asked/advised by Mr. Walker to review 13th draft minutes carefully upon
92 receipt and get their edits to CZR in a timely fashion.
93 Mr. Cooper requested comments/edits on the 14th draft minutes summary within one
94 week.
95
96 ACTION ITEMS (PCS)
97 ¦ PCS must use "Applicant Preferred" in graphics depicting their preferred boundary.
98 ¦ Mr. Dorney requested PCS to prepare an intermittent stream avoidance boundary
99 including the buffers.
3 11/16/2004
100 PCS intends to have some intermediate boundary lines developed for discussion at the
101 next meeting.
102
103 ACTION ITEMS (CZR)
104 ¦ DWQ requested that linear feet of streams be added to CZR's master summary
105 avoidance table and to the stream buffer table.
106 ¦ All graphics depicting PCS's preferred boundary will be titled "Applicant Preferred".
107
108 The group adjourned at 11:55. Agencies reconvened at 1:00 pm for discussion about
109 sequencing issues and reopening conditions of a longer permit. Mr. Walker subsequently
110 circulated an email summarizing these discussions (Attachment 2).
111
112 Attachment 1:
113
114 PCS PowerPoint Presentation of Detailed Mine Plan Sequences for Applicant Preferred
115 Option and DWQ Avoidance Option
116
117 Attachment 2:
118
119 Corps Summary Email of Afternoon Agency Discussion, 2 September 2004
120
Distribution
Ms. Mary Alsentzer
Pamlico Tar River Foundation
Post Office Box 1854
Washington, North Carolina 27889
Mr. John Dorney
Division of Water Quality
North Carolina Department of Environment and
Natural Resources
Wetlands/401 Wetlands Unit
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Ms. Becky Fox
Environmental Protection Agency
1349 Firefly Road
Whittier, NC 28789
Mr. Jeffrey C. Furness
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. James M. Hudgens
CZR Incorporated
1061 East Indiantown Road, Suite100
Jupiter, Florida 33477-5143
Mr. Scott Jones
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
Mr. David M. Lekson
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
Mr. Sean McKenna
Division of Marine Fisheries
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
4 11/16/2004
Dr. David McNaught
Environmental Defense
2500 Blue Ridge Road, Suite 330
Raleigh, North Carolina 27607
Ms. Kathy Matthews
Wetlands Regulatory Section USEPA/EAB
Wetlands Management Division
980 College Station Road
Athens, Georgia 30605
Mr. Terry Moore
Division of Coastal Management
North Carolina Department of Environment and
Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. David Moye
Division of Coastal Management
North Carolina Department of Environment and
Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Jimmie Overton
NC Division of Water Quality
Environmental Sciences Section
4401 Reedy Creek Road
Raleigh, North Carolina 27607
Mr. Jerry Waters
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Richard Peed
Division of Land Resources
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. William A. Schimming
Potash Corp.
Post Office Box 3320
Northbrook, Illinois 60062
Mr. Ron Sechler
National Marine Fisheries Service
101 Pivers Island Road
Beaufort, North Carolina 28516
Mr. Ross Smith
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Tom Steffens
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Ms. Maria Tripp
North Carolina Wildlife Resources
Commission
Habitat Conservation Section
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Tom Walker
U.S. Army Corps of Engineers
Regulatory Division
P.O. Box 1890
Wilmington, North Carolina 28402
Mr. Mike Wicker
U.S. Fish and Wildlife Service
Post Office Box 33726
Raleigh, North Carolina 27636-3726
Mr. Bob Zarzecki
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Mr. Ted Tyndall
North Carolina Division Coastal
Management
Morehead City District Office
151-B Hwy. 24 Hestron Plaza 11
Morehead City, NC 28557
Mr. George House
Brooks, Pierce, McLendon, Humphrey &
Leonard
P.O. Box 26000
Greensboro, NC 27420
5 11/16/2004
ATTACHMENT 1
PCS POWERPOINT PRESENTATION OF
DETAILED MINE PLAN SEQUENCES
FOR APPLICANT PREFERRED OPTION AND DWQ AVOIDANCE OPTION
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ATTACHMENT 2
CORPS' SUMMARY EMAIL OF AFTERNOON AGENCY DISCUSSION
2 SEPTEMBER 2004
Subj: PCS Phosphate
Date: 9/812004 11:28:09 AM Eastern Daylight Time
From: "Walker William T SAW" <William.TAVal'kera)SaVV02.usace.army._mil>
To: "Becky Fox (E-mail)" <fox.rebecca(a)ep_g. w , Bill
Schimminq<waschimminc(:(?, potashcorp.con,>, Bob 7arzecki
<bob.zarzecki(a-?ncrrail net>, David Cox <davrd.cox(a?ncwildlife.or "David M SAW
Lekson (E-mail)"<David. M.Lekson(ab_saw02.usace.a ma V.miI>, David
McNaught<dmcnaught(cDenvir-onmentaidefense.orq?, David Vloye
<david.moye rl,ncrnail.net>, George House <ghouse((r brookspierce.com>, Heather
pcsphosphate.com>, Jerry
Jacobs<riverkeeper cr ptrf.orq?, Leff Furness <ifurness(c)
Waters <iwaters(a4,pcsphosphate cone>, Jim Hudgens <czrjim0_ao1.com>, Jimmie
Overton <hmmie.overton aQncmaiknet>, John Dorney<lohn.dorney(c)ncmail.net>,
"Maria Tripp (E-mail)"<Maria.Tripp(c-z)ncwildlife.orq>, Mary Alsentzer <[e-mail]>,
Mike Wicker <mike [e-mail]>, Richard Peed <richard.peed a,ncmail net>,
Ross Smith <rsmith(a?pesphosphate.com>, Sam Cooper <czrwilmC?aol.com>, "Scott
SAW Jones (E-mail)"<Scott.Jones(c?saw02.usace.army.mil>, Sean
McKenna<sean.mckenna(anncmail.net>, "smtp-Sechler, Ron"
<ron.sechler(a?noaa.govTed Tyndall <ted.tyndallnncmail.net>, Terry
Moore<terry.moore ncmaiLnet>, TomS_teff_ns <[e-mail]_t>_
Cc: "Lamson Brooke SAW" <Brooke.Lamson?saw02.usace.army mil>
Sent ftom the Internet (Details
All,
It was decided that our next meeting be held 10:00 am - 3:00 pm, October 19, 2004.
The DENR conference room was not available so we have arranged to meet at the USDA
Service Center in Washington, NC. This facility is located at 155 Airport Road directly
across from Washington Regional Airport. For those not familiar with the Washington
area; from Washington Square Mall (DENR Office) proceed east on US 264, turn left on
Market Street extension, go approximately 1 mile, turn left on Airport Road, Service
Center is first (and only) building on right past Susie Grey McConnell Sports Complex.
Following the Sept. 2 permit review team meeting, the agencies met to discuss exploring
alternatives that would include the remainder of PCS mining activities within the current
Project Area (remainder of NCPC + Bonnerton + South 33). Under this scenario,
alternative design would not focus on a specific time frame (e.g. 20 yr.) but rather an
overall area of impact. Group consensus was reached on the following:
1. The applicant should design and present mining boundaries depicting
all proposed impacts within the current project area.
2. If NEPA review indicated that the preferred alternative included more
than 20 yr. of mining activity, a permit to authorize such activity could be
issued provided the permit was adequately conditioned.
3. It should be understood that any potential boundary based on the
remainder of mining will only be assessed in its entirety. Areas should not
be pulled from the overall plan and considered "stand alone".
As we proceed with this review process, our next step is to work with the applicant to
develop a reasonable mining boundary that avoids to the maximum extent, those most
sensitive aquatic resources. Once this boundary is established, we can then begin to
examine alternatives which may include but are not limited to further avoidance to the
maximum extent practicable, various mining sequences, and alternative mining methods.
There was also group consensus that any long term permit would necessarily include
some type of conditioned periodic review to address concerns and/or options that may
arise after initial permit issuance. I would like to begin discussion of what this review
will and will not include. I feel we need to give this matter consideration prior to the
October meeting so I have listed a few things below that have come up in discussion thus
far. Please provide comments/additions to this list at will. Understand, this list is for
discussion purposes only, inclusion or omission from this list does not in any way imply a
final decision at this point.
Possible points to include in periodic review or as permit conditions
1. Review of mining technologies
2. Mine advancement tied to mitigation success (i.e. can't move into area
X until Y acres of compensatory mitigation is in ground / is successful)
3. Review of mining sequence
4. Monitoring of certain biotic and abiotic conditions (e.g. aquatic and
terrestrial Cadmium levels) potentially with "Stop Work" clauses
5. Discovery/listing of Endangered species and/or critical habitat
Thank You
Tom Walker
'. C
Z R
-? INCORPORATED
4709 COLLEGE ACRES DRIVE
SUITE 2
WILMINGTON, NORTH CAROLINA 28403-1725
.TANTS
DRAFT
MEMORANDUM
TEL [phone]
FAX [phone]
[e-mail]
TO: See Distribution
FROM: Samuel Cooper, Julia Berg
DATE: 19 November 2004
RE: Summary Minutes of the 19 October 2004 meeting for the PCS Phosphate Mine
Continuation permit application review.
1 The 16th meeting for the review of PCS Phosphate's Mine Continuation permit application was
2 held at the USDA Service Center in Washington on 19 October 2004. The following people
3 attended:
4
5 Tom Walker - USACE
6 Dave Lekson - USACE
7 Mary Alsentzer - PTRF
8 Heather Jacobs - PTRF
9 Bill Schimming - Potash Corporation
10 Ross Smith - PCS Phosphate
11 Jeff Furness - PCS Phosphate
12 Jerry Waters - PCS Phosphate
13 David Moye - NCDCM
14 John Dorney - NCDWQ
15 Terry Moore -NCDCM
16 Jimmie Overton - NCDWQ
17 Bob Zarzecki - NCDWQ
18 Tom Steffens - NCDWQ
19 Kyle Barnes - NCDWQ
20 Maria Tripp - NCWRC
21 Mike Wicker - USFWS
22 Richard Peed - NCDLR
23 Samuel Cooper - CZR
24 Julia Berger - CZR
25 Jim Hudgens - CZR
26 Becky Fox - USEPA
27
28 The meeting was held from 10:15 am to 2:50 pm (with a 1-hour lunch break) on 19 October
29 2004 at the USDA Service Center in Washington. The agenda followed is found in Attachment
30 1.
1
1061 EAST INDIANTOWN ROAD • SUITE 100 • JUPITER, FLORIDA 33477-5143
TEL [phone] • FAX [phone] • [e-mail] • www.CZRINC.com
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
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60
61
62
63
64
65
ITEMS DISCUSSED OR DECIDED:
¦ Next EIS Team meeting (17th) was scheduled for 14 December 2004. It will be held from
8:00 am until noon at the Washington DENR office.
¦ Corps encouraged Team members to participate in development of meeting agendas, to
become engaged in other aspects of the process, and to communicate between
meetings electronically.
¦ Team members will receive meeting materials from CZR at least one week in advance of
the meeting and there must be substantive items to discuss or Corps may reschedule.
Members must have reasonable time in advance to absorb materials in order to provide
constructive discussion at the meeting.
¦ Final comments/questions/requests on materials presented by PCS at the 16th meeting
are due by 2 November 2004.
¦ DWQ shared three potential state-listed or county-listed sites for avoidance and
minimization and/or preservation suggested to DWQ by NCNHP representatives:
Eastern Gum Swamp, Suffolk Scarp bogs, and Western Gum Swamp.
¦ PCS should present a mitigation "template" to the Team based on the "recipe" provided
at the 11th Team meeting (28 January 20004) where agencies provided feedback on
their mitigation policies and standard ratios. PCS asked how other EIS Teams had
prevented the applicants' potential mitigation sites being preempted by others as a result
of sharing site locations with the Team. It was determined that at this time the Team is
more interested in types of properties and the complex of the entire potential mitigation
suite rather than specific properties. On-site and in-kind remain the priority type of
mitigation.
¦ CZR requested comments on the draft 15th meeting minutes be received by 27 October
2004.
¦ CZR reviewed pre-meeting package items and materials provided by CZR and PCS as
handouts at the meeting (Attachment 2). CZR requested that the summary impact table
2
11/19/2004
66 dated 14 October 2004 sent out in the pre-meeting package be discarded and replaced
67 with the summary impact table in the handout dated 18 October 2004. Stream buffers
68 are being quantified but are not shown on the 18 October summary table for simplicity.
69 For the time being, the summary impacts table will display whole numbers.
70
71 ¦ On future figures using the Bonnerton aerial, PCS was requested to depict the areas on
72 the east side which have been mined so that the photo remains visible beneath but
73 shows that the area has changed since 1998.
74
75 ¦ On the new boundaries presented by PCS, SC and NS stand for South Creek and
76 Norfolk Southern. However, these are placeholder names only and have no true
77 geographic reference. A line is shown for excavation limits on the figures (brownish), but
78 impacts will go to the outer boundary edge (rose) (Attachment 2 figures).
79
80 PCS's method for drawing the SC boundary was to start with the DCM avoidance
81 boundary, and avoid more land around the drainages. Agencies' requests and drainage
82 basin integrity were incorporated while preserving a technically feasible mine plan.
83 However, avoidance of all intermittent streams is virtually impossible from a mining
84 standpoint. The NS boundary was drawn to provide a straight-line boundary that
85 followed the Norfolk-Southern railroad track. These two boundaries are operational lines
86 only and have not been subjected to any economic analyses. Also, while these
87 boundaries have some areas of impact based on only one dragline, the backside of the
88 actual mining, i.e., the materials balance (dikes, filling, capping, etc.) may affect the
89 practicability of the boundary as shown.
90
91 DCM liked the SC proposal and would find it acceptable as long as the 5 linear feet of
92 impacts to public trust waters as currently shown are removed from impacts. However,
93 DCM could not accept the impacts as shown in the NS boundary because PCS could
94 not meet the criteria for mitigation. PCS was requested to modify the NS boundary line
95 to be two draglines wide and therefore avoid CAMA entirely.
96
97 The question of long-term ownership of NCPC was raised by USFWS in the context of
98 the mitigation template. Corps said that if post-mining ownership of NCPC (perpetuity as
99 wildlife habitat) was included in the mitigation template, credits would not be in the
100 banking context, but in the permit evaluation context.
3 11/19/2004
101
102 ¦ Corps asked the group to identify any high quality areas within the SC boundary that
103 might be difficult to mitigate or which should be avoided. DWQ identified the 18,618 feet
104 of stream impact along with the associated buffers as being very difficult to mitigate.
105
106 ¦ Regarding phone/email correspondence between meetings and computer limitations, it
107 was decided that PCS would hand deliver to PTRF hard copies of any graphics files that
108 were too large for their computer to receive. Agencies could possibly be sent graphics
109 between meetings by computer in pdf format. CZR also has an ftp site to which graphics
110 can be uploaded to avoid the limitations on sending large graphics imposed by the
111 internet.
112
113 The field methods for the interagency wetland assessment are in a draft form and Team
114 members wishing for a copy of same should email Mr. Dorney with a request. For beta-
115 testing of the draft field methods, about 100 people will be trained via invitation (agency
116 personnel and consultants) during one day training sessions scheduled for dates in
117 December at Raleigh, Asheville, Washington, and Wilmington. The field methods will
118 undergo one more round of refinement/editing reflecting beta-testing input with a final
119 product expected by July 2005.
120
121 CZR has WRAP data collected in NCPC, Bonnerton, and S33. Some DWQ wetland
122 ratings (Version 4) are also available. Team members can receive copies of the map
123 upon request to CZR.
124
125 PCS inquired about permutations of sequencing and alternative development necessary
126 within the three blocks. There are potentially six sequences for each of the different
127 boundaries developed. NEPA does not require additional alternative development if the
128 environmental differences between starting in one place and starting in another are not
129 significant. For instance, starting in NCPC might be the same as starting in Bonnerton.
130 However, it is always desirous to postpone impacts when practicable.
131
132 It was agreed that economic information would be presented to the Corps and PCS and
133 the Corps would discuss proprietary information and determined what would and would
134 not be released to others.
135
4 11/19/2004
136 Potential re-opening conditions for a long-term permit may not include stop work clauses
137 as these triggers would be included in the permit itself. Mitigation ratios contained in the
138 mitigation plan that the permit is based upon would not likely change over the life of the
139 permit. Mitigation was done upfront in the last EIS and will likely be required to be
140 upfront for this EIS too. Potential re-opening conditions listed were:
141
142 1) reviews of mining technology
143 2) reviews of what mitigation is in the ground vs. what is required to be in the
144 ground
145 3) reviews of mining sequence-what once was impracticable might become
146 practicable
147 4) capping and cadmium issues not included in the permit
148 5) periodic progress reports to public
149
150 Upfront mitigation will be required to meet at least the minimum ratios for each agency.
151 EPA stream mitigation guidelines do allow for lower ratios for upfront mitigation.
152 Preservation especially is much better done upfront due to its temporal sensitivity.
153
154 PCS requested that if up-front mitigation was required, that the new permit require
155 mitigation to be in the ground with contingencies to address lack of success rather than
156 in the ground, monitored and successful before impacts can occur.
157
158 Corps notified group that PCS applied for a modification to their existing permit which
159 entails 2.4 acres of impacts in the vicinity of the intersection Sandy Landing Road with
160 Hwy 306 and a 0.3-acre impact near the crossing of the highway over Whitehurst Creek.
161 Mr. Furness invited anyone to call him with questions.
162
163 ACTION ITEMS (Corps)
164 Mr. Walker will distribute an electronic version of edited contact sheet sent around the
165 table for review at the meeting.
166
167 ACTION ITEMS (Team)
168 ¦ Edits/comments on draft 15th meeting minutes by 27 October 2004.
169 ¦ Edits/comments on NS and SC boundaries by 2 November 2004.
170
5 11/19/2004
171 ACTION ITEMS (PCS)
172 ¦ Develop a "hybrid" boundary for NCPC, Bonnerton, and S33 using same methodology
173 and agency feedback on NCPC SC and NS boundaries.
174 ¦ Develop a two-dragline NS boundary for NCPC.
175 ¦ Develop mine-plans for the Applicant Preferred Boundary (NCPC-Bonnerton-S33
176 sequence), and two other sequences, S33-Bonnerton-NCPC and NCPC-S33-Bonnerton.
177
178 ACTION ITEMS (CZR)
179 ¦ Add the word "Impacted" under the word "Total" within each boundary on the summary
180 impact table. (See table in Attachment 2)
181 ¦ Each proposed boundary will have its own impact table in addition to the impact
182 summary table.
183 • Areas mined on the east side of Bonnerton since 1998 will be hatched to show change
184 but not to prevent viewer being able to see photo beneath.
185 ¦ Assist PCS with graphics action items.
186 ¦ Work with PCS to develop a mitigation template based on 28 January 2004 agency
187 presentations.
188
189 Attachment 1:
190
191 Agenda for 16th PCS EIS Team meeting, 19 October 2004
192
193 Attachment 2:
194
195 DWQ Intermittent Avoidance Boundaries for NCPC, Bonnerton, S33 (on 1998 CIR aerial
196 photo)
197 SC Boundary for NCPC (on 1998 CIR aerial photo)
198 NS Boundary for NCPC (on 1998 CIR aerial photo)
199 Replacement Impact Summary Table dated 20 October 2004
200
201 Notes:
202
203 1) Please refer to pre-meeting package dated 14 October 2004 for biotic community
204 figures of above avoidance boundaries:
205
206 NCPC SC Boundary dated 10/14/04
207 NCPC NS Boundary dated 10/14/04
208 NCPC DWQ Intermittent Stream Avoidance Boundary dated 10/14/04
209 Bonnerton DWQ Intermittent Stream Avoidance Boundary dated 10/14/04
210 South of RT 33 DWQ Intermittent Stream Avoidance Boundary dated 10/14/04
211
212
g 11/19/2004
213 2) Linear feet of stream lengths are most accurate on the 18 October 2004 summary
214 impact table and may differ from what is shown on earlier avoidance boundary figures.
215
216 3) Some base and avoidance boundary biotic community figures presented during
217 previous meetings were made available at the 16th meeting for reference but are not
218 included with these minutes:
219
220 NCPC Base dated 7/28/04 (with linear feet of streams not shown)
221 Bonnerton Base dated 7/27/04 (with linear feet of streams not shown)
222 South of Route 33 Base dated 8/02/04 (with linear feet of streams not shown)
223 NCPC Preferred Boundary dated 8/02/04 (with linear feet of streams not shown)
224 South of Route 33 Preferred Boundary dated 8/1/04 (with linear feet of streams
225 not shown)
226 NCPC DCM/CAMA Avoidance Boundary dated 8/03/04 (with linear feet of
227 streams not shown)
228 Bonnerton DCM/CAMA Avoidance Boundary dated 8/02/04 (with linear feet of
229 streams not shown)
230 South of Route 33 DCM/CAMA Avoidance Boundary dated 8/02/04 (with linear
231 feet of streams not shown)
232 NCPC DWQ Perennial Stream Avoidance Boundary dated 8/02/04 (with linear
233 feet of streams not shown)
234 Bonnerton DWQ Perennial Stream Avoidance Boundary dated 8/02/04 (with
235 linear feet of streams not shown)
236 South of Route 33 DWQ Perennial Stream Avoidance Boundary dated 8/02/04
237 (with linear feet of streams not shown)
238
Distribution
Ms. Mary Alsentzer
Pamlico Tar River Foundation
Post Office Box 1854
Washington, North Carolina 27889
Mr. Jeffrey C. Furness
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Kyle Barnes
North Carolina Division of Water Quality
943 Washington Square Mall
Washington, NC 27889
Mr. John Dorney
Division of Water Quality
North Carolina Department of Environment and
Natural Resources
Wetlands/401 Wetlands Unit
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Ms. Becky Fox
Environmental Protection Agency
1349 Firefly Road
Whittier, NC 28789
Mr. James M. Hudgens
CZR Incorporated
1061 East Indiantown Road, Suite100
Jupiter, Florida 33477-5143
Mr. Scott Jones
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
Mr. David M. Lekson
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
7 11/19/2004
Mr. Sean McKenna
Division of Marine Fisheries
North Carolina Department of Environment and
Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Dr. David McNaught
Environmental Defense
2500 Blue Ridge Road, Suite 330
Raleigh, North Carolina 27607
Mr. Terry Moore
Division of Coastal Management
North Carolina Department of Environment and
Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. David Moye
Division of Coastal Management
North Carolina Department of Environment and
Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Jimmie Overton
NC Division of Water Quality
Environmental Sciences Section
4401 Reedy Creek Road
Raleigh, North Carolina 27607
Mr. Jerry Waters
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Richard Peed
Division of Land Resources
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. William A. Schimming
Potash Corp.
Post Office Box 3320
Northbrook, Illinois 60062
Mr. Ron Sechler
National Marine Fisheries Service
101 Pivers Island Road
Beaufort, North Carolina 28516
Mr. Ross Smith
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Tom Steffens
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Ms. Maria Tripp
North Carolina Wildlife Resources
Commission
Habitat Conservation Section
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Tom Walker
U.S. Army Corps of Engineers
Regulatory Division
P.O. Box 1890
Wilmington, North Carolina 28402
Mr. Mike Wicker
U.S. Fish and Wildlife Service
Post Office Box 33726
Raleigh, North Carolina 27636-3726
Mr. Bob Zarzecki
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Mr. Ted Tyndall
North Carolina Division Coastal
Management
Morehead City District Office
151-B Hwy. 24 Hestron Plaza II
Morehead City, NC 28557
Mr. George House
Brooks, Pierce, McLendon, Humphrey &
Leonard
P.O. Box 26000
Greensboro, NC 27420
8 11/19/2004
ATTACHMENT 1
AGENDA FOR 19 OCTOBER 2004 PCS EIS TEAM MEETING
AGENDA ITEMS FOR PCS EIS TEAM MEETING
19 October 2004
USDA Service Center
155 Airport Road
WASHINGTON, NC
10:00 - 10:45 am
Old business/new business- Corps
Schedule next meetings - Corps
10:45 - 12:00 am
Presentation of PCS' SC and NS avoidance boundaries - CZR and PCS
Discussion - group
12:00 noon - 1:00 pm LUNCH
1:00-3:00 pm
Continue avoidance boundary discussion if needed.
Group discussion about long-term permit re-opening options
3:00 pm ADJOURN
Directions to USDA Service Center:
At intersection of US 17 and US264 proceed east on US 264, turn left on
Market Street extension, go approximately 1 mile, turn left on Airport Road.
The Service Center is the first and only building on the right past Susie Grey
McConnell Sports Complex.
Draft 15 October 2004
ATTACHMENT 2
MATERIALS HANDED OUT AT 19 OCTOBER 2004
PCS EIS TEAM MEETING
Summary of Impacts for PCS Avoidance Boundaries
Linear Feet of Streams and Biotic Community Acreages Shown for
Applicant Preferred, DCM/CAMA, SC, NS, DWQ Perennial, and DWQ Intermittent
Base Study Area (ac)(Ift) Applicant Preferred Alternative (1A) DCMICAMA Avoidance Boundary SC Boundary NS Boundary D Q Perennial Stream Avoidance DWQ Intermittent Stream Avoidance
Boundary Boundary

Impacts (ac) (Ift) Impacts (ac) (!ft) Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (Ift)
Biotic Community Type Map ID NCPC' BT S333 Total NCPC, BT' 5336 Total Total
A
id
d NCPCr BT 6 S339 Total Total
A NCPC 70 BT S33 Total Total NCPC" BT S33 Total Total NCPC 11 BT 13 S3314 Total Total NCPC 15 BT16 S33" Total Total
vo
e voided Avoided Avoided Avoided I Avoided
Public Trust Waters 1A 44 0 4 48 5 0 4 9 39 0 0 0 0 48 5 0 0 0 0 48 0 0 0 0 48
Linear Feet 1A 31502 1876 9660 43038 14564 1876 9660 26100 16938 0 0 0 0 43038 7749 0 0 0 0 43038 0 0 0 0 43038
Perennial Stream 1B 3 2 5 10 3 2 4 9 1 3 2 4 9 1 3 0 0 0 0 1 10 0 0 0 O 10
Linear Feet 1B 7008 7419 28137 42564 7008 7419 20534 34961 7603 5155 7207 20288 32650 9914 2400 1 4860 0 0 0 0 42564 0 0 0 0 41564
Intermittent Stream 1C 3 4 1 8 3 1 4 0 7 1 3 4 0 7 1 N 3 3 4 0 1 7 I 1 0 O 0 O 8
Linear Feet 1C 17267 5202 5429 27898 17267 5202 4079 26548 1350 16934 5202 3997 26133 1765 16648 16265 5099 1437 22801 5097 0 0 O 0 21898
Wetland Brackish Marsh Complex 2 87 0 0 87 8 49 0 0 0 0 87 18 0 0 , 0 ' 0 87 0 0 0 0 87
Wetland Bottomland Hardwood Forest 3 102 71 27 100 20 91 67 165 35
1 93 82 59 0 141 59 40 44 0 1 84 116
Wetland Herbaceous Assemblage 4 256 48 281 585 253 48 191 4921 93 246 48,
I 191 1 485
_ 100 232 1 1741 1 i 245 48 1 236 1 529 ' 56 245 48 1 236 1 529 56
Wetland Shrub/scrub Assemblage 5 213 277 86 576 202 277 31 510 1 66 192 277 31 500 76 166 177 191 277 29 497 1 79 175 273 29 477 99
Wetland Pine Plantation 6 529 2061 1271 862 514 2061 111! 831! 31 501 2061 1111 , 818 1 44 502 1 3951 1 497 1 2061 99 1 802 60 497I 202 1 99 1 798 ; 64
Wetland Hardwood Forest 7 516 527 694 1737 509 527 612 1648 89 491 525 611 , 1627 110 475 474 487 522 533 1542 195 477 512 533 1522 215
Wetland Mixed Pine/hardwood Forest 8 579 4981 249 1326 5651 498 1261 1189; 137 529 4981 126 ! 1153 173 4481 j _ 479; 526 497 1 981 11211 205 475; 472 ; 98 1 1045; 1 281
Welland Pine Forest 9 197 211 170 578 195
1 211 44 450 128 168 211 44 r 443 135 162 _ L 171; 187 211 4 402 176 188 208 4j 400 178
Wetland Pocosin - Bay Forest 10 0 2641 45 309 0
, 264 01, 264 45 01 2641 OI 2641 45 0' ! 0 0 2641 0' 264 45 0 264 1 01 I 264'1 45
Welland Sand Ridge Forest 11 0 22 11 33 0 22 0 22 11 0 22
0
22
11 1

0

0

22

0

22!

11

0
1

22

01 22

11

Pond 12 201 0? 1! 21 191, 0 0? 191 2 151 01 0 15!. 6 16 8 151 0, Oi 151 6 171 0' 0 171 4
Wetland Maintained Area 13 0 0 0 0 0 0 0 0? 0 0 T ?
1 - - 0 0! 0 0 0 Oj 0 O ? 0 01 0
Upland Herbaceous Assemblage 14 2421 51 238! 485 234 5 2301 4691 16 2301 51 2251, 4601 25 201;' 1241 _ 229 51 2291 463' 22 _
2261 6! 2291 461 24

Upland Shrub/scrub Assemblage

15

265

83

68

416

262

83

66

1
411

5

254
831

21 399

7

141

I
--

1

791

49

-778

.611

881

8

35

6

1
372
--

4
Upland Pine Plantation 16 611 67 6221 750 55 67 608 7301 19 49 671 607 7231 27 47 26
i 47' 67, 5851 699 51 471 651
1 5841 6961 54
Upland Hardwood Forest 17 79 43 325 447 67 43 319 429 18 60 43
1

306

409

r 38

42

601

57

43

288

3881

59

54

35

284 373

74
Upland Mixed Pine/hardwood Forest
U
l
d Pi
F
t 18
19 155
48 120
16 4891
301 764
365 1401
38 120
16 420
174 6801
228 84
137 133
35 1201
16 414
172 6671
223 97 1161
4 131 120 398 6491 115 1111 94: 397! 6021 162
p
an
ne
ores 142 21 2 35 16 173 224 141 34 14 171 219 146
Upland Sand Ridge Forest 20 0 42? 113 155 01 42 4 461 109 0 421 4 461 109 0! 1 0 ! 0 42? 5 47 108 01 421 51 471 108
Upland Agricultural Land 21 117 247 4611 4975 117 247 4594 4958 18 114 247 4594 4955 20 0 1 ?- 1161 114 247 4550 49111 64 100 239 4548 4887 88
Upland Non-vegetated/maintained Are 22 94 52, 217, 363 92 52 203 347 16, 91 52 203 346 17 0 631 90 52 192 334 29 831 41 192 316 47
TOTAL(we0ands, waters, uplands) 3610 2805 8685 15100 3413 2805 7748 13966 1134 3225 2799 7712 13736 1364 2705 2708 3185 2780 7480 13445 1655 3004 2657 7470 13131 1969

Total linear feet of streams (Ift) 55777 14497 43226 113500 38839 14497 34273 876091 15891 22089 12409 24285 58783 54717 18618 292571 16265 5099 1437 22801 90699 0 0 0 01 113500
Total wetlands/waters(ac) 25491 2130 17011 6380 24081 21301 11301, 56681 712 2259 21241 1125 5508' 872
; 208711 2000 22331 21101 9991 53421 1038 21141 20451 999' 5158! 1122
Total uplands (ac) 1061 675 6984 8720 1005 6751 66181 8298; 422 675 65871 82281 492
966 6181 70811 9521 670 64811 8103; 617 8901 612 6471! 7973 747
Total recovered concentrate (million tons NIA1 NIA' N/Ai NIA 76.87
' 45.571 135.30' 257.74; NIA
63.501, 44.151 130.401 238.05 N/A
59.25
56.4511
60.871 41.24 117.70', 219.811 N/A
49-521 38.261
117.03i 204.81' N/A
Date of figure/drawing
1 07/28104 ' 08102104 6 08/09104 7 08!3104 ' 08!2!04
2 07/27104 4 08102/04 6 08101104 ' 08!3104 1010114/04
NOTE: Total recovered concentrate information provided by PCS Phosphate.
11ReceptionlshareddocslMy Filesljobs11745\1745-621091TEAM MEETINGSIMinutes PREPS116-19 OCT 041impact-summary-Octl9
11 10114/04 " 0812104 16 10114104 17 10113104
12 08(2104 14 0812104 16 10113/04
18 October 2004
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8EP.27.2005 9:30AM
SRP-27-05 TUE 7:51 AM
BROOKS PIERCE 336 378 1001 NO.118 P.3i5
ROBERT M CHILES P. E, PAX NO. 2526373100 P. 2
07•A RRMO ST.
R0.5okam
NEW MON, HOM CAFINHARD504.3405
September 27, 200$
ROPERT M. CHILES, P.E.
E 1KFRS,CM3ULT,t1N'I$
6`
60 Iwir;F? 02.63Td"
F41M. 4874190
fi rmwnor®pwnw,nM
yl?

Subject: Rathymetrle Survey auld Mapping Various Creeks Adjacent to South Creek,
Methods and Procedures
. , . D r--3 p
Q
OCT 1 9 2005
DENR - WATER QUALITY
WETLANDS AND STORMWATER BRMNGH
Our office utilixed the t'oliawiug methods and pr<'ooedums to conduct bghymetrio
surveys in the "tens of various creaks and un ed *41na$e geat=s that
connect to South Cmok and the Pamlico River m ithi,n the PCS Phosphate NCPC
'Tract. This project is located within Ridblod'TownsVip, Beaufort Comty,,Kotth
Carolina, The data results of these surveys have, been presented on computer
generated bathymetric maps and these maps show the underwater ewito+urs at one
(1) foot intervals from the mouth up to the marsh and/or shorc line an each side
of each creek or 4ndnagc feaWm up to a 11fininxiim mean water depth of ow (1)
foot.
MRAN 'W'AUR LEVEL
All water depths are referenced to the Mean W*ar Level as determined by the
U.S. Geological Survey Open- File Report 94.4$4 by Sales and Robbins and
published in the Albewarle-Pamlico. Bstuarine Study No, 94-10 in the year 199S,
According to this study, the Mee Water Level at the mouth of South Ctc*l? near
Hiokoxy Point ( Station "WL S ") is 0.226 meters (0, 7415 feet) above Mean Sea
Level with the Mean Sea Level being referenced to the National Owdetic
Vwftal Aatum of 1929.
Page 1 of 3
MRCHANIOAL. CIVI1- MP MARNA CNf )INEGRING COMMEMMI, INDUSrRIU, UVRWeANOfuD.RoAO FACILRIO uESIoN MAIIINB WOPWRAPHIG AND LAMP GUnVeY
FPRENSIOENOINE RINoAND0I11[RIR!NA]Y4114
PAGE 21V ROD AT 912712005 7;4159 AM [Eastern Daylight Time]'1 SVR:GSOFAPI1 I DNIS:9980 t CSID:2526373900 t DURATION {mm l
SEP.27.2005 9:31AM BROOKS PIERCE 336 378 1001
SEF-27-05 TUB 7:51 AM ROBERT M CHILES P.E.
FAX NO, 2526373100
NO. 118
P.4/5
P, 3
ljor MON'TAL LOCATION OF DATA POINTS
13aolt sounding date collection point was located using tbo Global Positioning
System (OOPS) and data eallected with a7ftble Pathfinder Pro XL QPS unit
having an external antenna and operating in the manual 31) mode. The data
po$itions located in the field were differentially caorreeted in the office using base
files provided by the North, Carolina Geodetic Survey (NCGS) and the post-
processing software in P4thfinder Office 2,90. The NCGS'Saae Station at
WpAington, N.C. (Lat., 35133'34.813511 North WLong: 77° 03'31.5539" West)
was utilized and this base stagon is located less than 50 Kilometers from the site.
The horizontal accuracy for differentially corrected CPS data is one (1) Meter yr
loss.
VMT ICAL DE TE MINATION OF WATER, DEPTHS
Eacb so=diug was manually taken *om the boat utiilizin$ a marked grade rOd
with tneasuroments markedto'0,01 feet. 'The grade rod had a six (6) inch diameter
best Plata that exerted consistent pressure on the bottom. The GPS antenna was
mounted at the upper end of the sQUnding grade rod, Data cross-seotions were
taken at a maximum of 300-foot intervals along the run of each creep or unnMnod
Qrainage area. Witb soundings taken at appxoximte 50400t intervals. Prior to cadh
sounding event the actual water level surface was refermood by survey to is
ve tlcal bench mark in National Geodetic Vertical Datum 1929. A preference
t9raporary elevation bench mark taken from the, actual 'Water level surface was
then placed at the waters edge oft'ite areabaing sounded. "a'kte actual water'leval
surface was recorded at a minimum of one (1) hour a to rd +valA 4win e e time
of work.
soundings were taking place sand at the begitntit)S an
The water depth reading was manually entered and recorded in the same
electronic data collector utilized for the CPS data and was procmed iii the office
along with the horizontal data, Adjustments to the soundings dlring this office
processing were made in order to reflect the water depth at Mean water level
within the crock or unnamed drainage feature.
Page 2 of 3
PAGE 314 * RCVD AT 9127120057-,43:51 AM (Eastern Daylight Time]*. SVR,CSOFAPI9 # DNIS;9990 I C510:2528373* 1 DURATION (moss),0248
5EP.27.2005 9:31AM BROOKS PIERCE 336 378 1001 NO.118 P.5/5
SRP-27-05 TUE 7:52 AM ROBERT M CHILES P,F, FAX NO. 2526376100 P, 4
BOAT USED lR BATHyMM10 SU.i,'V"
,A ?ouXtEea Foot,41wdi num "Ion 13Qaf With %iV fix 1n0hb"1nov a d
ulfte l during tho creek survey, A S (five) 'borne power NXMUry
wap affixed to the boat, The boat's Motor was used t4 access they creels to o,
point where thq water depth prevented the outboud from properly
'funcfWio;.'The prnPeller was ageing t'ho creekbottoM and the oobling
system was taking in mud, Where necessary' tho boat was poled or paddled
to reach minimum water depth of I(one £oot).
•200t0$5xmc
page 3 of 3
PAGE 4141 RCVD AT 0127120057f,0:51 AM [Eastern Daylight Time] *SVR,GSOFAPII DNI5,9180 t CSID,2526373100 * DURATION (mma),0248
STATE OF NORTH CAROLINA
COURT DIVISION
BEAUFORT COUNTY
PCS PHOSPHATE COMPANY, INC.,
Plaintiff,
v.
IN THE
GENERAL COURT
OF JUSTICE
SUPERIOR
03 CVS 75
SETTLEMENT AGREEMENT
STATE OF NORTH CAROLINA and
NORTH CAROLINA DEPARTMENT OF
ENVIRONMENT AND NATURAL
RESOURCES,
Defendants.
Plaintiff, PCS Phosphate Company, Inc. ("PCS" or the "Company") and Defendants State
of North Carolina and North Carolina Department of Environment and Natural Resources
("DEW'), an agency of the State of North Carolina, hereby enter into this Settlement
Agreement in order to resolve matters in controversy between them in the above-captioned case.
(1) The duties of Defendant DENR's Division of Coastal Management ("DCM")
include administration and enforcement of the Coastal Area Management Act ("CAMA"),
N.C.G.S. §§113A-100, et seq. The DCM staff is responsible for processing CAMA permit
applications, which includes identifying areas subject to CAMA permitting jurisdiction by
determining the boundaries of Areas of Environmental Concern ("AEC's"), as defined by the
Coastal Resources Commission ("CRC").
(2) PCS is presently engaged in open-pit, surface phosphate mining near the town of
Aurora, in Beaufort County, North Carolina, and seeks to expand its surface mining operations in
an area known as the Hickory Point peninsula or the North Carolina Phosphate Company
("NCPC") tract (the "mine advance"). As part of the proposed mine advance, PCS requested
delineations of the approximate upper limits of CAMA regulatory jurisdiction on and around the
Hickory Point peninsula.
(3) DCM staff from DCM's Washington Regional Office determined the approximate
upper limits of CAMA regulatory jurisdiction in the areas requested by PCS. As part of that
determination, DCM staff found that certain waters on and around the Hickory Point peninsula
are within the Public Trust Areas AEC designated by the CRC under .15A N.C. Admin. Code
7H.0207 andN.C.G.S. §113A-113(b)(5).
(4) These determinations of the extent of the Public Trust Areas AEC are intended to,
and do identify certain areas subject CAMA permitting and regulatory jurisdiction. They do not
constitute claims of title by the State of North Carolina adverse to PCS to the lands underlying
creeks and drainage features on the NCPC Tract that are the subjects of the Complaint in the
above-captioned case.
(5) DCM agrees to process, consider and act upon an application for a CAMA permit
to impact areas the DCM staff designated as being within the Public Trust Areas AEC in
accordance with the applicable statutes and rules.
(6) DCM will not refuse to process a CAMA permit application to cause mining
related impacts based on a claim of title to lands within the Public Trust Areas AEC. DCM's
decision to grant, grant with conditions, or deny such an application will not be affected by
whether title to the subject lands is held by PCS or the State of North Carolina.
(7) PCS will not apply for a CAMA permit to cause mining related impacts to areas
within the Public Trust Areas AEC downstream of the "Settlement Line" depicted on the
attached eight surveys of the NCPC Tract prepared by Robert M. Chiles, P.E. This Settlement
Agreement does not affect any future applications by PCS to mine its existing leases in the
Pamlico River.
(8) PCS does not claim title to submerged lands underlying navigable waters, and the
State of North carolina does not release any claim of title to submerged lands underlying
navigable waters. However, this Settlement Agreement and the determinations made in
paragraph 4 do not establish and shall not be construed as establishing the navigability or non-
navigability of waters overlying any of the lands that are the subject of the Complaint in the
above-captioned case.
(9) PCS agrees to voluntarily dismiss this action, without prejudice.
(10) Each party will bear its own costs.
FOR BQQ&IdfdIpWtd 2m iparDj?dnc.
George W. House, Esq.
Brooks, Pierce, McLendon, Humphrey
& Leonard, LLP
2000 Renaissance Plaza
230 N. Elm Street
Greensboro, NC 27401
Date
North Carolina Department of Environment
Natural Resources
J. Allen Jernigan Date
Special Deputy Attorney General
J. Douglas Hill Date
Assistant Attorney General
N.C. Department of Justice
P.O. Box 629
Raleigh, NC 27602-0629
R
f
STATE OF NORTH CAROLINA
COURT DIVISION
BEAUFORT COUNTY
PCS PHOSPHATE COMPANY, INC.,
Plaintiff,
V.
STATE OF NORTH CAROLINA and
NORTH CAROLINA DEPARTMENT OF
ENVIRONMENT AND NATURAL
RESOURCES,
Defendants.
IN THE
GENERAL COURT
OF JUSTICE
SUPERIOR
03 CVS 75
SETTLEMENT AGREEMENT
Plaintiff, PCS Phosphate Company, Inc. ("PCS" or the "Company") and Defendants State
of North Carolina and North Carolina Department of Environment and Natural Resources
("DENIV ), an agency of the State of North Carolina, hereby enter into this Settlement
Agreement in order to resolve matters in controversy between them in the above-captioned case.
(1) The duties of Defendant DENR's Division of Coastal Management ("DCM")
include administration and enforcement of the Coastal Area Management Act ("CAMA"),
N.C.G.S. §§113A-100, et seq. The DCM staff is responsible for processing CAMA permit
applications, which includes identifying areas subject to CAMA permitting jurisdiction by
determining the boundaries of Areas of Environmental Concern ("AEC's"), as defined by the
Coastal Resources Commission ("CRC")
(2) PCS is presently engaged in open-pit, surface phosphate mining near the town of

Aurora, in Beaufort County, North Carolina, and seeks to expand its surface mining operations in
an area known as the Hickory Point peninsula or the North Carolina Phosphate Company
("NCPC") tract (the "mine advance"). As part of the proposed mine advance, PCS requested
delineations of the approximate upper limits of CAMA regulatory jurisdiction on and around the
Hickory Point peninsula.
(3) DCM staff from DCM's Washington Regional Office determined the approximate
upper limits of CAMA regulatory jurisdiction in the areas requested by PCS. As part of that
determination, DCM staff found that certain waters on and around the Hickory Point peninsula
are within the Public Trust Areas AEC designated by the CRC under 15A N.C. Admin. Code
7H.0207 andN.C.G.S. §113A-113(b)(5).
(4) These determinations of the extent of the Public Trust Areas AEC are intended to,
and do identify certain areas subject CAMA permitting and regulatory jurisdiction. They do not
constitute claims of title by the State of North Carolina adverse to PCS to the lands underlying
creeks and drainage features on the NCPC Tract that are the subjects of the Complaint in the
above-captioned case.
(5) DCM agrees to process, consider and act upon an application for a CAMA permit
to impact areas the DCM staff designated as being within the Public Trust Areas AEC in
accordance with the applicable statutes and rules.
(6) DCM will not refuse to process a CAMA permit application to cause mining
related impacts based on a claim of title to lands within the Public Trust Areas AEC. DCM's
decision to grant, grant with conditions, or deny such an application will not be affected by
whether title to the subject lands is held by PCS or the State of North Carolina.
(7) PCS will not apply for a CAMA permit to cause mining related impacts to areas
within the Public Trust Areas AEC downstream of the "Settlement Line" depicted on the
attached eight surveys of the NCPC Tract prepared by Robert M. Chiles, P.E. This Settlement
Agreement does not affect any future applications by PCS to mine its existing leases in the
Pamlico River.
(8) PCS does not claim title to submerged lands underlying navigable waters, and the
State of North carolina does not release any claim of title to submerged lands underlying
navigable waters. However, this Settlement Agreement and the determinations made in
paragraph 4 do not establish and shall not be construed as establishing the navigability or non-
navigability of waters overlying any of the lands that are the subject of the Complaint in the
above-captioned case.
(9) PCS agrees to voluntarily dismiss this action, without prejudice.
(10) Each party will bear its own costs.
FOR B0&1Fdfd4phh02m iparq4dnc.
George W. House, Esq. Date
Brooks, Pierce, McLendon, Humphrey
& Leonard, LLP
2000 Renaissance Plaza
230 N. Elm Street
Greensboro, NC 27401
North Carolina Department of Environment
Natural Resources
J. Allen Jernigan Date
Special Deputy Attorney General
J. Douglas Hill Date
Assistant Attorney General
N.C. Department of Justice
P.O. Box 629
Raleigh, NC 27602-0629
Re: [Fwd: Re: Fwd: PCS Settlement Agreement]
Subject: Re: [Fwd: Re: Fwd: PCS Settlement Agreement]
From: Alan Klimek <[e-mail]>
Date: Wed, 28 Sep 2005 17:53:26 -0400
To: Alan Klimek <[e-mail]>
CC: Coleen Sullins <[e-mail]>, Paul Rawls <[e-mail]>, Tom Reeder
<[e-mail]>, John Domey <[e-mail]>, Cyndi Karoly
<[e-mail]>
Oops. I see an earlier version w/ Attorney Client Privileged marked on it. Please treat this as such. Btw
we're on a fast track (arguing next week in court if we don't settle) so if we don't get comments pretty
quick, if we have any, it may be too late.
Alan
Alan Klimek wrote:
John and Cyndi, the attachment is one of two options that were discussed as possible ways to settle
the lawsuit when we met with the attorneys. This lawsuit is a dispute over title and hence we only
have indirect interest. The other option, which would be difficult to nail down and one we'd prefer
not to mess with, would be a boundary line agreement in which we would agree that they own title
to the land inside the boundary and we make no claim over it. The reason the definition of what they
own versus what the state owns is important to them is that they apparently want to preserve the
right for a "takings" lawsuit if at the end of the day they feel we "take" too much of their ore from
them. They stressed they weren't interested in that and had no plans to file a lawsuit, but that's why
ownership is important to them. Also, the biggest issue for them right now is that the Corps won't
process their permit (submitted in 2001 or so) because it allegedly would allow them to mine public
trust waters. They realize they may be denied areas to mine for other reasons (wetlands, buffers, etc),
but for now can't even get the permit processed so they can have their day in court. They stated they
really have nothing to lose with the lawsuit from where they are now, but that we would have
potentially much to lose if the decision went against us (especially in terms of precedent). They
would prefer to work out a settlement. The attachment is supposed to be an agreement that would
say we have not claimed ownership of the land w/in their preferred boundary (we may in the future)
and will not stop the processing of the permit because of any claim of title. In other words, we won't
assert ownership as a reason to not process the permit. Let me know if you see any red flags that
weren't apparent to us.
Alan
------- Original Message --------
Subject:Re: Fwd: PCS Settlement Agreement
Date:Wed, 28 Sep 2005 14:31:48 -0400
From:"Allen Jernigan" <ajem amcdoj.com>
To: U. Douglas Hill" <JDHILL(a),ncdoj.com>, <[e-mail]>,
<Charles.S.Jones(a),ncmail.net>, <dan.oakley a ncmail.net>, <Ted.Tyndall@ cmail.net>
Here is the latest draft, incorporating DCM's changes, which are minor, in (5), (6) and (9). Ted has
calls in to the Corps.
1 of 1 9/30/2005 10:51 AM
Re: pcs
Subject: Re: pcs
From: John Dorney <[e-mail]>
Date: Thu, 22 Sep 2005 09:17:30 -0400
To: Alan Klimek <[e-mail]>
CC: Coleen Sullins <[e-mail]>, Paul Rawls <[e-mail]>, Tom Reeder
<[e-mail]>, "Cyndi.karoly" <[e-mail]>, Al Hodge
<[e-mail]>
sounds logical. i think the plans now are (basically) to turn the landscape back
into forestry (agriculture is a bit of a stretch) and pasture. in many cases the
company only owns the mineral rights so to truly preserve it would require purchase
of the other development rights to the land. DLR would know all the details, i
suspect.
Alan Klimek wrote:
I attended a meeting with Dempsey, Dan Oakley, Allen Jernigan, Charles Jones, Ted
Tyndall and an attorney from State Properties (Bill Ross stopped by for a bit) to
discuss the lawsuit on navigable waters filed by PCS. We plan to meet with the
attorneys from the company next week to better understand why they think the
lawsuit needs to go forward since all the possible lines for allowing mining are
significantly landward of navigable waters. During the discussions we also talked
about the mining permit. One of the issues discussed was a more global look at
what was going on out there. This included what (in an ideal world) we would like
to see happen to that land many years down the road (probably not
residential/commercial development from our perspective, maybe a preserve, park,
etc). There was some feeling that broadening the discussion to include this might
our negotiations, especially in light of all of the mitigation that will be
required for whatever area they are allowed to mine.
Any thoughts? Dan is going to check w/ DLR to see what the reclamation plan
requires. I'm assuming they sort of put things back together and then can do
whatever they want with the land but am not sure.
1 of 1 9/23/2005 9:47 AM
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AERIAL PHOTO
OF THE
PCS PHOSPHATE CO.,INC.
PARKER FARM
Photo Date: Feb. 1992
?' G
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June 1, 2005
Regulatory Division
Action ID: AID 200110096
Mr. Richard Atwood
General Manager
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Dear Mr. Atwood:
This correspondence is in regards to PCS Phosphate's request for Department of
the Army (DA) authorization to disturb approximately 2,394 acres, including 4 acres of
estuarine waters, in association with the expansion of the existing mining facility located
north of Aurora, North Carolina. Reference is made to a March 1, 2005 meeting among
Messrs. Tom Walker and David Lekson of my staff, Messrs. Ross Smith, Jeff Furness
and I.K. Gilmore of your staff, and Mr. Sam Cooper and Ms Julia Berger of CZR Inc.
Reference is also made to an April 19, 2005 telephone conversation between Mr. Tom
Walker and Mr. Ross Smith.
Your staff, at the Corps' request, examined a potential mining alternative that
avoided all DA jurisdictional area ("No Action" Alternative). A map depicting PCS's
assessment of all area that would reasonably be available for mining under this scenario
was presented to the Corps at the March 1, 2005 meeting. PCS representatives also
discussed logistical constraints associated with developing a practicable mine plan for
this area. The Corps, at the conclusion of this meeting, requested that PCS prepare a
narrative describing these obstacles in some detail, and stating why PCS believes this
alternative to be impracticable.
A detailed mine plan and cost model analysis has been completed for various
sequences within your preferred mining alignment. The cost model information
presented indicates that mining south of NC Highway 33 is more costly than mining in
either the NCPC or Bonnerton Blocks. Your staff has suggested on numerous occasions
that any alternative involving a move to South of NC 33 upon completion of mining
within the currently permitted mine area is economically impracticable. Mr. Walker,
during the April 19, 2005 teleconference, requested that PCS supply further information
regarding the economic factors upon which PCS bases it's belief that this option is not
practicable.
As of the date of this letter, the Corps has not received the above referenced
information. The Corps, in a memo dated April 22, 2005 and circulated to PCS staff
(enclosed), identified 11 alternatives to be addressed in the draft environmental impact
statement (DEIS). This list included the "No Action" alternative as well as alternatives
involving a move to south of NC highway 33 upon completion of the currently permitted
area. The requested information is necessary in order for the Corps to make decisions
regarding the practicability of these options. This information will also be important in
determining whether and to what extent other alternatives need to be addressed in the
DEIS. We therefore request that you supply this information at your earliest
convenience.
Thank you for your time and cooperation. Should you have questions, please
contact Mr. Tom Walker, Project Manager, Wilmington District, Regulatory Division,
telephone [phone].
Sincerely,
S. Kenneth Jolly
Chief, Regulatory Division
Copies Furnished:
Mr. Ronald J. Mikulak, Chief
Wetlands Regulatory Section
Water Management Div.
U.S. Environmental Protection Agency
61 Forsyth Street, SW
Atlanta, GA 30303
Mr. Pete Benjamin
U.S. Fish and Wildlife Service
Fish and Wildlife Enhancement
Post Office Box 33726
Raleigh, North Carolina 27636-3726
Mr. Ron Sechler
National Marine Fisheries, NOAA
Habitat Conservation Division
Pivers Island
Beaufort, North Carolina 28516
Mr. John Dorney
Division of Water Quality
North Carolina Department of
Environment and Natural Resources
1621 Mail Service Center
Raleigh, North Carolina 27699-1621
Mr. Terry Moore, Manager
Division of Coastal Management
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
BCF:
CESAW-RG/Jolly
CESAW-OC/Lamson
CESAW-RG/Walker
PCs
Phosphate AURORA
PCS PHOSPHATE COMPANY, INC.
P.O. BOX 48, AURORA, NC U.S.A. 27806
June 01, 2005
Ms. Cindi Karoly
NCDENR - Division of Water Quality
1650 Mail Service Center
Raleigh, NC 27699-1650
10W
,JUN 6 2005
DENS? - WArLzR QUAIii`Y
WETLANDS AND S T CRMf IVATER S; ANCN
Dear Ms. Karoly:
As manager of the environmental efforts at PCS Phosphate-Aurora, it gives me great
pleasure to provide you with a copy of PotashCorp's 2004 Annual Report. This
publication provides insight into our corporation's business highlights, long-term goals,
and sustainability.
As stated by PotashCorp's President and Chief Executive Officer, William J. Doyle, in
reference to our sister Potash Division, "Demand continued to grow and prices reached
new highs by the end of the year, driving gross margin to an unprecedented level."
Unfortunately, the Phosphate Division did not experience the same global market
conditions. Mr. Doyle added, "Phosphate remained a challenging business... Although
higher input costs negatively impacted results, gross margin in this nutrient did recover
from a loss" in 2003.
The phosphate deposit in eastern North Carolina does provide continued opportunity.
PCS Phosphate in Aurora is "the only company with local access to the quality rock
preferred for low-cost purified acid production. The lack of high-quality ore is a barrier
for other phosphate producers." As a result, mine continuation permitting as well as
other program permitting is essential for the financial performance of this Division.
Page 20 of the report includes a summary of PCS Phosphate's strengths, weaknesses,
opportunities, and threats.
Please feel free to contact me if I can provide more information or be of any assistance.
Si ,
Ross .Smith
Manager, Environmental Affairs
PCS Phosphate Company, Inc.
Phone: [phone]
E-mail: rsmith(apcsphosphate.com
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2004 ANNUAL REPORT
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40

It all leads to PotashCorp

POTASHCORP2004 ANNUAL REPORT
Potash
Is Ready
to Roll
I? ?a 2 2 C 1
?? lr?lrl?,la hir-1 V2 o? ,ii1:?1 ?rl 1O?f
o An expanding world population wants more and better food that
must be grown on less land.
E3 Farmers recognize that replenishing potash, phosphate and nitrogen
in their soils helps produce larger crops.
o Asian and Latin American nations with growing economies have
more purchasing power and are increasing the ratio of potash,
"the quality nutrient", in their fertilizer applications.
This represents the beginning of a period of substantial growth for
the potash industry.
...and the
Pieces Are
Aligned
{
of •.
Growing Potash
Demand
Farmers around the world
are playing catch-up with
potash application rates.

Decommoditization
Potash, unlike other
nutrients, has separated
from the grain cycle.

Industry at
Capacity
Excluding PotashCorp,
the potash industry is
operating at about
98 percent of capacity.

PotashCorp
Can Deliver
PotashCorp operated
at 65 percent of
capacity in 2004
and can readily
increase production.

Prices Rising
Tight supply/demand
fundamentals are
pushing potash prices
to new highs.
L'

As the largest potash company in
the world, PotashCorp is positioned
[o capture an exponential share of
rising potash demand - today and
in the future.
r
M
PotashCorp
Stands
Alone
Where To Find It:
4 Letter to Shareholders
9 Scorecard
12 Sustainability
14 Management's
Discussion & Analysis
2 Financial Performance
Indicators
56 Auditors' Reports
58 Consolidated
Financial Statements
87 Board of Directors
88 Corporate Officers
& Key Management
89 Shareholder Information

The growth in demand has pushed other producers close
to their maximum output. Meaningful new production
would require the development of additional reserves, as
well as significant time and money.
With demand growing, supply tightening and prices
rising, we are ready to show our unique strength -
responding to the need for potash when others cannot.
This offers triple leverage: greater volumes, lower costs
and better prices.
Our benefit from the upside in potash will be amplified
by our investments in other potash companies.
With
86 percent
of the world's
excess capacity
PotashCorp has
the unique ability
to capitalize
on growing
demand for
potash.

2
POTASHCORP 2004 ANNUAL REPORT I WHO WE ARE
A Global Company
for a Global
Industry
At PotashCorp, our goal is to be the global low-cost
supplier of potash into all key world markets,
enhanced by a focused nitrogen and phosphate business that
leverages our strengths of lower-cost gas in Trinidad and specialty
phosphate products in North Carolina.
To achieve this, we have built an extended enterprise that includes
facilities and investments in seven countries on three continents. This
allows us optimal participation in a growing business.
We strive for transparency and open dialogue with our stakeholders,
including investors, customers, employees and the communities where
we work and live. Each year, we report on our financial, social and
environmental performance, with the goal of continuous improvement.
40
00
o0A
AD o
e
Potash
Allan SK
Cory SK
Esterhazy SK
Lanigan SK
Patience Lake SK
Rocanville SK
New Brunswick NB
Phosphate
0 Aurora NC
0 Fosfatos do Brasil
© Geismar LA
Joplin MO
© Marseilles IL
Q Weeping Water NE
White Springs FL
Nitrogen
AAugusta GA
Geismar LA
Lima OH
Memphis TN
Trinidad
World's Largest Fertilizer Company
Million Tonnes Primary Product Capacity
22
20
18
16
14
12
10
8
6
4
2
0
PotashCorp Mosaic Belaruskali OCP Agrium
' as 54% P205 product
Size and Market Prominence
PotashCorp is not only the world's largest
fertilizer company by market capitalization,
it has the greatest production capacity.
We can produce more potash, the most
desirable business of the three nutrients,
than any other company or any country.

© I;
ICL Yara K&S Uralkali Terra
Source: Blue, Johnson; Fertecon; PotashCorp
3
POTASHCORP 2004 ANNUAL REPORT I BUSINESS & FINANCIAL HIGHLIGHTS
2004 Business Highlights

mica y Minera de Chile S.A. (SQM), Cho Produced and sold record potash volumes
riPotash stments
ompany (APC), Jordan (26%)
als Ltd. (ICL), Israel (9%)
o Achieved record potash prices
o increased potash market share
o Generated record gross margin
o Reached record gross margin in potash and nitrogen
o Sold record purified acid volumes
o More than tripled 2003 adjusted earnings*
o implemented a two-for-one stock split and increased
dividend by 20 percent
o Outperformed sector in total shareholder return, with
stock price almost doubling
o Reduced recordable injury frequency rate to record
low for third consecutive year
o Received the Overall Award of Excellence for
Corporate Reporting in Canada
Financial Highlights
All financial data in this report are stated in US dollars
$ millions except per-share amounts
2004 2003 2002
Financial Results
Sales $ 3,244.4 $ 2,799.0 $ 2,224.4
Net sales * $ 2,901.4 $ 2,465.8 $ 1,928.7
Gross margin $ 681.4 $ 380.4 $ 307.3
Net income (loss) $ 298.6 $ (126.3) $ 53.6
Adjusted net income * $ 267.8 $ 76.9 $ 53.6
Net income (loss) per diluted share $ 2.70 $ (1.21) $ 0.51
Adjusted net income per diluted share * $ 2.42 $ 0.73 $ 0.51
EBITDA * $ 754.3 $ 171.8 $ 386.0
Adjusted EBITDA * $ 723.5 $ 417.7 $ 386.0
Additions to property, plant and equipment $ 220.5 $ 150.7 $ 212.2
Financial Position
Total assets $ 5,126.8 $ 4,567.3 $ 4,685.6
Net debt * $ 903.5 $ 1,441.4 $ 1,471.8
Cash flow prior to working capital changes * $ 529.6 $ 364.5 $ 289.2
Cash provided by operating activities $ 649.6 $ 381.5 $ 316.4
* See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators on Pages 52 to 54.
4
POTASHCORP 2004 ANNUAL REPORT I LETTER TO SHAREHOLDERS
Our time
has come
By any measure, 2004 was a rewarding year for your company.
PotashCorp sold 8.3 million tonnes of potash, setting North American and offshore
sales records. Demand continued to grow and prices reached new highs by the end
of the year, driving gross margin to an unprecedented level.
Our success was also reflected in areas beyond the income statement. We achieved
growth while reducing our recordable injury frequency rate to the lowest ever. We
earned recognition and awards for governance and corporate reporting. Our share
price nearly doubled as our investors enjoyed the benefits of a stock split and a
higher dividend.
It was an amazing year filled with remarkable successes. But for those who know
our company and the determination of our people, it was not surprising. We have a
talented, well-trained and committed team that has been building toward this time
for almost two decades. We have assembled tremendous assets and managed them
with a long-term view.
Now, the factors that impact our business - and our potential - are falling into place
like dominos, each one triggering the next for PotashCorp.
Rewarding Investors
Our company holds a distinct advantage in potash. This was demonstrated in 2004 as
higher volumes and prices resulted in a considerable increase in earnings. Our potash
gross margin of $422.8 million was more than twice that of 2003 and represented
47 percent of potash net sales.
This was supplemented by a strong year in nitrogen as tight supply/demand
fundamentals kept prices up and pushed our nitrogen gross margin to a record high
of $242.8 million, 26 percent more than the previous year. The significance of this
improvement should not be overlooked, as our 2003 nitrogen margin was aided by
the sale of our natural gas hedges at the peak of the market.
Phosphate remained a challenging business, with continued excess supply in DAP, one
of our four main product lines. Although higher input costs negatively impacted results,
William J. Doyle
President and Chief Executive Officer
POTASHCORP 2004 ANNUAL REPORT I LETTER TO SHAREHOLDERS
gross margin in this nutrient did recover from a loss of $16.5 million
in 2003 to contribute $15.8 million in 2004. More importantly, our
fourth-quarter gross margin of $10.4 million bodes well for 2005.
As a result, PotashCorp's total gross margin grew to $681.4 million,
operating income to $514.3 million and net income to $298.6 million
This led to earnings of $2.70 per diluted share. We generated
$649.6 million in cash from operating activities, showing that strong
cash flow remains a hallmark of PotashCorp.
This was accomplished despite the continued strengthening of the
Canadian dollar, which began 2004 at 1.29 against the US dollar
and closed at 1.20. Record potash production reduced our cost per
tonne by 5 percent on a real basis, but the higher value of the
Canadian dollar against its US counterpart hurt translated costs.
While this had a negative effect on gross margin, the biggest earnings
impact was primarily non-cash, due to the translation of certain items
on our balance sheet. In total, the strong Canadian dollar reduced
annual earnings by $0.16 per share.
In July, our Board of Directors approved a two-for-one stock split
and raised our dividend by 20 percent. Our shares increased by
92.1 percent on the New York Stock Exchange in 2004. This
1200
1000
800
600
400
200
0
-LVV
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
TSR cumulative to December 31, 2004 Source: Bloomberg
Since we went public in 1989, our cumulative total shareholder
return is 1,084 percent, while our sector" averaged 235 percent.
Sector = Mosaic, Agrium, Yara, SQM, ICL, K&S
A key driver is the rapid GDP growth in many Asian and Latin American
nations. Among our major customers, China's economy grew 9 percent
in 2004, India's 6 percent and Brazil's 4 percent. Several foreign
currencies rose against the US dollar, giving customers in those
countries greater buying power and the ability to purchase more potash.
In the past, farmers in many agricultural economies applied nitrogen
and phosphate at higher levels than potash. Now those countries are
compares to an increase of 10.5 percent for the Dow Jones Basic trying to catch up, especially in Southeast Asia where Indonesia,
Materials Index and an average of 66.5 percent for other companies India, Malaysia, Vietnam, Thailand and Taiwan are becoming
in our sector. Once again we achieved our goal of outperforming our bigger customers.
industry peers and other basic materials companies.
Potash Triggers Growth
This was the third consecutive year of above-average growth for
potash in offshore markets. We have emerged from a period of
significant oversupply that began in the early 1980s and was
exacerbated by the collapse of the Soviet Union. For nearly two
decades, PotashCorp stuck to a strategy of matching production to
demand, confident that the continued need for our products would
drive world growth and eventually absorb the capacity overhang
Our patience was rewarded as we sold 17 percent more potash at
prices 29 percent higher than in 2003.
This accelerating demand has pushed the rest of our industry to
its production limits. Excluding PotashCorp, producers operated
at approximately 98 percent of capacity in 2004. We operated at
65 percent of our maximum production rate. With 86 percent of the
world's unused capacity, we are in the enviable position of being the
only producer able to bring on significant additional capacity in a
timely manner.
In the second half of 2004, we took steps to utilize this strength.
We added fourth shifts at Lanigan and Allan, which enables them
to operate around the clock and will increase annual production by
1.2 million tonnes. We continued work on an $80-million expansion
Strong Total Shareholder Return Performance
Cumulative Percentage Return
6
POTASHCORP 2004 ANNUAL REPORT I LETTER TO SHAREHOLDERS
at Rocanville, which began producing in the first quarter of 2005
This raises our annual production capacity by 400,000 tonnes.
Further projects in Saskatchewan and New Brunswick are being
assessed with a view to being able to operate at full capacity -
now 12.5 million tonnes - within three years.
Playing to Our Strengths
We also worked to leverage our unique strengths in nitrogen and
phosphate, focusing on areas that offer the greatest returns.
North American gas costs continued to rise in 2004, leading to
further reductions in domestic nitrogen production and more imports
to the United States. Fertilizer and industrial demand remained strong
and capacity additions did not keep pace with consumption growth.
The resulting tight supply/demand drove our ammonia prices up by
270,000 tonnes of ammonia capacity for $71 million, less than half
the cost of new capacity. This will give us the most low-cost offshore
production capability of any producer in the Western Hemisphere. All
expansions will be completed by the third quarter of 2006.
In phosphate, we are focused on specialty products to offset the
cyclicality of the fertilizer business. However, start-up problems at
our new DFP (poultry feed) plant at Aurora cost $9 million. We have
worked to resolve them, and the facility should operate at capacity in
2005. We did demonstrate our unique strength in purified acid, a
high-margin industrial product. PotashCorp is the only company with
local access to the quality rock preferred for low-cost purified acid
production. The lack of high-quality ore is a barrier for other
phosphate producers.
23 percent, urea 18 percent and nitrogen solutions 29 percent. We have increased our focus on industrial production, the area of
phosphate furthest removed from commodity cycles. Industrial
These conditions demonstrated the value of our facility in Trinidad,
where we have long-term, advantageous gas contracts that give
PotashCorp a significant edge. We are building on that advantage
with expansions at our four plants that together will add
volumes rose 13 percent and prices 4 percent. We are pursuing a
greater share of this high-margin market, investing $73 million at
Aurora to add 82,000 tonnes of purified acid production per year.
This expansion should be operational by 2006.
The "V Factor
What's the secret to better quality food? Scientists continue
to uncover evidence of the contribution potash makes to
texture, taste and nutritional value.
A 2004 study on bananas in China found
that potash had a pronounced effect on
the amount of vitamin C in the fruit. The
bananas were larger and
tastier, with more edible fruit
and less peel. Results were
similar for corn,
oranges, sugar beets
and potatoes.
Potash has "functional food" benefits, as it increases
lycopene in tomatoes by as much as 67 percent. Lycopene,
which gives tomatoes their red pigment, is also an anti-
oxidant that reduces risk of cardiovascular disease and cancer.
Similarly, soybeans grown in soil with adequate potassium
contain more isoflavones, which help prevent and fight
heart disease, cancer and menopausal symptoms.
Potash, "the great enhancer", makes oranges
sweeter, watermelon juicier and tomatoes redder.
That's why potash is commonly called
"the quality nutrient".
7
The Chain Continues
As we look forward to 2005, it is clear that potash will be the value
driver in the fertilizer industry as offshore markets continue to grow.
With our global position, we expect to be the main beneficiary. That
was certainly the case in 2004, when we brought on an additional
0.8 million tonnes of production. We plan to do more in 2005.
Our anticipation of further volume growth at higher prices was
validated when Sinochem in China signed a 2005 contract with
Canpotex. This agreement is expected to increase China's Canadian
potash imports from 1.8 million tonnes to 2.3 million tonnes at
prices at least $40 per tonne higher than in 2004. China's total
consumption in 2005 will rival that of the United States, historically
the world's largest potash consumer.
In nitrogen, anticipated high natural gas prices in the United States
and Europe are expected to keep some production shuttered. Limited
new capacity is projected and this, combined with strong demand,
should maintain high prices for nitrogen products and enhance the
value of our Trinidad asset.
In phosphate, better supply/demand fundamentals in feed and purified
acid should translate into higher prices and better returns. Still, the
phosphate fertilizer industry suffers from oversupply, although a mid-
term DAP recovery is possible with industry consolidation.
Over the longer term, all three nutrients - but especially potash - will
benefit from the chain of events unfolding in Asia and Latin America.
Brazil, an agricultural powerhouse and our largest offshore potash
customer, continues to bring acres into production in the cerrado
region, where soils are naturally low in potassium and the climate
is ideal for growing soybeans.
That is important given China's rapidly increasing demand for soybeans
- a crop that provides an important protein source for livestock as well
as oil for cooking. China's population now expects a healthier, protein-
rich diet and will not return to starch as its food staple. More soybeans
and other grains will be needed for animal consumption.
POTASHCORP 2004 ANNUAL REPORT I LETTER TO SHAREHOLDERS
This happens as world grain stocks are precariously low. Farmers
around the world produced a huge crop in 2004, but it did little to
raise grain inventories since consumption rose as well. The need for
increased crop production is kickstarting the fertilizer industry.
Of the three nutrients, potash has the greatest growth potential as
farmers have not applied enough of it compared to nitrogen and
phosphate. For example, China would need to double its ratio of
potash to other nutrients just to catch up to the US and could go
even further to meet its scientifically recommended needs. India
would need to more than triple potash applications to meet its
recommended ratio, which translates to an additional 7.5 million
tonnes. Brazil could increase consumption by as much as 50 percent.
These regions have little or no indigenous production and must
rely on imports from an industry that, exclusive of PotashCorp, is
running full out.
Tight fundamentals and our historical practice of matching supply to
demand have enabled potash to decouple from the grain cycle and
position it best among the three nutrients. While we expect continuing
vigorous competition as other producers strive to generate additional
capacity by debottlenecking, we don't anticipate any significant new
greenfield production in the short- to mid-term.
POTASHCORP 2004 ANNUAL REPORT I LETTER TO SHAREHOLDERS
Available reserves are restricted to a few locations and the high cost
and long lead time for a new mine prevent the volatile swings of
a typical commodity cycle. We know there will be some fluctuations
in our outward growth line, with either temporarily reduced
consumption or competitive debottlenecking. However, we believe
demand will continue to rise, taking our earnings with it. We will
remain faithful to our strategy of matching production to demand,
which served us well in the past and will do so in the future.
PotashCorp spent years preparing for today's conditions. We have added
to our Saskatchewan base with strategic investments in New Brunswick,
Chile, Jordan and Israel that expand our global potash presence. Late
in 2004, we increased our ownership in SQM in Chile from 20 percent
to 25 percent. We are well placed to capitalize on our own potash
position as well as on these investments. They have performed well
and their value will become more evident in the years to come.
Now, more than ever, the world is looking to PotashCorp. We have the
people, production facilities and excess capacity to answer the call
Excellence in All Areas
One of our core values is to seek continuous improvement and in
2004 we pursued that in all areas of our business, with the objective
of becoming a stronger company for our stakeholders.
The first priority is safety, as our people are at the heart of our success.
We have a goal of no harm to people, no accidents and no damage
to the environment. PotashCorp's employees have embraced this and
moved us closer to our goal by reducing our recordable injury
frequency rate for the third year in a row. In addition, our potash
operations in New Brunswick earned the John T. Ryan trophy, the
Canadian mining industry's most prestigious safety honor. Our
environmental efforts were also recognized, as Aurora was honored
with North Carolina's Mining Stewardship Award for reclamation.
Cognizant of our company's global responsibilities, we quickly donated
$ 1 million to the relief effort after a tsunami struck Southeast Asia in
December. Of that total, $250,000 was set aside to match donations
from our employees - yet another example of how our people rise to a
challenge and step forward whenever and wherever they are needed.
Those values drive the ongoing advancement of our business. In
2004, we issued our second annual sustainability report, detailing
our economic, social and environmental performance. This is part of
a corporate reporting program designed to increase transparency and
ensure we are responsible and accountable. These efforts led the
Canadian Institute of Chartered Accountants to recognize PotashCorp
as having the best corporate reporting program in Canada. The CICA
selected our 2003 annual report as the best in Canada's mining
industry and one of the top two in all sectors. It also presented us
with top honors for sustainability reporting and for our website,
www.potashcorp.com.
All of these accomplishments are made possible by a Board of
Directors focused on making PotashCorp not only the best company
in our industry but a shining example for the corporate world. We
have a dynamic board that sets high standards, demonstrates its
stated commitment to best practices and leads with a vision of
greater success for PotashCorp. In January 2005, it approved a plan
to repurchase up to 5 percent of our outstanding common shares,
which will allow us to reinvest in our potash business.
Our approach is opening new doors, such as increased opportunities
for our people who have assumed management responsibilities with
APC in Jordan. We are extending our reach and knowledge around
the world - and that will bring benefits to all our stakeholders.
We continue to put in place more pieces that will lead to ongoing
success for our company. In 2004, we enjoyed a tremendous year, but
we believe it was only the beginning. At PotashCorp, our time has come.
Willia J. Doyle
President an ief Executive Officer
February 28, 2005
Our POTASHCORP 2004 ANNUAL REPORT I GOALS AND TARGETS
Long-term achieved •
partially achieved o
did not achieve O
O Gals Our business goals are linked to the philosophy at the heart of PotashCorp. We believe in accountability
and hope our targets and performance encourage discussion with our stakeholders.
To continue to outperform our sector and other basic materials companies in total shareholder return.
2004 Targets 2004 Results 2005 Targets
Exceed total shareholder return • PotashCorp provided total shareholder return of 93.4 percent, 1 Exceed total shareholder return
performance of the companies on the compared to 13.1 percent for the DJBMI. performance for our sector and
Dow Jones Basic Materials Index (DJBMI). companies on the DJBMI for 2005
and three-year average.
Be at the top of our earnings • Achieved adjusted earnings per diluted share* of $2.42, exceeding 2 Be the preferred fertilizer investment
guidance range. initial guidance of $1.35 to $1.75 (adjusted for stock split). as measured by surveys.
Work with the management and • APC increased its shareholder return by 137 percent. 3 Non-cash operating working capital to
board of APC to improve its be less than 10 percent of net sales.
shareholder return. 4 Total cash flow return to exceed cost
of capital by 500 basis points.
Maintain non-cash operating working • More than achieved as non-cash operating working capital 5 Carry higher multiple than average
capital* at year-end rates. declined by 47 percent to $185 million. of other fertilizer companies on both
earnings and cash flow.
Total cash flow return* to exceed • Cash flow return exceeded cost of capital by 400 basis points.
cost of capital by 200 basis points. 6 Exceed five-year average of historical
gross margin as a percentage of
Exceed five-year average of • Achieved 23.5 percent compared to five-year average of net sales.
historical gross margin as a 18.6 percent. 7 Be at the top of our earnings
percentage of net sales*. guidance range.
To remain the leader and preferred supplier of potash, phosphate and nitrogen products worldwide.
2004 Targets 2004 Results 2005 Targets
Continue to be the preferred • Customers evaluated PotashCorp as No. 1 on a series of 1 Increase potash sales volumes by
supplier, as measured by sales criteria, and we outperformed the competition. 5 percent at 25 percent higher
customer surveys. realized prices.
2 Industrial nitrogen net sales from
Reduce the number of customer • PotashCorp reduced customer complaints by 10 percent. US plants to comprise 70 percent
complaints by 5 percent. of the total from those plants.
Increase total potash sales volumes • Sales volumes increased by 17 percent and realized prices 3 Increase North American feed realized
by 5 percent at 5 percent higher by 29 percent. prices by 15 percent.
realized prices. 4 Increase purified acid price realizations
by 5 percent.
Increase purified acid sales by • Purified acid sales volumes increased 25 percent; net sales* 5 Implement enterprise-wide customer
12 percent. up 24 percent.
complaint system to facilitate tracking

Increase North American industrial
• North American industrial nitrogen sales represented and resolution.
nitrogen sales volumes to 60 percent 67 percent of total North American nitrogen sales volumes. 6 Outperform competitors on quality and
of total nitrogen sales. service as measured by customer surveys.
7 Expand computer applications' e-mail
Increase DFP volumes by 18 percent • DFP volumes increased 31 percent at 16 percent higher capabilities to improve communications
at 16 percent higher realized prices. realized prices. with customers and vendors.
* See reconciliation and description of certain non-GAAP measures on Pages 52 to 54.
10
POTASHCORP 2004 ANNUAL REPORT GOALS AND TARGETS
To be the low-cost supplier in our industry.
2004 Targets 2004 Results 2005 Targets
Reduce per-tonne conversion costs 0 Costs were reduced in potash by 3 percent (on a Canadian 1 Achieve rock costs at Aurora and
in each of our three nutrients by dollar basis); in nitrogen by 3 percent; and in phosphate by White Springs 5 percent below 2004.
5percent. 1 percent. 2 Achieve conversion costs for
Reduce phosphate rock costs by O Phosphate rock costs were reduced by 1 percent. production 4 percent better
5 percent. than an 2004.
3 Achieve 5-percent reduction in
Achieve average natural gas input • Achieved savings of 13 percent relative to NYMEX. per-tonne potash conversion costs
costs in North America 10 percent on a Canadian dollar basis.
below the average NYMEX spot price.
4 Achieve energy efficiency in nitrogen
Implement supply-chain 0 Nitrogen implementation was completed in 2004; potash 2 percent better than 2004.
management process. and phosphate implementations are scheduled for 2005. 5 Operate the Aurora DFP plant
at design capacity.
Reduce North American 0 Reduced North American transportation and distribution 6 Yield a 3-percent saving in
transportation and distribution expenses by 4.2 percent.

expenses by 5 percent. transportation and distribution
from industry benchmark.
Realize expected saving from • Changes in the medical plan were implemented, resulting
negotiated medical plan design. in savings that exceeded expectations. Annual savings are
projected to be $800,000.

To move closer to our goal of no harm to people, no accidents, no damage to the environment.
2004 Targets 2004 Results 2005 Targets
Reduce recordable and lost-time • PotashCorp's recordable injury frequency rate dropped 1 Reduce recordable and lost-time
injury frequency rates by 10 percent. by more than 13 percent and the lost-time injury rate fell injury rates by 10 percent.
- 21 percent.
2 Reduce reported releases and permit
Reduce the number of environmental O Total environmental releases (18) and permit excursions (31) excursions by 25 percent.
releases and permit excursions by were 25 percent higher due to issues at our Lima 3 Achieve 100-percent compliance on
10 percent. nitrogen plant. all environmental and safety audit
- action items.
Implement proactive facility • All high-risk facilities (US and Trinidad nitrogen) have
security plans addressing current security plans in place.
and anticipated security regulations.
Through the use of effective • By designing, implementing and auditing safety
management processes, continue processes and action plans, PotashCorp avoided major
to avoid major adverse incidents. adverse incidents.
11
POTASHCORP 2004 ANNUAL REPORT I GOALS AND TARGETS
To have motivated and productive employees committed to our long-term goals.
2004 Targets 2004 Results 2005 Targets
implement key corporate 0 Senior management utilized a balanced scorecard 1 Integrate key corporate
performance metrics. approach to develop a system for tracking and reporting performance metrics into regular
on key performance indicators in operations, sales, finance, employee reviews, providing
investor relations and human resources. This system will be managers with greater discretion
rolled out in 2005. ` to reward individual achievement.
Implement employee incentives that • A performance-related contribution to savings plans for 2 Proactively improve orientation
programs for new employees and
tie compensation more directly to non-union employees was introduced, based on cash career development processes for
the achievement of key corporate flow return* exceeding weighted average cost of capital*. existing employees.
financial performance measures. A redesigned stock-option program focusing on long-term
achievement will be presented to shareholders for approval. 3 Complete implementation of a
human resources administration
Complete implementation of 0 Succession management continued at the board level. system enabled by information
succession management and Identification of key talent, critical positions and technology.
employee development,processes development is now an ongoing component of senior 4 Maintain personnel turnover
to improve focus on key talent management discussions.
improvements achieved in 2004
and critical shortages. in Trinidad.
Complete implementation of a human 0 By January 2005, half of US payrolls had been shifted to the
resources administration system new system and all other components were in place for US
enabled by information technology. administration. Implementation of the remaining components
for Canada will be completed in 2005.
Reduce employee turnover in the • Turnover at Trinidad was successfully reduced by 40 percent.
Trinidad segment.

To have a positive impact o n the communities in which we operate.
2004 Targets 2004 Results 2005 Targets
Be engaged with community • Each of our plants and offices completed many community 1 Be in the top quartile of responses in
support projects at each of our - support volunteer projects. a survey of community leaders.
plants and offices.
2 Be engaged with community
Develop emergency management co The emergency management: plans for Saskatoon and support projects at each of our
plants and offices.
and crisis communication plans for Northbrook offices are in draft form. The crisis communication
Saskatoon and Northbrook offices. - plan is com pl ete. 'Emergency management and crisis 3 Achieve a 10-percent increase in
communication plans are in place, at all plant facilities. individual participation in the matching
gift program and a 20-percent increase
Conduct a review of governance • PotashCorp's governance policies and practices were in total donations.
policies and principles to identify recognized as among the top 7 percent of companies 4 Remain in the top quartile of
and implement most recent by Governance Metrics International. governance practices as measured
best practices, by external reviews.
See reconciliation and description of certain non-GAAP measures on Pages 52 to 54.
In January 2005, PotashCorp's phosphate operation at Aurora won the North Carolina
Mining Stewardship Award for its reclamation efforts at Whitehurst Creek. The restoration achieved •
included enhancements to the aquatic culture and stream system, and the area is once partially achieved o
again home to fish, birds and wildlife. did not achieve 0
12
POTASHCORP 2004 ANNUAL REPORT I SUSTAINABILITY
Sustainability
and
Success
At PotashCorp, we recognize that business success and Sustainability
are intertwined. We are building sustainable business practices into
our management systems as we weave the policies and principles of
sustainability into our company culture. This requires well-defined
expectations that take into account the concerns of our stakeholders,
and goals that move us forward as a sustainable enterprise.
Governance
To be sustainable, a company must clearly define the roles and
responsibilities of its board and management as well as its
relationships with stakeholders. Our Board of Directors follows
a charter that sets out its responsibilities and the limits to
management's responsibilities, and adheres to a comprehensive
statement of governance principles that addresses key issues,
including: board independence and integrity; functions of the board;
selection and composition of the board; and board committees.
PotashCorp's board is specifically charged with:
0 oversight and approval on an ongoing basis of the corporation's
business strategy;
E3 appointment of the Chief Executive Officer and monitoring his or
her performance;
E3 approving the appointment of all corporate officers;
o establishing standards for management and monitoring
performance; and
o approving procedures for strategy implementation, for identifying
and managing risks and for ensuring the integrity of internal
control and management information systems.
Management Systems
At the management level, we continue to advance management
systems designed to support continuous improvement. Our corporate
disclosure policy, which was adopted before it was required, ensures
Transparency
Creates
Credibility
In 2004, we published our second annual sustainability
report, which measured our progress on a number of key
metrics. This report won the 2004 Award of Excellence
from the Canadian Institute of Chartered Accountants.
The CICA also presented PotashCorp with Awards of
Excellence for our website and annual report, as well as
the overall Award of Excellence for having the best
corporate reporting program in Canada.
all shareholders have equal access to information. We have a
comprehensive purchasing policy that links procurement, in part,
to considerations of community development. Our Safety, Health
and Environment Management System outlines our requirements
and expectations in areas such as safety and accident prevention,
pollution, energy conservation and product stewardship. This has
contributed to improved safety performance and a reduction in the
recordable injury frequency rate for three consecutive years.
Code of Conduct
Our statement of core values and code of business conduct make
clear that honesty, transparency, integrity and respect for the law are
fundamental to the way our company and our people operate. This has
been communicated to all employees through meetings and ongoing
dialogue. Employees sign off on having a thorough understanding of
how PotashCorp's values and code of conduct affect the way they do
their jobs, fostering a culture of responsibility and accountability.
13
POTASHCORP 2004 ANNUAL REPORT I SUSTAINABILITY
CONNECTING WITH STAKEHOLDERS: Sustainability does not live inside a company; it acknowledges the needs and interests of all
stakeholders. PotashCorp maintains a dialogue with people affected by our operations, providing forums to share our strategies and the
resulting benefits. This is also an important risk-management tool that can identify areas of concern before problems arise. We rely on
independent research to gather feedback and insight into stakeholder perceptions and interests.
Customers Employees
say product quality is the key factor in buying decisions, after price a list PotashCorp's integrity as an important factor in their
o those surveyed ranked PotashCorp No. 1 in product quality in continuous improvement efforts and positive view of the company
each of our four major product areas o those surveyed reported a high level of overall engagement
Investors
o believe PotashCorp has the attributes of a growth company
o those surveyed valued our Potash First strategy, which is well-
matched to these attributes
Communities
o respect our long-term approach to business, strong safety and
environmental performance and the work we do in the community
o those surveyed supported the expansion of our business
LEADING BY EXAMPLE: Actions speak louder than words - and PotashCorp demonstrates social responsibility in areas that are
important to our stakeholders. Through financial support, volunteerism and corporate leadership, we are actively involved in the
communities where we live and work.
Financial
Less than one week after a tsunami
devastated regions of Southeast Asia in
December 2004, PotashCorp announced a
$1-million donation to the relief effort,
including $250,000 to match donations
from our employees.
The practice of matching donations
brings a sense of partnership to our
giving practices, as our financial support
goes to causes our stakeholders consider
important. For example, in Saskatchewan
we pledged $1.5 million to match
community donations to a health-care
initiative.
Volunteerism
Volunteerism connects PotashCorp to our
communities. At Aurora, our people
answered telephones and recorded pledges
at the Children's Miracle Network telethon,
contributing to a record-breaking effort that
raised more than $1.25 million.
At Joplin, PotashCorp employees read to
elementary school students on a regular
basis, while Saskatoon and Northbrook
employees teamed up on the construction
of a house as part of Habitat for Humanity's
"Women Build" day.
QW1
m
Leadership
Our people rise to the occasion when
assistance is needed. After Hurricane Ivan
destroyed more than 90 percent of the
homes in Grenada, employees in Trinidad
gathered food, clothing and water, and
collected money to purchase tarps for
temporary shelters.
PotashCorp sponsored a series of anti-drug
talks by D.D. Lewis, an employee and
former NFL star, that reached more than
17,000 students in 2004. Our people also
led the creation of a Saskatchewan chapter
of the Institute of Corporate Directors to
enhance governance.
14
POTASHCORP 2004 ANNUAL REPORT I MD&A
Management's
Discussion &
Analysis
of Financial Condition and Results of Operations (in US Dollars)
The following discussion and analysis is the responsibility of management and is as of February 28,
2005. The Board of Directors carries out its responsibility for review of this disclosure principally
through its audit committee, comprised exclusively of independent directors. The audit committee
reviews this disclosure and recommends its approval by the Board of Directors. Additional
information relating to us (which is not incorporated by reference herein) can be found on SEDAR
at www.sedar.com and on EDGAR at www.sec.gov.
What is new about
this 2004 MD&A?
It is divided into six color-coded
sections so specific information
is easy to locate.

Special things to watch for:
26 Factors that shaped 2004 business conditions
World economic growth and specific conditions
that affected the entire fertilizer industry last year.
28 Earnings review
Our 2004 earnings exceeded our guidance and
2003 results. This section explains the variances
in detail on a per-share basis.
44 Risk management
A more integrated risk-management framework
was introduced, and here are the details.
50 Key earnings sensitivities
Key factors and their effect on earnings per share.
50 Indicators to watch in 2005
These are our best estimates of factors that could
affect our industry and our performance in the year
to come.
I
Section 1, in red, reports on our business, our strategies
for managing that business, our capabilities and the
drivers of our success.
This is an inside look at how we think. 15 - 25
Section 2, in green, shows the factors that shaped 2004
Section 3
We're noted for our cash flow. Here's that story, and more.
Section 4, in brown, discusses critical accounting estimates
and recent accounting changes.
This explains the important accounting policies and estimates we apply.
Section 5, in mauve, contains risk management and 2005 outlook.
Like every business, we face risks that we must manage; and we look into the future and plan.
Section 6, in pink, provides fourth-quarter 2004 analysis, sensitivities,
11 year data and appendix (including glossary of terms).
Additional information such as indicators to watch, footnote explanations and industry/scientific terms.
business conditions and our 2004 results.
t - You will see how potash carries our flag.
, in blue, outlines our liquidity and capital resources.
26-35
36-40
41 - 43
44-47
48-51
15
POTASHCORP 2004 ANNUAL REPORT I MD&A
Different nutrients, different attributes
Potash gives plants strength and aids
water retention, contributing to larger
yields, greater disease resistance and
improved handling and storage qualities.
Nitrogen is a basic building block for
proteins and enzymes in all living cells
and is critical to yield.and quality.
Nitrogen is essential to animal proteins,
RNA and DNA and maturation.
Phosphate energizes animal muscles
and is essential to growth and body repair.
Nitrogen is used by industry in plastics,
resins, pharmaceuticals and adhesives.
Different nutrients, different business environments
i
Potash Phosphate Nitrogen
Base Product Potassium chloride Phosphate rock Ammonia
Geographic Availability
of Raw Materials t
Cost of New Capacity 2
Greenfield 3
Development Time 4
Producing Countries 5
State- or Subsidy-
Controlled Production 6
Industry Operating Rate 7
PotashCorp Capacity 8
Very limited
Approximately $500 million
for 1 million tonnes KCI
5 years
12
14%
91%
12.5 million tonnes potash*
23% of world capacity
PotashCorp World Position # 1
by Capacity 9
Increased from 12.1 million tonnes by expansion completed in first quarter of 2005.
- phosphoric acid
Limited
Approximately $1 billion
for 1 million tonnes P205
3 years
41 (based on phosphoric acid)
44%
74%
2.5 million tonnes
phosphoric acid
6% of world capacity
#3
Readily available in numerous
locations (natural gas)
Approximately $500 million
for 1 million tonnes ammonia
2 years
Approximately 60
50%
82%
3.9 million tonnes ammonia
2% of world capacity
#4
1-9, See Appendix Page 51
16
POTASHCORP 2004 ANNUAL REPORT I MD&A
Our Business Environment
`.- Fertilizer - Feed Industrial
-?_ Acres Plante` o Demand for maat - : economic grrwth
?oA?pljcatio c? r e Hd\?ntlflocksize Risirgworl?popufaTEO
E Rising orld populno 'C1 Economic grouvth Q-Desjre for pradu?hal V"
o Desire for prote h diets Rising' uubrid pupation sco ut owe r? i
E3 World gram st? Gaverhmbnt pahcy\\?=
o Crop commodity prices ?e? Regulations affecting\\
o Weather subst(tutable,product?\?
o Government policy At ` .
o Economic growth
El Currency strength
As the world's largest producer, by capacity, of the three primary
plant nutrients - potash, phosphate and nitrogen - PotashCorp
has built a global business on these natural nutrients. Our products
serve three different markets: fertilizer, feed and industrial. All three
nutrients are important in fertilizer, with phosphate the biggest player
in the feed market. In the industrial market, phosphate and nitrogen
products play the major role.
Each of the three nutrients is drawn from nature and all are
essential for healthy plant production and more nutritious food.
PotashCorp converts these natural ingredients to a form that is
digestible by plants.
El Potassium is found in evaporated seabeds.
is
o Phosphorus is provided by fossilized remains of
sea creatures.
E3 Nitrogen forms 78 percent of the air we breathe.
We sell fertilizer to North American retailers, cooperatives and
distributors that provide storage and application services to farmers,
the end users. Our offshore customers are governments and private
importers that tend to buy under contract, while spot sales are more
prevalent in North America. Key offshore customers include Brazil,
China, Japan, Malaysia and Indonesia. Fertilizers are sold primarily
for spring and fall application in both northern and southern
hemispheres. In North America, all three nutrients are used on
When you buy a bag of fertilizer, the
percentage of each nutrient is stated.
We produce all three nutrients.
corn, wheat, cotton and rice, while nitrogen-producing soybeans
require potash and phosphate. This is also true offshore, although
potash is used extensively on a broader range of crops there,
including oil palm, sugarcane and coffee.
Transportation is an important part of the final purchase price for
fertilizer so producers usually sell to the closest customers. In North
America, we sell mainly on a delivered basis via rail, barge, truck
and pipeline. Offshore customers purchase product either at the port
where it is loaded or with freight included. Approximately 60 percent
of our potash customers buy it freight included (CFR) and the
remainder are responsible for ocean freight (FOB). In phosphate,
the majority of offshore sales are FOB. Our nitrogen is sold primarily
in North America.
Our feed customers are mainly US bulk feed producers, with Brazil
and Mexico the biggest offshore customers. Our industrial customers
are primarily based in the US, and include industrial intermediate and
product manufacturers such as Astaris and Innophos in phosphate
and BASF and DSM in nitrogen. Most feed and industrial sales are by
contract and are more evenly distributed throughout the year than
fertilizer sales.
In all product categories (fertilizer, feed and industrial products),
price is the most important variable in the buying decision. North
American customer surveys indicate that product quality is the next
most important factor when a supplier is being chosen. Customers'
specific needs also affect their buying decisions. For example, in
Japan, where our potash products are commonly used in industrial
applications, quality is a significant factor. In Brazil, granular potash
to blend with the other nutrients is key.
Nitrogen (N) I I I Potassium (K)
Phosphorus (P)
17
Vision
POTASHCORP 2004 ANNUAL REPORT I MD&A
We envision PotashCorp as a long-term business enterprise providing
superior value to all our stakeholders. To achieve this, we believe we
need to be the sustainable gross margin leader in the products we
sell and the markets we serve.
Through our strategy, we attempt to minimize the natural volatility
of our business. Risk rises with volatility and we believe the capital
markets will assign a better earnings multiple to a growth company
with lower risk. We also strive for increased earnings, and to
outperform our peer group and other basic materials companies in
total shareholder return, a key measure of any company's value.
We link our financial performance with areas of extended responsibility:
the environment, our social and economic stakeholders. We focus on
increased transparency to improve our relationships with all our
stakeholders, believing this gives us a competitive advantage.
Strategy
our strategy is based on our commitment to seek earnings growth
and quality. We strive to build value with reduced volatility and
we reduce volatility by doing all we can to strengthen our potash
business, hence our Potash First strategy. Our goal is to be the low-
cost global potash supplier on a delivered basis into all key world
markets. We supplement this potash strategy by leveraging our
strengths in nitrogen with our lower-cost gas in Trinidad, and our
specialty phosphate products, particularly the industrial product,
purified acid, produced in North Carolina.
PotashCorp Potash Production
g World's largest producer, pulling product
from seven operations in Canada - six in
Saskatchewan and one in New Brunswick
Cost of
Producing
a Tonne of
Potash
Royalties &
Other Taxes
ga
Costs are 70% variable
and 30% fixed
' Strategic Positioning Profile
I
Potash
v SQM ¦ APC/ICL
d
Purified Acid
Grow
E
0
Cm Minimize ¦ Aurora
Liquid Fertilizer
I Augusta -Trinidad
AP ¦ Feed
High 44 Low
Production Cost
Potash ¦ Phosphate -Nitrogen • Investments
in our day-to-day actions, we seek to maximize gross margin by
focusing on the right blend of price, volumes and asset utilization.
Our highest-margin products - potash, purified phosphoric acid and
Trinidad nitrogen products - drive our strategy, and we strive to grow
the business by enhancing our position as supplier of choice. We aim
to build on our strengths by acquiring and maintaining low-cost,
high-quality capacity that complements our existing assets and adds
strategic value. Our decisions are based on our cash flow return
materially exceeding cost of capital.
PotashCorp Phosphate Production
Third largest producer in the world by capacity,
with a large vertically integrated complex in
North Carolina, a mine and chemical plants in
northern Florida, a plant in Louisiana, five feed
plants in five states and one in Brazil
Cost of
Producing
a Tonne of
Pz05
Costs are 40% variable
and 60% fixed
Rock
38%
PotashCorp Nitrogen Production
World's fourth largest nitrogen producer,
with four plants in the US and one large
facility in Trinidad encompassing four
ammonia plants and one urea operation
Other
Depreciation& 5%

Cost of Amortization
10%

Producing Labor &
Main6enance
a Tonne of
Ammonia

Natural Gas
79%
Costs are 80% variable
and 20% fixed, depending
on natural gas costs
Illustrations are representative of the typical cost structure of each nutrient.
18
POTASHCORP 2004 ANNUAL REPORT I MD&A
PotashCorp in the World Potash Scene
Around the world, potash deposits that can be mined economically are
limited to a few countries. There are only 12 producing countries, more
than 150 consuming countries, and over 80 percent of the product
crosses borders. The primary producing areas - Canada, Russia and
Belarus - account for two-thirds of world production. The US, a mature
market, is the largest potash importer. The greatest growth markets are
nations with limited or no indigenous production, such as Brazil, China
and India. PotashCorp is a prominent supplier to these markets.
Our major competitors in North America are Agrium and Mosaic, which
have more exposure to North American sales than we do. Globally, we
compete with producers in Belarus, Russia, Germany and Israel in the
key growing markets of Asia and Latin America.
STRATEGY:
Using excess capacity to build on global leadership
Our strategy in potash is designed to capture the benefits of our
excess capacity. We match supply to demand to minimize inventory
overhang and we believe price and margin are more important than
volumes. We focus on maintaining our low-cost position both in
production and on a delivered basis. We expect to use our excess
capacity and make capital investments as necessary to seamlessly
provide the world with the appropriate amount of potash as
consumption grows.
Growth in demand over the last three years (4.0 percent in 2002,
7.6 percent in 2003 and 9.9 percent in 2004) has absorbed nearly all of
PotashCorp Is the Largest Potash Company
Million Tonnes KCI
PotashCorp IIII?? _
Belaruskali (Belarus)
Mosaic (Canada, US)
ICL (Israel, Spain, UK)
Uralkali (Russia) ¦ PotashCorp Production
Kali & Salz (Germany) ¦ PotashCorp Investment
Silvinit (Russia) ¦ Other Production
APC (Jordan) ! Excess Capacity
Agrium (Canada)
China
Intrepid (US) PotashCorp Estimated Share of
SQM (Chile) World Excess Capacity = 86%
CVRD (Brazil)
0 1 2 3 4 5 6 7 8 9 10 11 12 13
Source: Fertecon, IFA, PotashCorp
In 2004, we increased our ownership of SQM to 25 percent,
expanding the extended enterprise that already included a
9-percent investment in ICL in Israel and 26 percent of APC
in Jordan.
the world's excess capacity exclusive of PotashCorp. The threat of major
new capacity in the form of a new mine is somewhat constrained, as
we believe there are few geographic opportunities. According to industry
consultants, a 2-million tonne greenfield operation would require
approximately $1 billion in capital and a five-year lead time. We
believe current potash margins do not support such investments.
Our competitors are debottlenecking and doing incremental
expansions where possible, but none can bring up significant capacity
as quickly and economically as we can. What's more, their announced
STRENGTHS:
0 86 percent of world excess capacity to respond to growing
world consumption
0 Excess capacity can be brought on stream quickly with modest
capital outlay
0 Low-cost, flexible production with smaller percentage of fixed costs
0 Long-term reserves from existing shafts
0 Greater sales exposure in growing offshore market
0 Few world producers, reduced government control
0 Stable pricing historically with current upward trend
0 High cost and long lead time to build greenfield capacity
0 No greenfield operations initiated, providing us with a multi-year
window
0 No substitutable products for potash
WEAKNESSES:
0 Competitors will continue with low-cost incremental expansions
0 High provincial resource taxes (Saskatchewan) and federal income
taxes relative to global competitors
0 High freight costs to ship Saskatchewan potash to port
0 Exposure to Canadian dollar volatility
o Currently high ocean freight costs
0 Water inflow continues to hurt New Brunswick margins
0 Potential for rail transportation bottlenecks
OPPORTUNITIES:
0 Ability to optimize excess capacity quickly and competitively
0 Our competitors are operating at capacity, which should allow us to
benefit from a significant portion of accelerated growth
o New deposit found in New Brunswick could resolve water inflow
problem and allow expansion in a lower-tax environment
o Strategic acquisitions of other low-cost production in the world,
including adding to our existing investments in APC, SQM and ICL
THREATS:
0 Current upward trend in pricing could encourage new greenfield
operations
0 Competitors' debottlenecking of existing plants with a simultaneous
drop in demand could offset potential market growth for us
19
POTASHCORP 2004 ANNUAL REPORT I MD&A
debottlenecking plans amount to approximately 2 million tonnes
in the next six years, while the historical growth rate of 2 percent
suggests 7 million tonnes will be required. We expect customers
to turn to us to meet the majority of continuing growth in world
consumption. As we increase our operating rate, we expect to be
able to capitalize on our three leverage points of increased sales
volumes, lower per-unit costs and higher sales prices. This leverage
is further enhanced by our investments in other potassium-based
companies: SQM, APC and ICL.
Transportation costs are increasingly important and our sales strategy
is built with customer proximity in mind. We are advantaged supplying
Asia and the US from our Saskatchewan operations and South and
Central America from New Brunswick. This allows for quicker and
more cost-efficient delivery to some key markets - an important factor
as ocean freight rates climbed to unprecedented levels in 2003 and
stayed high throughout 2004.
Offshore sales of our Saskatchewan potash are handled through our
membership in Canpotex, which minimizes transportation and marketing
costs. Approximately 60 percent of Canpotex sales are made on a
delivered basis, meaning it pays the freight. Domestically, our strategy
relies on a distribution network in the US and Canada that allows
timely delivery to high-demand spring and fall markets. We optimize
these systems, attempting to get the lowest freight rates possible.
Shifts in foreign currencies can affect our margins. As currencies,
including the Canadian dollar, strengthen against the US dollar,
translated production costs rise. With higher freight rates, this could
World Potash Operating Rate Rising
Percentage of Capacity
100 - Without PotashCorp
Including PotashCorp
90
80
70 y
60
50 '
1976 1980 1984 1988 1992 1996 2000 2004
Source: Fertecon, IFA, PotashCorp
Exclusive of PotashCorp, world producers operated at
98 percent of capacity in 2004, which drove North American
and offshore prices to record highs.
impact margins. Investments in companies such as APC have the
advantage of providing a natural hedge against rising freight costs
and currency fluctuations, as the Jordanian dinar is pegged to the
US dollar.
PotashCorp will continue to review investment opportunities that
offer freight advantages, provide economic hedges and expand our
enterprise. We will also explore opportunities in upgraded potash
(which offers higher returns and less volatility), consistent with
our investment in SQM, the world's largest producer of specialty
upgraded potash products. We believe the strategic positioning of
our existing potash operations and investments places us in the
targeted top right quadrant.
CAPABILITY TO DELIVER
In potash, the ability to bring on excess capacity in a timely manner
is key to our growing profitability. Tight global supply is increasing
the need for potash production. In 2004, we went to four shifts at
our Lanigan and Allan mines and reduced inventory shutdown weeks
by nearly one-third, to 28 weeks. This increased our production to
almost 8 million tonnes from 7.1 million tonnes in 2003. In 2005,
we will have the capability to produce 9.6 million tonnes. This would
reflect a full year of four shifts at Lanigan and Allan and, if demand
warrants, further reduction in inventory shutdown weeks and
vacation/maintenance shutdowns. It also reflects the 400,000-tonne,
$80-million expansion at Rocanville. Our ability to bring this capacity
on quickly is unmatched in our industry - especially with virtually no
capital costs other than the Rocanville expansion.
As markets continue to grow, we can add another 2.9 million tonnes
of capacity at a current estimated cost of $300 million. This represents
one-fifth of the cost of developing the same amount of new greenfield
capacity. Engineering design work is being conducted to evaluate
a number of projects in Saskatchewan and New Brunswick to
determine the optimum mix, with a view to being able to operate
at full stated capacity of 12.5 million tonnes within three years, if
the market requires.
We have also recognized the growing demand for granular product
by customers in areas such as Brazil. With the expansion at
Rocanville on stream, we are able to produce 1.5 million tonnes
of granular product there to help meet the needs of these key
customers. A further expansion to the compaction capability at
Rocanville is currently under way. It will facilitate the production
of an additional 0.5 million tonnes per year and is scheduled for
completion in August 2005.
20
POTASHCORP 2004 ANNUAL REPORT I MD&A
PotashCorp in the World Phosphate Scene
Phosphate is produced in 41 countries, with the United States the
biggest producer, followed by China, Morocco and Russia. World capacity
of the major phosphate fertilizer product, diammonium phosphate (DAP),
has surged in recent years, and approximately 42 percent is traded
across borders. US DAP production was built predicated on exports
and historically much of it went to India and China, which are now
developing their domestic production behind protective trade barriers.
The current excess capacity for DAP production relative to consumption
is depressing prices. Governments influence a significant proportion of
world capacity through subsidy control or ownership, or by overproducing
and accepting negligible to negative returns to support employment.
In North America, our major competitor for both fertilizer and feed
products is Mosaic (formerly IMC Global and Cargill Crop Nutrition,
which merged in October 2004), while imports from Morocco and
Israel compete for industrial sales. In offshore markets, competition
for fertilizer sales comes from indigenous producers in India and
China and from other global producers. In China, indigenous
producers compete for feed sales.
STRATEGY: Strength through diversification
In phosphate, we work to maximize the benefits of our long-term
rock position, multi-year mining permits and high-quality rock that
enables low-cost production and product diversity. The quality of
our rock at Aurora and its integrated production facility place that
plant in a more desirable position on our strategic profile than
Low-Cost Purified Phosphoric Acid
US Landed Cost
Indexed Cost
Prayon
Rotem
Innophos - Geismar
Innophos - Mexico
Emaphos
PotashCorp
0 20 40 60 80 100 120 140
Source: British Sulphur, PotashCorp
The volatility of phosphate fertilizer prices has encouraged us
to direct more of our P205 into the higher-margin, more stable
purified acid business. Our high-quality rock makes us the
low-cost supplier to the US market.
STRENGTHS:
E3 Most diversified producer, making the entire range of phosphate
products - solid and liquid fertilizers, feed and industrial
o High-quality rock makes it possible to upgrade economically to more
stable, higher-margin products
o Strong competitive cost position and tight global supply in purified acid
o Long-term deposits close to low-cost processing facilities
o Approximately 75 years of reserves in North Carolina at current
operating rates
o Existing mining permits at Aurora for seven years and covering
estimated life of mine at White Springs (17 years)
WEAKNESSES:
E3 US producer dependency on declining world DAP trade has led to
lower sales volumes and operating rates
o High percentage of fixed costs means plants do not perform profitably
at lower operating rates
o Current high raw material input costs for ammonia and sulfur
o Product diversity creates production requirements that increase costs
o Too much government intervention globally, either in constructing
capacity or in restricting imports
o Offshore sales heavily exposed to China and India, which seek
self-sufficiency
OPPORTUNITIES:
o Our high-quality rock and proven technology allow us to expand
production of the industrial product purified acid
o Production flexibility will allow us to streamline production at three
operations to reduce costs
o Our strong competitive cost position in purified acid makes us less
susceptible to offshore competition
0 Resolution of DFP start-up problems should improve feed profitability
0 Potential for industry shutdowns
THREATS:
o Excess world DAP capacity in many hands can easily be brought
back on stream
o Depressed fertilizer prices could encourage others to expand into the
feed business, hurting margins
o Competitors with liquidity issues are selling at lower prices to
accelerate cash flow
o Higher barriers to exit because environmental costs force some
companies to continue production at uneconomic levels, impacting
supply/demand fundamentals
21
POTASHCORP 2004 ANNUAL REPORT I MD&A
PotashCorp Phosphate Rock Costs More Competitive
$US/Tonne
40 t__ -, Aurora
? White Springs
? Large Florida Producers
35
I 30 ?\\
i
25?`
20
1998 1999 2000 2001 2002 2003 2004 2005F 2006F 2007E
Large Florida producers' future rock cost based on historical average Source: TFI, PotashCorp
increases. PotashCorp future rock costs inflated 2.5% per year.
It takes 3.5 tonnes of phosphate ore to produce one tonne of
P205 so our falling rock costs add to our competitive advantage.
White Springs. One of Aurora's upgraded products is purified acid,
which has higher, more stable margins and lessens the impact of the
volatility of phosphate fertilizer.
Industry demand for purified acid continues to grow globally in
response to demand for products that require it. Our position
strengthened in 2004 when imports from China to the US were
down 10 percent from 2003 and there was consolidation among
US competitors. Barriers to entry - the need for high-quality rock
as well as capital considerations - keep this product in our most
desirable strategic positioning quadrant.
We continue to expand the purified acid business at Aurora, where
we have proven technology and a strong, competitive cost position
Prices are favorable, and we will continue to look for opportunities
to further diversify in purified acid.
Feed phosphates, our other diversification effort in phosphate,
have suffered recently. Declining demand due to increased use
of substitutes, and the fallout from DAP as competitors switched
their phosphoric acid into feed, hurt supply/demand fundamentals.
However, recent consolidation in the US feed industry may improve
its strategic positioning.
CAPABILITY TO DELIVER
Keys to profitability in phosphate include diversification away from
fertilizer products, high operating rates and minimizing the impact
of high costs for inputs such as ammonia, sulfur and rock. Therefore,
we are reallocating P205 away from the more competitive fertilizers
to higher-margin products. In March 2003, we increased our
purified acid capacity at Aurora to 251,000 tonnes P205, and that
production capacity is sold out. We are now installing an additional
82,000 tonnes of P205 capacity, to be complete in June 2006, and all
output is already in demand by various companies. Together, these
expansions have allowed us to divert 165,000 tonnes P205 away
from fertilizer production.
We have announced three projects that will allow us to run at higher
operating rates, decreasing costs without increasing solid fertilizer
production tonnes: At Aurora's DAP/acid facility, we will debottleneck
the #2 plant and close the less efficient #1 plant; also at Aurora, the
gypsum blend process will be streamlined to use more gypsum from
direct blend filters; and, at White Springs, we will convert production
of all phosphoric acid to the superior hemihydrate process, which will
lower energy costs, increase production flexibility and produce a
higher quality P205.
At approximately 30 percent of total production costs, rock is the
largest controllable cost of producing P205. Rock inventory was allowed
to build in two previous years as a safety cushion during the transition
to another mining area at Aurora, and reduction of that inventory last
year increased rock costs by 10 percent. Constant inventory levels of
wet phosphate rock concentrate year over year and higher operating
rates should reduce costs moving forward.
The new design of the DFP plant brought on stream at Aurora in
2003 created complications, which have prevented it from achieving
full operating rates. We are working at resolving the problems with
the anticipation of operating it at design capacity in 2005.
PotashCorp Phosphate P205 Operating Rates
Percentage of Capacity
120 - Aurora
? White Springs
100 ? Geismar
80
60
40
20
0
1998 1999 2000 2001 2002 2003 2004
Source: PotashCorp
Our phosphate margins have suffered from low operating rates
so we are undertaking three projects to increase those rates
without producing more solid fertilizer tonnes.
22
POTASHCORP 2004 ANNUAL REPORT I MD&A
PotashCorp in the World Nitrogen Scene
Nitrogen, the most widely produced nutrient, is a regional business.
Ammonia, the feedstock for all downstream nitrogen products, can
be manufactured in any country with adequate natural gas supplies,
and approximately 60 countries do so. Ownership is widely dispersed
around the globe, so only 13 percent of ammonia is traded. Several
developing countries with large gas reserves and low production
costs use little of their gas domestically, and monetize it by producing
ammonia cheaply for the export market. China is the largest producer,
followed by India, Russia and the US. Half of the industry is under
government ownership so decisions are not necessarily based on
economic considerations.
Rising natural gas costs in North America and Europe have led
to plant closures, since gas is at least 70 percent of the cost of
producing ammonia. The resulting tight supply has increased prices,
attracting imports from areas of low-cost gas such as Trinidad,
Venezuela, Russia and the Middle East. Increasingly, the US is
supplied from offshore. Since 1999, approximately 4.5 million tonnes
of US ammonia capacity has been permanently shut down, with a
corresponding increase in imports of 55 percent.
Nitrogen is an input in industrial production of a wide range
of products that enhance modern living. Manufacturers want
consistent quality and just-in-time delivery to keep their plants
running efficiently. Many are attached to their suppliers by pipeline.
US Natural Gas Price vs Ammonia Price
- Gas $/MMBtu - CFR Tampa A7$/Tonne
12 10 300
8 240
6 180
4 120
2 60
0 0
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan
00 00 01 01 02 02 03 03 04 04 05
Source: Fertecon, NYMEX
Ammonia prices tend to follow natural gas prices but in 2004,
continuing high gas costs kept many North American ammonia
producers shut down. This tightened supply/demand, pushing
up ammonia prices even as gas prices fell. By year-end, they
had recoupled.
GDP improvements in developing nations have historically supported
growth in demand for these lifestyle products.
Within North America, sales are regionalized due to transportation
costs. This limits competition from Agrium and other Canadian
sources which serve a different geographic market. CF Industries,
a cooperative, Koch, a private company, and Terra, a publicly traded
company, are our main competitors, along with imports.
Largest Offshore Ammonia Capacity in Western Hemisphere
Million Tonnes Ammonia
5
PotashCorp Trinidad Expansions
¦ Lower-Cost Offshore Capacity
4 ¦ North American Capacity
® ¦PotashCorp Curtailed US Capacity
3
2
0
Agrium Potash Terra Koch CF CNC Mosaic Yara Tringen*
Corp Industries (Trinidad) (Trinidad) (Trinidad)
* Government Portion Source: Blue, Johnson; Fertecon; PotashCorp
We are building on our advantage in Trinidad with expansions
that will give us the largest low-cost offshore production of any
Western Hemisphere producer.
STRATEGY: Trinidad is key
Our nitrogen strategy is designed to benefit from favorable gas
contracts in Trinidad. In North America, we employ natural gas
hedges with the goal of minimizing risk from gas price swings and
protecting US margins. We believe our nitrogen position is spread
along the bottom two quadrants of our strategic positioning profile,
with our Trinidad operations in the superior right corner.
In nitrogen, North America is our primary market. We supply it
through a combination of tonnes produced in Trinidad, US production
and purchased tonnes which we re-sell, always seeking to source
the highest-margin method of supply. Our multiple port facilities,
warehouse and distribution network, dedicated sales and customer
service teams and associated infrastructure make it possible to supply
customers from this flexible production base.
Trinidad is home to more than 60 percent of our ammonia production.
It has a stable government and is ideally situated to service the
sizeable US market. Thus we are expanding this lower-cost facility.
23
POTASHCORP 2004 ANNUAL REPORT I MD&A
STRENGTHS:
El Long-term, lower-cost gas contracts in Trinidad
© Our gas hedging program in the US helps stabilize costs there
® Serve both fertilizer and industrial customers
E] Some of our US plants are linked by pipeline to industrial customers
willing to pay a premium for secure, high-quality supply
o We own/operate deepwater import terminals
WEAKNESSES:
o US plants depend on high-cost natural gas
0 Plant ownership spread over many companies
o Contractual commitments to industrial customers may force us to
operate unprofitably in a high-cost gas environment
o Small volume changes can significantly impact prices
OPPORTUNITIES:
o High volume demand in the US
o Plants in Trinidad being expanded to provide more cost-advantageous
production
o Our US distribution system allows us to import and sell purchased tonnes
o Consolidation of US industry
0 High cost of construction materials such as steel could delay new
capacity, extending the current cycle
THREATS:
0 Abundance of lower-cost natural gas in developing countries leads to
new ammonia capacity as they attempt to monetize their gas resources
o Competitors need only a short lead time to bring on new capacity
when the supply/demand ratio is tight
Our US plants, located in different regions, focus on industrial sales in
which quality and security of supply are key. With varied production
rates at these operations, we plan to maximize sales to industrial
customers, supplemented by fertilizer sales, to run our plants at the
highest possible operating rate to help control costs.
We currently operate three plants in the US: Augusta and Lima,
producing a range of nitrogen products, and Geismar, the world's
largest nitric acid producer. Augusta is a highly competitive, economical
plant with a strong industrial customer base. Lima is also a strong
industrial supplier with a good inland location that is insulated from
imports. We curtailed all production at Memphis and ammonia and
nitrogen solutions production at Geismar in June 2003.
Our strategy moving forward also considers leveraging our marketing
and operations expertise without significant capital outlay through
US Cumulative Permanent Ammonia Curtailments
Million Tonnes Capacity
Source: Fertecon
High gas costs have shut down 25 percent of North American
ammonia production since 1999, increasing imports from
lower-cost gas regions such as Trinidad, Venezuela, Russia
and the Middle East.
asset-light/fee-heavy arrangements. Our goal is to find investments
where we provide the operating, management and marketing
knowledge along with distribution resources, while our partner
provides the assets. This has the potential to deliver stable returns
for minimum investment.
CAPABILITY TO DELIVER
We have announced four debottlenecking expansions in Trinidad
to capitalize on our lower-cost gas position there. The first two
expansions are for approximately 138,000 tonnes of ammonia for
$30 million; 69,000 tonnes will be available in the first quarter of
2005 and the rest in the third quarter. Subsequent expansions will
increase capacity by a further 132,000 tonnes for $41 million. Half
is expected to be available in the first quarter of 2006 and the
remainder in the third quarter. US natural gas is expected to remain
above $4.50 per MMBtu, which sets the floor price for US ammonia
above $195 per tonne. Ammonia prices would have to fall below
$140 per tonne before these expansions would provide a return of
less than 15 percent.
In the US, we continue to utilize our gas hedging program to
mitigate the risk of price volatility. Natural gas prices will determine
the profitability of our hedging program and our ability to buy more
cheaply, on average, than the market going forward. By using our
distribution system for purchased tonnes, we can source product
with the best margins.
1999 2000 2001 2002 2003 2004E
24
POTASHCORP 2004 ANNUAL REPORT I MD&A
PotashCorp Sales
STRATEGY: Be the supplier of choice
In our business, where products are similar and price is the most
important influence on buying decisions, our goal is to move our
customer base to the top right strategic position of highest volumes
and highest margins. We want to be the supplier of choice to our
customers, always getting the final opportunity to win their business.
We seek to become the preferred supplier to high-volume, high-
margin customers with the lowest credit risk.
CAPABILITY TO DELIVER
Customers' perceptions of our ability to create value for them based
on the price they pay for our products are fundamental to our ability
to maintain and grow their business. Our dedicated sales teams for
each product (fertilizer, feed and industrial) focus on increasing their
specific knowledge to provide maximum value for customers. We
follow up our sales with customer service that is available 24/7, and
have strong technical support. We also do annual customer surveys.
In our most recent survey, price was listed as the top purchasing
criterion. However, beyond price, customers named "product quality"
as the single most important factor influencing their buying decisions.
The same research indicates that PotashCorp is rated by survey
respondents from each customer group as having the highest product
quality. In addition, at least three-quarters of those surveyed indicated
that sustainability performance affected buying decisions, especially
as it related to economic and safety, health and environmental
performance. Recognizing its importance, PotashCorp focuses on
this in customer communications and sets targets for improvement
in these areas.
In North America, continued engagement with our customers, along
with strategic alliances with dealers who warehouse our products,
will influence our success in maintaining fertilizer market share. For
feed, the proximity of our plants to customers is an advantage, as are
our long-term relationships with purified acid customers. Additionally,
our extensive North American distribution network gives us a logistical
advantage in supplying the growing needs of all customers.
Our participation in the fertilizer sales organizations Canpotex and
PhosChem, where we share marketing costs and volumes with other
producers, is important to our offshore margins. These organizations
maintain a network of agents in offshore markets, aimed at ensuring
our products benefit from market growth.
As a producer of large volumes which are sold around the world, our
success requires an efficient transportation system. This is achieved by
operating our own transportation department, with a distribution
network of approximately 175 terminal and warehouse facilities and
a fleet of approximately 6,600 railcars.
Rising sales of North American grain and other commodities have
affected the availability of railcars for potash. CN Rail handles our
North American rail shipments. In response to the growing demand
and potential increase in rates, we signed a long-term agreement
with CN through 2010, which will deliver annual savings. CN has
committed to meeting our North American growth and has therefore
added 60 locomotives and 500 covered hopper cars.
Rail from Saskatchewan to west coast ports is handled by CP Rail,
Canpotex's primary carrier. CP has committed to meet Canpotex's
offshore growth by investing approximately $1 billion in improvements
that will include 24 more locomotives and 600 more covered hopper
cars, for a total of 1,500. Canpotex's private hopper car fleet will
increase from 1,960 cars to 3,260 by mid-2005 to meet the
growing demand.
The relationship between costs and return on our investment in the
system is key. Recent increases in ocean freight rates are raising our
cost to deliver to offshore customers that purchase potash on contracts
with freight included. In response to the volatile and rising ocean
freight rates, Canpotex plans to increase its fixed freight agreements
from 15 percent in 2003 to a target of over 50 percent in 2005. For
our sales out of New Brunswick, we negotiated a three-year freight
contract for 60 percent of sales from there to Brazil.
Customer Surveys
In customer surveys, PotashCorp was ranked higher (on a scale of 1 to 100)
than our competitors overall and at every stage of the sales transaction.
Fertilizer
PotashCorp 83
Industry Average 78
Feed
PotashCorp gp
Industry Average 84
Purified Phosphate
PotashCorp 88
Industry Average 76
Industrial Nitrogen
Industrial nitrogen customers
had a high degree of satisfaction 0' Satisfied
with PotashCorP 's customer satisflie 51.5%
service and reliability.
Unsatisfied
25
POTASHCORP 2004 ANNUAL REPORT I MD&A
Key Performance Drivers
Each year we set targets to advance our goals and drive results. In
2004 we further developed key performance indicators to monitor
our progress and measure success. As we drill down the organization
with these metrics, we believe:
• management will focus on the most important things, which will
be reinforced by having the relevant results readily accessible;
• employees will understand and be able to effectively monitor their
contribution to the achievement of corporate goals; and
• we will be even more effective in meeting our targets.
Recognizing that this is an evolving process, we began by examining the
company's long-term goals and developing metrics to measure progress.
We achieve our goal of outperforming comparable companies by
maximizing shareholder wealth through increasing sales of our
products with more stable and higher margins. At the corporate level,
the key performance metric for maximizing shareholder wealth is
total shareholder return, on both an annual basis and a sustaining
basis. Supporting metrics which contribute to this are cash flow
return versus our weighted average cost of capital, EBITDA multiple
relative to our peers, and sales and gross margin growth.
In our sales and production divisions, the metrics are cash flow return
at the divisional gross margin level and associated working capital.
We measure our success at increasing sales of products with stable,
desirable margins by analyzing volumes, revenue and gross margin for
all sales within each nutrient. The question we ask ourselves is, "Have
we optimized our gross margin on a product and customer mix basis?"
Reducing injury rates and environmental impact will help us achieve
our goal of no harm to people, no accidents and no damage to the
environment. Lost-time and recordable injury rates and environmental
events such as reportable releases and permit excursions measure the
components of this goal.
To reach our goal of having motivated, productive employees, we
encourage and reward performance that supports PotashCorp's
strategy. We have initiated a process to survey employee engagement
with the company's goals and objectives. Over time we will be able
to compare year-over-year results to provide a guideline for activities
we might introduce or improve to increase employee productivity and
emotional buy-in to our objectives.
We achieve our goal of having a positive impact on communities in
which we operate by contributing to socio-economic well-being. Part
of this is having good governance principles, and our board continues
to assess this area. We contribute to our communities by being a
competitive employer on a compensation and benefit basis, and we
support local causes in areas where we operate. We measure our
success by reviewing tone of media coverage, number of events the
company sponsors and total charitable donations and volunteer hours.
We also do community surveys and aim for top-quartile performance.
Lead the Global Fertilizer Industry
The metrics for achieving our goal of being the preferred supplier are
the number of complaints we receive and order fill rate categories.
We also do annual customer surveys to measure our effectiveness at
every stage of the sales transaction and how we compare with our
competitors. Our goal is to outperform and be in the top quartile. We
are establishing monthly surveys to monitor customer attitudes about
our quality and service.
We recognize that being a low-cost supplier is essential to sustaining
profitability. We achieve this goal by reducing cash costs and spending
appropriate sustaining capital to maintain low costs and productivity.
The metrics for success at the corporate level are total cost per tonne
of each nutrient or primary product and supporting selling and
administrative expense. In sales, we measure percentage of customer
shipments by preferred carrier and route, associated transportation
and distribution expense, freight cost, sales expense and number of
tonnes per sales representative. For all nutrients, performance
reliability relative to maintenance cost is measured.
Utilizing a balanced scorecard approach, we have developed a
system for tracking the drivers of our success.
26
POTASHCORP 2004 ANNUAL REPORT I MD&A
Factors That Shaped 2004 Business Conditions
1 Economic Growth Strong, China and India Lead
The global economy grew in 2004 by an estimated 5 percent,
spurred by booms in two countries with the largest populations,
China - almost one-third of total global economic growth with
9 percent - and India, 6 percent. Despite some difficulty, the US
economy averaged over 4 percent growth. The Strong GDP growth
gave world farmers a solid basis for boosting their fertilizer
application rates, and consumption of all three nutrients was
above trend.
World Real GDP Growth 2004
Percent
10
8
6
4
2
0
4 Ocean Freight Rates Remained High
Demand by Asia's growing economies for industrial and agricultural
commodities continued to support elevated ocean freight rates in
2004. China's construction and infrastructure boom relies heavily on
ocean transport, and when its government tapped the brakes on its
overheating economy by tightening credit at mid-year, the Baltic
Panamax Ocean Freight Index dipped. It rose again when China
decided no further tightening was necessary, and freight rates
reached record levels in December.
Baltic Panamax Ocean Freight Index
index
7000
6000
5000
4000
3000
2000
1000
Source: Overseas Marine Service
2 Ideal Growing Conditions Produced Record Crop
With highly favorable weather in most of the important crop-
producing countries, world grain production reached an all-time
high in 2004. The ideal growing conditions allowed global
production to exceed consumption for the first time in six years,
though the surplus was only 2.8 percent more than the escalating
consumption. The stocks-to-use ratio for crop year 200,4105 is still
expected to be the second lowest in 30 years, at 19.4 percent.
5 Foreign Currencies Appreciate as US Dollar Struggles
The US dollar fell significantly in 2004, influenced in part by the
country's large negative trade balance, with the value of imports
almost twice its annual exports. The currencies of several countries
continued to strengthen against the dollar, giving them increased
buying power. In the last two years, when Brazil's real appreciated
about 25 percent, it increased its potash and phosphate
purchases significantly.
3 Record Income for US Farmers
US farmers, buoyed by favorable pricing opportunities in the
spring of 2004 and excellent planting weather, enjoyed record net
cash farm income totalling $77.5 billion, including farm program
payments. These conditions, following record income in 2003,
resulted in corn plantings being increased by 2.5 million acres.
Corn requires more fertilizer than any other crop, which boosted
US fertilizer consumption.
Appreciation in Selected Currencies to US Dollar
Percentage Change from January 2003 to December 2004
30
25
20
15
10
5
0
China Malaysia India Thailand Indonesia US Brazil
Source: IMF World Economic Outlook
0
Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan
Beginning of Month
China India Thailand Japan Brazil Australia
Source: vnvvv.oanda.com
27
POTASHCORP 2004 ANNUAL REPORT I MD&A . o
f Potash Phosphate Nitrogen `
2004 2003 2004 2003 2004 2003
Total World Demandt0 49.9 45.4 59.8 56.6 137.6 133.8
(product tonnes - millions)
PotashCorp Share of 16% 16% 6% 6% 2% 2%
World Production"
10-11, See Appendix Page 5 /
6 High US Natural Gas Prices Affect Ammonia
Production, Imports
Natural gas prices on NYMEX remained high throughout the year,
with the closing monthly price averaging $6.14 per MMBtu, 75 cents
higher than in 2003. In spite of the tight supply/demand situation
in 2004, US ammonia producers operated at only 75 percent of
capacity. Imports held on to the position they had gained in the US
market in the last few years, with the bulk coming from Trinidad.
7 Ammonia and Urea Prices Higher
World Potash Demand Growth
Cumulative Year-over-Year Percentage Growth
Bolstered by increased global nitrogen consumption of 4.3 percent,
the international ammonia price was substantially stronger in 2004.
Urea also benefited from tight supply/demand fundamentals,
which included production disruptions. Average prices were up,
and peaked at their highest level since 1996, underpinned by high
US natural gas costs.
8 US DAP Exports Decline
World consumption of DAP grew by 8.6 percent in 2004 but the
steady decline in US DAP exports continued, falling by 0.5 million
tonnes. Increased demand from Latin America, Africa and Turkey
did not offset lower imports by China and India, where production
was increased by 1.3 million and 0.8 million tonnes, respectively,
resulting in lower world DAP trade.
80
70
60
50
40
30
20
10
0
9 Record Demand for Potash
Potash demand grew 9.9 percent in 2004, absorbing world
production and depleting inventories. Global sales totalled
49.9 million tonnes, a new record. Asia and Latin America
were in the forefront of demand, with China importing a record
7.2 million tonnes and Brazil 6.4 million tonnes. India, Indonesia,
Malaysia, Vietnam and Thailand all had record imports, and
Canpotex set a new sales record of almost 8 million tonnes.
25
20
15
10
5
10 Potash Production Jumps, Prices Follow
In response to this unprecedented demand, world potash
production also jumped by over 9 percent, with all producers
except PotashCorp operating at or near capacity. Nonetheless,
sales exceeded production for the second straight year. Prices
January 1, 2004 to January 1, 2005 rose 40 to 60 percent in
major offshore markets and by approximately 40 percent in the
North American market, where further increases announced for
2005 should bring the total increase to over 60 percent.
PotashCorp North American Price Increases
$US/Tonne
70 $22 increase
60
50 $11 increase
40
$16 increase
30
20 $6 increase
10 $11 increase
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
04 04 04 04 04 04 04 04 04 04 04 04 05 05 05 05 05
Source: PotashCorp
0
1999 2000 2001 2002 2003 2004E
Source: IFA
World DAP Consumption and Trade
Million Tonnes Product Percent
28
POTASHCORP 2004 ANNUAL REPORT I MD&A
2004 Financial Overview
This section provides an overview of our financial performance based on our consolidated financial statements on Pages 58 to 86. All references
to per-share amounts pertain to diluted net income or loss per share (EPS). All share and per-share data have been retroactively adjusted to
reflect our two-for-one stock split effected by way of stock dividend in 2004. Certain of the prior years' figures have been reclassified to conform
with the current year's presentation.
Dollars (millions)
2004 2003
Sales $ 3,244.4 $ 2,799.0
Gross Margin $ 681.4 $ 380.4
Operating Income (Loss) $ 514.3 $ (55.6)
Net Income (Loss) $ 298.6 $ (126.3)
Net Income (Loss) Per Share - Diluted $ 2.70 $ (1.21)
% Increase (Decrease)
2002 2004 2003
$ 2,224.4
_ 16 26
$ 307.3 79 24
$ 166.9 _ n/m _ (133)
_ $ 53.6 n/m _ (336)
$ 0.51 n/m (337)
n/m = not meaningful
004 Earninas Comnared to Guido,
The company's initial estimate for 2004 EPS was approximately
$1.55 per share. The final result was $2.70 per share. The primary
causes of this variance from guidance were:
Effect
Cause on EPS
Potash offshore realized prices higher 0.49
Potash domestic realized prices increased 0.26
Potash sales volumes higher 0.22
Decreased potash costs partially offset
by lower nitrate margin 0.03
Higher provincial mining taxes (0.27)
Subtotal, potash , 0.73
Phosphate realized' prices higher " 0.24
Increased input costs for ammonia and sulfur _(0.10)
Start-up problems with DFP expansion at Aurora (0.05)
Subtotal, phosphate 0.09
Increased nitrogen realized prices (exclusive of
purchased product) - 0.69
--cost of natural garhigher""--- - - --(0.38)--
Nitrogen costs higher (exclusive, of-cost
of natural gas) combined with lower
manufactured volumes (0.29) ".
Gain on natural gas hedges and purchased
product margin 0.10
Subtotal nitrogen 0.12
--Foreign-exchangevariance;,;,,, (0.05)
Increase in selling and administrative (0.13)
Increase in other income (excluding gain on sale of
SQM"s1iares) and decrea-s-e-iri interest expense 0.11
-Subtotal of thelabove - "" 0.87
Provision for PCS Yumbes (0.03)
Gain from the sale of SQM shares 0.31
Total variance from EPS guidance 1.15

)04 Earninas Comnared to 20C
The company's EPS for 2003 was a loss of $1.21 per share. The
final EPS for 2004 was $2.70 per share. The primary causes of
this increase from last year's actuals were:
Effect
Cause on EPS
Potash offshore realized prices higher 0.85
Potash domestic realized prices increased 0.62
Potash sales volumes higher 0.25
Increased potash costs due to foreign exchange
and other, partially offset by higher nitrate margin (0.33)
Higher provincial mining taxes (0.24)
Subtotal potash 1.15
Phosphate realized prices higher. 0.65
Increased input costs for ammonia and sulfur (0.25)
Phosphate sales volumes higher (0.21)
Subtotal phosphate 0.19
Increased nitrogen realized prices (exclusive of
purchased product) 1.25
Cost of natural gas higher, (0.62)
Nitrogen costs higher (exclusive of cost of natural gas) (0.08)
Nitrogen volumes lower (exclusive of purchased product) 0.09
Smaller gain on natural gas hedges and purchased
product margin (0.27)
Subtotal nitrogen 0.37
Foreign exchange variance 0.18
Increase in selling and administrative (0.24)
Increase in other income (excluding gain on sale of
SQM shares) and decrease in interest expense 0.10
Subtotal of the above 1.75
Future income tax reversal from 2003 (0.06)
Provision for PCS Yumbes and plant shutdowns 1.91
Gain from the sale of SQM shares 0.31
Total variance from 2003 EPS 3.91

29
POTASHCORP 2004 ANNUAL REPORT I MD&A •• - '•
Business Segment Review
Management includes net sales in segment disclosures in the consolidated financial statements pursuant to Canadian GAAP, which requires segmentation based upon
our internal organization and reporting of revenue and profit measures derived from internal accounting methods. Net sales (and the related per-tonne amounts) are
primary revenue measures we use and review in making decisions about operating matters on a business segment basis. These decisions include assessments about
potash, phosphate and nitrogen performance and the resources to be allocated to these segments. We also use net sales (and the related per-tonne amounts) for
business planning and monthly forecasting. Net sales are calculated as sales revenues less freight, transportation and distribution expenses. The following is based
on these segment measures as used and reviewed by management.
Potash Results
% Increase % Increase % Increase
Dollars (millions) (Decrease) Tonnes (thousands) (Decrease) Average Price per Tonne (Decrease)
2004 2003 2002 2004 2003 2004 2003 2002 2004 2003 2004 2003 2002 2004 2003
Sales $1,056.1 $758.7 $669.0 39 13
Freight 128.7 109.9 99.9 17 10
Transportation
and distribution 32.6 29.7 24.6 10 21
$ 894.8 $619.1 $544.5 45 14
Net sales
North American $ 347.5 $230.6 $215.3 51 7 3,246 2,870 2,780 13 3 $107.06 $80.33 $77.45 33 4
Offshore 504.6 336.2 300.7 50 12 5,030 4,213 3,547 19 19 $100.33 $79.80 $84.76 26 (6)
852.1 566.8 516.0 50 10 8,276 7,083 6,327 17 12 $102.97 $80.01 $81.55 29 (2)
Miscellaneous 42.7 52.3 28.5 (18) 84 - - - - - - - - - -
894.8 619.1 544.5 45 14 8,276 7,083 6,327 17 12 $108.12 $87.41 $86.06 24 2
Cost of goods sold 472.0 415.4 326.5 14 27 $ 57.03 $58.65 $51.60 (3) 14
Gross Margin $ 422.8 $203.7 $218.0 108 (7) $ 51.09 $28.76 $34.46 78 (17)
Note 18 to the consolidated financial statements provides informa tion pertaining to our business segments.
2004 VS 2003
Total potash sales increased by $297.4 million from 2003 and net
sales by $275.7 million, driven by higher average realized prices and
record volumes. This led potash to provide $422.8 million (62 percent)
of our total gross margin for the year and increase its gross margin
percentage from 33 percent of net sales in 2003 to 47 percent.
Canpotex sold a record 7.8 million tonnes for the year and our
Saskatchewan-sourced offshore volumes rose 28 percent, favorably
impacting net sales by $72.6 million. Brazil remained our largest
customer with 23 percent of volumes. China was second with
20 percent. Indonesia, Oceania, China, India, Malaysia and Korea
all had double-digit growth, leading to a 19-percent rise in
offshore volumes.
Offshore prices climbed 26 percent despite a 46-percent rise in
Canpotex's ocean freight costs. As new contracts were negotiated
with many customers, tight market conditions enabled us to more
than cover the increases in ocean freight rates. Year over year, our
gains in offshore prices on Saskatchewan-sourced tonnes favorably
impacted net sales by $88.6 million, despite China being supplied
with potash under a contract negotiated last year at old prices.
Average price increases realized on the sale of our New Brunswick
product contributed $29.3 million to the increase in offshore net sales.
In the North American market, our average realized prices climbed
33 percent. Over the course of 2004, we announced increases that
amounted to $66 per tonne, with the most recent of these to be
implemented by the end of the second quarter of 2005. North American
volumes rose overall by 13 percent. With competitors operating near
capacity, we were able to increase market share as the year progressed.
PotashCorp Potash Prices
$/Tonne
120 , North America
? Offshore
100
80
60
40
20
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2002 2003 2004
Source: PotashCorp
North American prices began increasing in 2003 and rose
33 percent in 2004. Offshore realizations dropped in 2003
as ocean freight rose but 2004 price increases more than
covered freight, resulting in 26 percent higher offshore prices.
30
POTASHCORP 2004 ANNUAL REPORT I MD&A L> Potash Results iVftsphlate Results
POTASH PRODUCTION (million tonnes KCI)
Production Mine Site
Capacity 2004 2003 2002 Employees
(active)
Lanigan SK 3.828 2.025 1.488 1.424 364
Rocanville SK1 2.695 1.833 1.989 1.700 328
Allan SK 1.885 1.344 .934 .864 285
Cory SK 1.361 .738 .730 .677 196
Patience Lake SK 1.033 .239 .251 .230 67
Esterhazy SK2 .953 .953 .953 .953 0
New Brunswick NB .785 .782 .749 .599 330
TOTAL' 12.540 7.914 7.094 6.447 1,570
1 A 400,000-tonne expansion at Rocanville came on stream in first-quarter 2005, raising total capacity from 12.140 million tonnes to 12.540 million tonnes.
2 PotashCorp's mineral rights at Esterhazy are mined by Mosaic Potash Esterhazy Limited Partnership under along-term agreement. For calendar year 2005,
our production allocation is 0.953 million tonnes.
PotashCorp continued to increase production to meet growing
demand, adding shifts at Lanigan and Allan in 2004 and producing a
record 7.9 million tonnes. The growth in volumes allowed us to lower
our Canadian dollar cost of goods sold per tonne by 5 percent, and
capitalize on economies of scale. This was partially offset by a
stronger Canadian dollar, resulting in our cost of goods sold
decreasing by $1.62 per tonne from 2003.
2003 VS 2002
Sales volumes from our potash segment rose 12 percent in 2003,
led by offshore sales that were 19 percent above 2002. Brazil bought
36 percent more from us than in 2002, making it our largest customer
for the second straight year and a key market. Sales to India, Indonesia,
Vietnam and Malaysia were up significantly; China sales were flat.
Phosphate Results
Lower realized offshore prices reflected the year-long escalation in
freight rates. A tight supply/demand balance in North America raised
sales volumes by 3 percent and prices by 4 percent.
Higher volumes and increased North American prices did not offset
higher unit cost of sales, which was pushed up by the stronger
Canadian dollar. Otherwise, unit cost of sales would have been lower
than in 2002, even with higher natural gas costs, because volumes
were up significantly.
The gross margin dropped from 2002 in our potash segment despite
record sales, due to escalating offshore freight rates and higher unit cost
of sales. The increase in costs was due primarily to the strengthening
Canadian dollar, which raised costs by approximately $4.50 per tonne
over 2002. These increased costs were partially offset by higher
operating rates.
% Increase % Increase % Increase
Dollars (milli ons) (Decrease) Tonn es (thousands) (Decrease) Average Price per Tonne (Decrease)
2004 2003 2002 2004 2003 2004 2003 2002 2004 2003 2004 2003 2002 2004 2003
Sales $977.9 $883.9 $714.0 11 24
Freight 71.9 75.8 58.8 (5) 29
Transportation
and distribution 29.4 26.2 18.4 ! 12 42
$876.6 $781.9 $636.8 12 23
Net sales
Fertilizer - liquids $147.3 $167.7 $144.9 (12) 16 704 751 675 (6) 11 $209.17 $223.17 $214.55 (6) 4
Fertilizer - solids 324.7 249.2 113.4 30 120 1,590 1,494 745 6 101 $204.16 $166.78 $152.26 22 10
Feed 190.6 182.6 216.8 4 (16) 888 861 961 3 (10) $214.78 $212.25 $225.55 1 (6)
Industrial 204.1 174.5 155.1 17 13 611 541 482 13 12 $334.09 $322.72 $321.93 4 -
866.7 774.0 630.2 12 23 3,793 3,647 2,863 4 27 $228.50 $212.23 $220.12 8 (4)
Miscellaneous 9.9 7.9 6.6 25 20 - - - - - - - - - -
$876.6 $781.9 $636.8 12 23 3,793 3,647 2,863 4 27 $231.11 $214.40 $222.43 8 (4)
North American $690.3 $654.8 $542.5 5 21 2,797 2,886 2,310 (3) 25 $246.84 $226.91 $234.88 9 (3)
Offshore 186.3 127.1 94.3 47 35 996 761 553 31 38 $186.99 $167.04 $170.37 12 (2)
876.6 781.9 636.8 12 23 3,793 3,647 2,863 4 27 $231.11 $214.40 $222.43 8 (4)
Cost of goods sold 860.8 798.4 594.9 8 34 $226.94 $218.92 $207.79 4 5
Gross Margin $ 15.8 $ (16.5) $ 41.9 n/m (139) $ 4.17 $ (4.52) $ 14.64 n/m (131)
Note 18 to the consolidated financial statements provides information pertaining to our business segments. nlm =not meaningful
31
POTASHCORP 2004 ANNUAL REPORT I MD&A
2004 VS 2003
Our total phosphate gross margin improved to $15.8 million in 2004
from a loss of $16.5 million in 2003. Total phosphate sales increased by
$94.0 million and net sales by $94.7 million, with freight, transportation
and distribution costs remaining flat, in aggregate, compared to 2003.
Solid fertilizer net sales increased by $75.5 million over 2003, driven
by 16 percent higher offshore volumes. Volumes were lower in 2003
as they were impacted by the shutdown of DAP capacity at the White
Springs Suwannee River plant. Prices for DAP and MAP were higher
due to hurricanes during the third quarter that decreased North
American inventory and tightened supply. The higher prices had a
positive impact on net sales of $55.0 million.
Net sales of liquid fertilizers declined by $20.4 million from last year.
Sales volumes dropped 6 percent, largely due to a 23-percent decline
in North American tonnages, as PotashCorp chose to sell less there
when strong competition kept prices under pressure. The overall decline
in sales volumes negatively impacted net sales by $23.6 million. Prices
for liquid fertilizers were also below 2003 levels, primarily as a result of
product mix.
Net sales of feed improved by $8.0 million as we benefited from
higher DFP prices and extra volumes due to a plant closure by a
competitor. Industrial net sales rose by $29.6 million compared with
2003. Volumes increased by 13 percent, favorably impacting net sales
by $28.7 million. The volume increase was largely a result of lower
imports from China, and more product being available from our
purified acid plant expansion at Aurora.
ROCK AND ACID PRODUCTION
While overall phosphate prices and volumes increased, product costs
continued to be a challenge. Cost of goods sold increased by $8 per
tonne. Average sulfur and ammonia input costs per tonne rose
4 percent and 31 percent, respectively, increasing cost of goods sold
by a total of $29.4 million. In addition to these higher input costs,
continuing start-up problems with our DFP plant at Aurora impacted
cost of goods sold by approximately $9.0 million.
2003 VS 2002
Higher fertilizer prices and increased sales volumes of liquid and solid
fertilizers and industrial products in 2003 were more than offset by rising
input costs, resulting in negative gross margin in our phosphate segment.
PotashCorp Phosphate Prices
$/Tonne
400 ® Industrial Solid Fertilizer
350 ? Feed Liquid Fertilizer
300
250
200
150
100
50
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2002 2003 2004
Source: PotashCorp
Solid fertilizer prices moved up in 2004 but higher input costs
for ammonia and sulfur limited the gross margin improvement.
Phosphate Rock (million tonnes) Phosphoric Acid (million tonnes P205)
Annual Production Annual Production Employees
Capacity 2004 2003 2002 Capacity 2004 2003 2002 - (active)
Aurora INC 6.0 3.964 3.078 3.444 1.202 1.018 .919 .852 1,015
White Springs FL 3.6 2.745 2.686 1.547 1.093 .773 .777 .480 898
Geismar LA - - - - .202 .171 .165 .180 77
TOTAL 9.6 6.709 5.764 4.991 2.497 1.962 1.861 1.512 1,990

T
PHOSPHATE PRODUCTION (million tonnes product)
Aurora White Springs Geismar
Annual Production Annual Production Annual Production
Capacity 2004 .2003 2002 ' Capacity 2004 2003 2002 Capacity 2004 2003 2002,
Liquids: MGA1 1.835 1.687 1.522 1.336 1.908 1.004 .966 .828 .337 .282 .272 .324
SPA .676 .224 .285 .200 1.138 .569 .748 .639 .196 .086 .091 .117
Solids (total) 1.247 DAP .472 .377 .495 .710 DAP .575 .625 .028 DAP - - -
MAP .525 .469 .255 MAP .091 - - MAP - - -
1 A substantial portion is consumed internally in the produ ction of downstream products. The balance is exported to phosphate fertilizer producers and sold domestically to dealers who
custom-mix liquid fertilizer.
32
POTASHCORP 2004 ANNUAL REPORT I MD&A
PURIFIED ACID PRODUCTION (million tonnes P201)
Annual 1'GoC"
lm- - 7V Capacity2004 ZO_u
Aurora NC .251 .246 .204 .165
PHOSPHATE FEED PRODUCTION (million tonnes)
Purified acid is a feedstock for production of downstream industrial
products such as metal brighteners, cola drinks and pharmaceuticals. -i go Annual Capacity 0 Pr'6 ions' -' Employees
?; .
<i `
0 2
(active)

Marseilles IL .278 .138 .151 .177 33
White Springs FL (monocal) .272 .126 .060 .137 26
Weeping Water NE .209 .122 .147 .166 43
Joplin M01 .163 .087 .088 .104 33
Aurora NC (DFP) .159 .079 .050 .004 30
Kinston NC2 - - .008 .054 0
White Springs FL (DFP) .100 .086 .059 .096 34
Fosfatos do Brasil .110 .075 .051 .047 79
TOTAL 1.291 .713 .614 .785 278
1 Purchased March 1, 2002.
2 Ceased production February 19, 2003.
Solid fertilizer sales volumes more than doubled in 2003 with the
restart of White Springs' DAP capacity, and sales were up significantly
in both North American and offshore markets. Sales of liquid fertilizers
rose by 11 percent, with more than 90 percent of our sales in the US
where PotashCorp is the largest supplier. Feed margins were under
pressure as overall demand was down, and competitive pressures from
new capacity domestically and in Asia and Latin America affected sales
in both markets. Industrial volumes increased with completion of the
expansion of the purified acid plant at Aurora in the first quarter.
Higher fertilizer prices reflect a somewhat improving market demand
and tighter supply. US ending inventories of both DAP and MAP were
well below the five-year average. Feed prices were kept down by new
Nitrogen Results
2004 VS 2003
Nitrogen sales increased by $54.0 million and net sales by $65.2 million
as compared to 2003. Tight supply/demand contributed to higher
average realized prices, and all products had double-digit percentage
price increases in 2004.
competitive capacity, and flat prices for industrial products reflect
competitive pressure of imports from China, Israel and Africa.
Phosphate production costs were positively affected by 11 percent lower
rock costs, but this was more than offset by rising prices for the key inputs
of sulfur and ammonia, up 54 percent and 47 percent, respectively, for a
total of $73 million. DAP start-up costs at White Springs also increased
total costs by $7 million. Start-up issues at the new DFP plant in Aurora
increased costs by $15 million in 2003. Inventories for our finished feed
products were significantly reduced over the year as feed operating
rates were reduced to draw down this inventory. This raised unit costs of
production as proportionately higher fixed costs were spread over fewer
tonnes, further impacting feed margins.
a total of $33.8 million. Despite a 6-percent increase from our
Trinidad operations, total manufactured ammonia sales volumes were
flat, due in part to the shutdown of ammonia production at Geismar.
Urea volumes at our Trinidad plant were down 12 percent as a result
of a turnaround and other tonnage outages, leading to a reduction in
net sales of $13.3 million.
Nitrogen gross margin grew by $49.6 million. Our operation in
Trinidad provided 60 percent of our total nitrogen gross margin while
our US operations contributed 22 percent. The remainder was achieved
from our US gas hedging program.
Overall sales volumes were down 12 percent due to the production
shutdowns at Memphis and Geismar. Nitrogen solutions sales volumes
were down 54 percent and US urea volumes were down 28 percent,
negatively impacting net sales by $46.0 million and $45.1 million,
respectively. These volume reductions were partially offset by a rise in
average realized prices that increased net sales of these products by
The high natural gas price environment supported an 18-percent
increase in US ammonia prices, resulting in $17.3 million additional
net sales. At our Trinidad facility, average ammonia and urea prices
climbed 28 percent and 18 percent, respectively, favorably impacting
net sales by $85.8 million. Higher average realized prices for nitric
acid and ammonium nitrate were the primary reason for the
$23.1 million increase in net sales compared to 2003.
Our average unit cost of natural gas, including our hedge, was $3.71
per MMBtu in 2004, compared to $2.96 per MMBtu in 2003. Since
31
POTASHCORP 2004 ANNUAL REPORT I MD&A
2004 VS 2003
Our total phosphate gross margin improved to $15.8 million in 2004
from a loss of $16.5 million in 2003. Total phosphate sales increased by
$94.0 million and net sales by $94.7 million, with freight, transportation
and distribution costs remaining flat, in aggregate, compared to 2003.
Solid fertilizer net sales increased by $75.5 million over 2003, driven
by 16 percent higher offshore volumes. Volumes were lower in 2003
as they were impacted by the shutdown of DAP capacity at the White
Springs Suwannee River plant. Prices for DAP and MAP were higher
due to hurricanes during the third quarter that decreased North
American inventory and tightened supply. The higher prices had a
positive impact on net sales of $55.0 million.
Net sales of liquid fertilizers declined by $20.4 million from last year.
Sales volumes dropped 6 percent, largely due to a 23-percent decline
in North American tonnages, as PotashCorp chose to sell less there
when strong competition kept prices under pressure. The overall decline
in sales volumes negatively impacted net sales by $23.6 million. Prices
for liquid fertilizers were also below 2003 levels, primarily as a result of
product mix.
Net sales of feed improved by $8.0 million as we benefited from
higher DFP prices and extra volumes due to a plant closure by a
competitor. Industrial net sales rose by $29.6 million compared with
2003. Volumes increased by 13 percent, favorably impacting net sales
by $28.7 million. The volume increase was largely a result of lower
imports from China, and more product being available from our
purified acid plant expansion at Aurora.
ROCK AND ACID PRODUCTION
Phosphate Rock (million tonnes)
Annual Production
Capacity 2004 _ 2003 2002
Aurora NC 6.0 3.964 3.078 3.444
White Springs FL 3.6 2.745 2.686 1.547
Geismar LA - - - -
While overall phosphate prices and volumes increased, product costs
continued to be a challenge. Cost of goods sold increased by $8 per
tonne. Average sulfur and ammonia input costs per tonne rose
4 percent and 31 percent, respectively, increasing cost of goods sold
by a total of $29.4 million. In addition to these higher input costs,
continuing start-up problems with our DFP plant at Aurora impacted
cost of goods sold by approximately $9.0 million.
2003 VS 2002
Higher fertilizer prices and increased sales volumes of liquid and solid
fertilizers and industrial products in 2003 were more than offset by rising
input costs, resulting in negative gross margin in our phosphate segment.
PotashCorp Phosphate Prices
$/Tonne
400 , Industrial Solid Fertilizer
350 ? Feed Liquid Fertilizer _
300
250
200 _l
150
100
50
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2002 2003 2004
Source: PotashCorp
Solid fertilizer prices moved up in 2004 but higher input costs
for ammonia and sulfur limited the gross margin improvement.
Phosphoric Acid (million tonnes P205)
Annual Production Employees
Capacity 2004 2003 2002 (active)
1.202 1.018 .919 .852 1,015
1.093 .773 .777 .480 898
.202 .171 .165 .180 77
TOTAL 9.6 6.709 5.764 4.991 2.497 1.962 1.861 1.512 1,990

PHOSPHATE PRODUCTION (million tonnes product)
Aurora White Springs Geismar
Annual Production Annual Production. Annual Production
Capacity 2004 2003 2002 Capacity 2064 2003 2002 Capacity 2004 2003 `2002
Liquids: MGA1 1.835 1.687 1.522 1.336 1.908 1.004 .966 .828 .337 .282 .272 .324
SPA .676 .224 .285 .200 1.138 .569 .748 .639 .196 .086 .091 .117
Solids (total) 1.247 DAP .472 .377 .495 .710 DAP .575 .625 .028 DAP - - -
MAP .525 .469 .255 MAP .091 - - MAP - - -
1 A substantial portion is consumed internally in the production of downstream products. The balance is exported to phosphate fertilizer producers and sold domestically to dealers who
custom-mix liquid fertilizer.
32
POTASHCORP 2004 ANNUAL REPORT I MD&A
PURIFIED ACID PRODUCTION (million tonnes P200
Annual ,.sr o a
Capacity
=?' }2U . U 9
Aurora NC .251 .246 .204 .165
PHOSPHATE FEED PRODUCTION (million tonnes)
Purified acid is a feedstock for production of downstream industrial
products such as metal brighteners, cola drinks and pharmaceuticals.
Annual N . .. • Employees
Capacity IBM (active)
Marseilles IL .278 .138 .151 .177 33
White Springs FL (monocal) .272 .126 .060 .137 26
Weeping Water NE .209 .122 .147 .166 43
Joplin M01 .163 .087 .088 .104 33
Aurora NC (DFP) .159 .079 .050 .004 30
Kinston NC2 - - .008 .054 0
White Springs FL (DFP) .100 .086 .059 .096 34
Fosfatos do Brasil .110 .075 .051 .047 79
TOTAL 1.291 .713 .614 .785 278
1 Purchased March 1, 2002.
2 Ceased production February 19, 2003.
Solid fertilizer sales volumes more than doubled in 2003 with the
restart of White Springs' DAP capacity, and sales were up significantly
in both North American and offshore markets. Sales of liquid fertilizers
rose by 11 percent, with more than 90 percent of our sales in the US
where PotashCorp is the largest supplier. Feed margins were under
pressure as overall demand was down, and competitive pressures from
new capacity domestically and in Asia and Latin America affected sales
in both markets. Industrial volumes increased with completion of the
expansion of the purified acid plant at Aurora in the first quarter.
Higher fertilizer prices reflect a somewhat improving market demand
and tighter supply. US ending inventories of both DAP and MAP were
well below the five-year average. Feed prices were kept down by new
Nitrogen Results
2004 VS 2003
Nitrogen sales increased by $54.0 million and net sales by $65.2 million
as compared to 2003. Tight supply/demand contributed to higher
average realized prices, and all products had double-digit percentage
price increases in 2004.
competitive capacity, and flat prices for industrial products reflect
competitive pressure of imports from China, Israel and Africa.
Phosphate production costs were positively affected by 11 percent lower
rock costs, but this was more than offset by rising prices for the key inputs
of sulfur and ammonia, up 54 percent and 47 percent, respectively, for a
total of $73 million. DAP start-up costs at White Springs also increased
total costs by $7 million. Start-up issues at the new DFP plant in Aurora
increased costs by $15 million in 2003. Inventories for our finished feed
products were significantly reduced over the year as feed operating
rates were reduced to draw down this inventory. This raised unit costs of
production as proportionately higher fixed costs were spread over fewer
tonnes, further impacting feed margins.
a total of $33.8 million. Despite a 6-percent increase from our
Trinidad operations, total manufactured ammonia sales volumes were
flat, due in part to the shutdown of ammonia production at Geismar.
Urea volumes at our Trinidad plant were down 12 percent as a result
of a turnaround and other tonnage outages, leading to a reduction in
net sales of $13.3 million.
Nitrogen gross margin grew by $49.6 million. Our operation in
Trinidad provided 60 percent of our total nitrogen gross margin while
our US operations contributed 22 percent. The remainder was achieved
from our US gas hedging program.
Overall sales volumes were down 12 percent due to the production
shutdowns at Memphis and Geismar. Nitrogen solutions sales volumes
were down 54 percent and US urea volumes were down 28 percent,
negatively impacting net sales by $46.0 million and $45.1 million,
respectively. These volume reductions were partially offset by a rise in
average realized prices that increased net sales of these products by
The high natural gas price environment supported an 18-percent
increase in US ammonia prices, resulting in $17.3 million additional
net sales. At our Trinidad facility, average ammonia and urea prices
climbed 28 percent and 18 percent, respectively, favorably impacting
net sales by $85.8 million. Higher average realized prices for nitric
acid and ammonium nitrate were the primary reason for the
$23.1 million increase in net sales compared to 2003.
Our average unit cost of natural gas, including our hedge, was $3.71
per MMBtu in 2004, compared to $2.96 per MMBtu in 2003. Since
33
POTASHCORP 2004 ANNUAL REPORT I MD&A
NITROGEN RESULTS
% Increase % Increase % Increase
Dollars (millions) (Decrease) Tonnes (thousands) (Decrease) Average Price per Tonne (Decrease)
2004 2003 2002 2004 2003 2004 2003 2002 2004 2003 2004 2003 2002 2004 2003
Sales $1,210.4 $1,156.4 $841.4 5 37
Freight 38.1 48.8 56.5 (22) (14)
Transportation
and distribution 42.3 42.8 37.5 (1) 14
$1,130.0 $1,064.8 $747.4 6 42
Net sales
Ammonia $ 458.0 $ 368.0 $232.7 24 58 1,776 1,755 1,867 1 (6) $257.85 $209.63 $124.66 23 68
Urea 259.1 276.9 212.0 (6) 31 1,165 1,470 1,592 (21) (8) $222.44 $188.33 $133.16 18 41
Nitrogen solutions 51.1 85.8 93.3 (40) (8) 337 730 1,097 (54) (33) $151.83 $117.52 $ 85.04 29 38
Nitric acid and
ammonium nitrate 188.1 165.0 127.5 14 29 1,460 1,414 1,361 3 4 $128.82 $116.70 $ 93.65 10 25
Purchased 151.5 149.6 61.1 1 145 612 711 474 (14) 50 $247.66 $210.53 $128.89 18 63
1,107.8 1,045.3 726.6 6 44 5,350 6,080 6,391 (12) (5) $207.07 $171.92 $113.69 20 51
Miscellaneous 22.2 19.5 20.8 14 (6) - - - - - - - - - -
$1,130.0 $1,064.8 $747.4 6 42 5,350 6,080 6,391 (12) (5) $211.23 $175.13 $116.95 21 50
Fertilizer $ 438.7 $ 480.0 $317.4 (9) 51 2,063 2,810 2,976 (27) (6) $212.73 $170.82 $106.64 25 60
Feed and industrial 691.3 584.8 430.0 18 36 3,287 3,270 3,415 1 (4) $210.28 $178.83 $125.92 18 42
1,130.0 1,064.8 747.4 6 42 5,350 6,080 6,391 (12) (5) $211.23 $175.13 $116.95 21 50
Cost of goods sold 887.2 871.6 700.0 2 25 $165.84 $143.35 $109.53 16 31
Gross Margin $ 242.8 $ 193.2 $ 47.4 26 308 $ 45.39 $ 31.78 $ 7.42 43 328
Note 18 to the consolidated financial statements provides information pertaining to our business segments
natural gas represents the major component of our cost of goods
sold in nitrogen, this increase was a key factor in the 16-percent rise
in per-tonne costs. Within the US, our natural gas hedging activities
contributed $43.0 million to gross margin in 2004, compared to
$89.9 million in 2003.
2003 VS 2002
Nitrogen gross margin more than quadrupled in 2003, reflecting sharply
increased prices that benefited PotashCorp's Trinidad production, and
liquidation of certain natural gas hedge contracts in February.
Poor margins at our US plants due to high natural gas costs led to
the shutdown of the Memphis plant and of Geismar's ammonia and
nitrogen solutions production. The reduced production of ammonia,
urea and nitrogen solutions was more than offset by considerably
higher prices. Nitric acid and ammonium nitrate volumes increased
to meet demand, as did purchased sales volumes. The company's
warehouse and distribution network was used effectively for
these imports.
As more shutdowns in the US industry tightened supply, prices
increased significantly. Product prices, which had previously
reflected the cost premium on natural gas, began trading off the
supply/demand fundamentals during the fourth quarter, providing
unhedged margin to our US plants.
Nitrogen production costs reflected the higher natural gas prices.
PotashCorp's average gas costs in the US and Trinidad were up
33 percent over 2002. However, since the Trinidad facility operates
with favorable natural gas contracts which mitigate the impact of
volatility, the company is a net beneficiary of high-priced US natural
gas. Trinidad provided 52 percent of nitrogen gross margin. The
remainder came from our 2003 natural gas hedges in the US, which
provided a gross margin contribution of $89.9 million.
High ocean freight rates - detrimental for potash - worked in the
company's favor for nitrogen as they made imports from the Middle East
less competitive in North America and helped tighten market supply.
PotashCorp Nitrogen Prices
$/Tonne
300 ® Ammonia
Urea
250 . Nitrogen Solutions
zoo - 0000,
150
100
so
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2002 2003 2004
Source: PotashCorp
Fertilizer and industrial nitrogen demand remained strong in
2004 and capacity additions did not keep pace with consumption
growth. The tight fundamentals drove up prices.
34
POTASHCORP 2004 ANNUAL REPORT I MD&A
NITROGEN PRODUCTION (million tonnes)
Am monia' Urea Solids Nitrogen Solutionsz
Annual Production Annual Production Annual Production
Capacity 2064° ` 2063° ° ` 2002" Capacity --2004, 20Q3 ;- - 2002-.. Capacity 20Q,4,, 2003 2002
Trinidad 1.851 1.837 1.759 1.768 .631 .619 .647 .674 - - - -
Augusta GA .688 .665 .655 .689 .381 .368 .334 .363 .581 .225 .223 .220
Lima OH .542 .460 .510 .496 .329 .238 .280 .208 .227 .104 .120 .124
Geismar LA4 .483 - .116 .369 - - - - 1.028 - .250 .721
Memphis TN5 .371 - .154 .324 .409 - .178 .374 - - - -
TOTAL 3.935 2.962 3.194 3.646 1.750 1.225 1,439 1.619 1.836 .329 .593 1.065
Nitri c Acid1,3 Ammonium Nitrate Solids 1 A substantial portion is upgraded
Annual Production Annual Production Employees to value-added products.
Capacity 2004 2003 2002 Capacity 2004: 20,03 2002 (active) z Based on 32% N content.

Trinidad
-
-
-
-
-
-
-
-
395 3 As 100% HN03 tonnes.

Augusta GA
.541
.544
.534
.539
.512
.544
.539
.512
111 4 Indefinitely shut down production
of ammonia and nitrogen solutions
Lima OH .100 .103 .097 .098 - - - - 56 June 4, 2003.
Geismar LA4 .844 .521 .589 .731 - - - - 51 5 Indefinitely shut down production
June 4, 2003.
Memphis TN5 - - - - - - - - 1 6 BP Chemicals operates the Lima
TOTAL 1.485 1.168 1.220 1.368 .512 .544 .539 .512 5637 facility under an operational
agreement with PCS Nitrogen.
7 360 contract employees work at
the nitrogen plants, for a total
active workforce of 923.
Expenses and Other Income
Dollars (millions) % Increase (Decrease)
2004 2003 2002 2004 2003
Selling and administrative $130.6 $ 96.1 $ 91.7 36 5
Provincial mining and other taxes 92.6 57.0 68.0 62 (16)
Provision for plant shutdowns - 123.7 - (100) -
Provision for PCS Yumbes S.C.M. 3.6 140.5 - (97) -
Foreign exchange loss 19.7 51.9 5.5 (62) 844
Other income 79.4 33.2 24.8 139 34
Interest expense 84.0 91.3 83.1 (8) 10
Income tax expense (recovery) 131.7 (20.6) 30.2 n/m (168)
nlm =not meaningful
2004 VS 2003
Selling and administrative expenses increased by $34.5 million,
primarily due to compensation programs tied to our share price
performance and our cash flow return. Our share price nearly doubled
over the course of the year, requiring higher accruals in respect of
these programs. Additionally, $11.1 million in compensation related to
stock options was expensed during 2004. This non-cash expense arose
on the prospective adoption of a new provision of Canadian GAAP in
December 2003. Only $1.0 million relating to stock option expense
was recorded in 2003.
Provincial mining and other taxes increased by $35.6 million year
over year as a direct result of significant increases in profits per
tonne, sales volumes and prices in our Canadian potash operations.
The company experienced a net foreign exchange loss of $19.7 million
in 2004 (2003 - $51.9 million loss). The decline in foreign exchange
loss reflects the Canadian to US dollar exchange rate changes, year
over year. The Canadian dollar closed the year $0.09 stronger than
at December 31, 2003, which compares with an appreciation of
$0.29 from December 31, 2002 to December 31, 2003. The net
foreign exchange loss was also reduced in part by $8.0 million in
gains realized from foreign currency forward contracts.
Other income rose by $46.2 million, chiefly as a result of: a
$34.4 million gain on sale of approximately 9.8 million shares
of SQM in December; increases in our share of earnings of equity
investees; and growth in dividends from our portfolio investments.
35
POTASHCORP 2004 ANNUAL REPORT I MD&A
`r
Interest expense decreased by $7.3 million, due to lower total
debt balances outstanding, interest rate hedging activities and a
substantial build-up of cash and cash equivalents. Weighted average
long-term debt outstanding in the year was $1,269,5 million
(2003 - $1,230.9 million) with a weighted average interest rate
of 6.9 percent (2003 - 7.0 percent), The weighted average interest
rate on short-term debt outstanding in the year was 1.4 percent
(2003 - 1.4 percent).
The company's effective consolidated income tax rate in 2004
approximated 33 percent of income before income taxes when
adjusted to reflect the non-taxable gain on the sale of SQM shares
and the provision for PCS Yumbes. This compares with a rate of
approximately 40 percent (exclusive of the provision for PCS Yumbes
and a future income tax reversal of $6.5 million) for 2003. The
decrease in rate is due primarily to the impact of Saskatchewan
resource tax incentives, changes to the Canadian federal resource
allowance and the scheduled Canadian federal statutory rate reduction
Income tax expense increased, driven by the rise in operating income
levels. For the year, 80 percent of the effective rate pertained to current
income taxes and 20 percent to future income taxes. The increase in
the current tax provision from zero percent in 2003 was principally
due to the substantial rise in potash operating income in Canada.
en, uj yr evv.3 nr_s [ mUL E URIN6 ACTW T9ES
Nitrogen and Phosphate Plant Shutdowns
Provision for PCS Yumbes S.C.M.
In December 2004, we concluded the sale of 100 percent of our shares
of PCS Yumbes to SQM. The total gain on the sale was $3.5 million,
of which $2.6 million was recognized in 2004. During the year, we
also recorded an additional writedown of $6.2 million, relating primarily
to certain mining machinery and equipment not transferred to SQM.
In 2003, in connection with entering into the share purchase (and
related) agreement with SQM, we had recorded long-lived asset
impairment charges of $77.4 million, non-parts inventory writedowns
of $50.2 million, employee contractual termination benefit costs of
$1.8 million and $11.1 million for early termination penalties relating
to other contractual arrangements.
2003 V5 2002
Selling and administrative expenses increased by $4.4 million,
primarily due to the stronger Canadian dollar. Other contributing
factors were increases in amortization expense, consulting and
professional fees, fringe benefits and stock-based compensation
expense. These were substantially offset by company-wide cost
restraints, including pay reductions for the executive management
team, a salary freeze for middle management and reduction in
rmmnanv rnntrihi tinny
A revised tax structure for potash producers in Saskatchewan
contributed $5.6 million to earnings, the equivalent of $0.06 per share.
In 2003, we indefinitely shut down our Memphis, Tennessee plant
and suspended production of ammonia and nitrogen solutions at
Geismar, Louisiana due to high US natural gas costs and low product
margins. The operations have not been restarted. We recorded
$4.8 million in employee special termination costs, $101.6 million
in long-lived asset impairment charges and $12.4 million in parts
inventory writedowns. To date, we have made payments relating to
the employee terminations totalling $4.4 million and expect to pay
the remainder in 2005. We also expect to incur other shutdown-
related costs of approximately $12.1 million, the timing of which
is not yet determinable, and nominal annual expenditures for site
security and other maintenance costs.
The phosphate feed plant at Kinston, North Carolina ceased operations
in 2003. In that year, the company recorded $0.6 million for costs
of special termination benefits, $0.3 million for parts inventory
writedowns and $4.0 million for long-lived asset impairment charges.
The Kinston property was sold in 2004 for nominal proceeds. No
additional significant costs were incurred in connection with the
nitrogen or phosphate plant shutdowns in 2004.
The company's foreign exchange loss increased significantly over
2002 due to the strengthening of the Canadian dollar relative to
the US dollar. At December 31, 2003, the Canadian dollar was $0.29
higher than at December 31, 2002, compared with a $0.01 increase
the preceding year. This was the equivalent of $0.60 per share,
compared with $0.02 in 2002. Exposure to the Brazilian real had a
nominal impact on the company in 2003 but contributed a loss of
nearly $0.05 per share in 2002.
For the year, other income was up $8.4 million, primarily due to APC
equity earnings, nitrogen insurance proceeds, the excess of 2003
equity earnings from SQM over 2002 equity earnings and dividends,
and higher ICL dividends.
Interest expense increased, primarily due to the issuance of
$250.0 million of 4.875-percent 10-year notes in March 2003 under
the company's shelf registration. These notes replaced lower-cost
commercial paper. Weighted average long-term debt outstanding
for the year was $1,230.9 million, compared with $1,023.3 million
in 2002, with a weighted average interest rate of 7.0 percent
36
POTASHCORP 2004 ANNUAL REPORT I MD&A
(2002 - 7.4 percent). The weighted average interest rate on short-
term debt for 2003 was 1.4 percent (2002 - 1.7 percent).
The effective consolidated income tax rate in 2003 was approximately
40 percent (exclusive of the charges relating to PCS Yumbes described
previously and a future income tax reversal of $6.5 million). This
compares with a rate of approximately 36 percent for 2002. The
increase was primarily due to the expiration of the last tax holiday
in Trinidad. The 2003 tax provision was all future income taxes,
compared with a current/future split of 80/20 for 2002. The decrease
in the current portion was primarily due to utilization of tax losses in
the US as well as certain reclassifications from current to future
income taxes.
Liquidity and Capital Resources
Liquidity risk arises from our general funding needs and in the
management of our assets, liabilities and optimal capital structure.
We manage liquidity risk to maintain sufficient liquid financial
resources to fund our balance sheet and meet our obligations in
the most cost-effective manner possible.
CASH REQUIREMENTS
The following aggregated information about our contractual
obligations and other commitments aims to provide insight into
our short- and long-term liquidity and capital resource requirements.
The information presented in the table below does not include
obligations that have original maturities of less than one year,
planned capital expenditures or potential share repurchases.
Long-Term Debt
Long-term debt consists of $1,250.0 million of notes payable that
were issued under our US shelf registration statements, $9.0 million
of Industrial Revenue and Pollution Control Obligations, a net of
$5.9 million under a back-to-back loan arrangement (described in
Note 12 to the consolidated financial statements) and other
commitments of $4.0 million payable over the next five years.
The notes payable are unsecured. Of the notes outstanding,
$400.0 million bear interest at 7.125 percent and mature in 2007,
$600.0 million bear interest at 7.750 percent and mature in 2011
and $250.0 million bear interest at 4.875 percent and mature in
2013. There are no sinking fund requirements. The Industrial Revenue
and Pollution Control Obligations bear interest at varying rates, are
secured by bank letters of credit and have no sinking fund requirements.
The notes payable are not subject to any financial test covenants but
are subject to certain customary covenants (including limitations on
liens and sale and leaseback transactions) and events of default,
including an event of default for acceleration of other debt in excess
of $50.0 million. Neither the Industrial Revenue and Pollution Control
Obligations nor the other long-term debt instruments are subject to
any financial test covenants but each is subject to certain customary
covenants and events of default, including, for other long-term debt,
an event of default for non-payment of other debt in excess of
$25.0 million. Non-compliance with such covenants could result in
accelerated payment of the related debt. The company was in
compliance with all covenants as at December 31, 2004.
The commitments in the table below include our cumulative scheduled
interest payments on fixed and variable rate long-term debt, totalling
$479.7 million. Interest on variable rate debt is based on interest rates
prevailing at December 31, 2004.
Operating Leases
We have long-term operating lease agreements for buildings, port
facilities, equipment, ocean-going transportation vessels, mineral
leases and railcars, the latest of which expires in 2025. The most
significant operating leases consist of three items. The first is our
lease of railcars, which extends to approximately 2020. The second is
the lease of port facilities at the Port of Saint John for shipping New
Brunswick potash offshore. This lease runs until 2018. The third is the
lease of three vessels for transporting ammonia from Trinidad. One
vessel agreement runs until 2011; the others terminate in 2016.
CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS Payments Due By Period - Dollars (millions)
Total Within 1 year 1 to 3 years 3 to 5 years Over 5 years
Long-term debt (including interest) $1,748.6 $ 97.9 $ 562.6 $ 118.7 $ 969.4
Operating leases 567.0 78.9 132.7 98.1 257.3
Purchase obligations 907.2 104.5 190.9 159.8 452.0
Other commitments 54.3 13.4 19.9 16.8 4.2
Other long-term liabilities 317.9 43.3 67.5 47.4 159.7
Total $ 3,595.0 $ 338.0 $ 973.6 $ 440.8 $1,842.6

37
POTASHCORP 2004 ANNUAL REPORT I MD&A
Purchase Obligations
We have long-term agreements for the purchase of sulfur for use
in the production of phosphoric acid. These agreements provide for
minimum purchase quantities, and certain prices are based on market
rates at the time of delivery. The commitments included in the table
on Page 36 are based on contract prices.
We have entered into long-term natural gas contracts with the
National Gas Company of Trinidad. The contracts provide for prices that
vary with ammonia market prices, escalating floor prices and minimum
purchase quantities. The commitments included in the table on Page 36
are based on floor prices and minimum purchase quantities.
We also have a long-term agreement for the purchase of phosphate
rock used at our Geismar facility. The commitments included in the
table on Page 36 are based on the expected purchase quantity and
current net base prices.
Other Commitments
Other operating commitments consist principally of amounts relating
to our contracts to purchase limestone that run through 2007 and
various rail freight contracts, the latest of which expire in 2010.
Other Long-Term Liabilities
Uther long-term liabilities consist primarily of accrued post-retirement/
post-employment benefits, environmental costs and asset retirement
obligations.
Capital Expenditures
During 2005, we expect to incur capital expenditures of approximately
$225.0 million for opportunity capital and approximately $125.0 million
to sustain operations at existing levels.
Share Repurchase Program
In January 2005, our Board of Directors authorized a share
repurchase program of up to 5.5 million common shares
(approximately 5 percent of the company's issued and outstanding
common shares) through a normal course issuer bid. If considered
advisable, shares may be repurchased from time to time on the open
market through February 14, 2006 at prevailing market prices. The
timing and amount of purchases, if any, will be dependent upon the
availability and alternative uses of capital, market conditions and
other factors.
SOURCES AND USES OF CASH
Dollars (millions)
Cash provided by operating activities
Cash used in investing activities
Cash provided by (used in)
financing activities
% Increase
2004 2003 (Decrease)
$ 649.6 $ 381.5 70
$ (216.8) $(357.7) (39)
21.4 $ (43.6) n/m
n/m - not meaningful
Dollars (millions) except ratio amounts
December 31 December 31 % Increase
2004 2003 (Decrease)
Current assets $1,243.6 $ 733.9 69
Current liabilities $ (703.7) $(557.8) 26
Working capital $ 539.9 $ 176.1 207
Current ratio 1.77 1.32 34
Our liquidity needs can be met through a variety of sources, including:
cash generated from operations, short-term borrowings against our
line of credit and commercial paper program, and long-term debt
issued under our US shelf registration statement and drawn down
under our syndicated credit facility. Our primary uses of funds are
operational expenses, sustaining and opportunity ranital ?non? n?
uiviueiius, ana interest and principal payments on our debt securities.
Cash provided by operating activities increased in 2004 by 70 percent,
or $268.1 million. Higher gross margin in potash ($422.8 million
as compared to $203.7 million) contributed significantly to the
improvement. Working capital requirements were down by
$103.0 million, primarily due to income taxes and provincial mining
taxes payable on substantially higher profits in our Canadian potash
operations, increases in margin deposits due to fluctuations in natural
gas prices and increases in short- and long-term incentive program
accruals that are directly correlated with the company's performance.
The changes in these working capital items were partially offset by
a rise in accounts receivable due to fourth-quarter sales being
21 percent higher than in the same period last year. Our customer
credit policies have remained substantially consistent with 2003.
Cash used in investing activities declined by $140.9 million. However,
there were several key sources and uses of funds:
• We increased our investment in SQM by acquiring all the
outstanding shares of an indirect subsidiary of ICL for a net cash
outlay of $97.2 million. Prior to this transaction, to be in a position
to comply with certain Chilean securities ownership thresholds, we
sold certain of our shares in SQM for $66.3 million.
38
POTASHCORP 2004 ANNUAL REPORT I MD&A
• We concluded the sale of 100 percent of our shares of PCS Yumbes We have a $750.0 million syndicated credit facility, renewable
to SQM. Proceeds totalled $42.3 million, including certain working annually, which provides for unsecured advances. In September 2004,
capital adjustments of $6.2 million and contingent consideration of
$1.1 million. We received $34.5 million of the sale price prior to
the end of the year.
• We increased our investment in APC by $8.3 million, supplementing
our initial $178.3 million investment in 2003.
• We invested $220.5 million (2003 - $150.7 million) in capital
projects. The increase related primarily to our expansion and
compactor upgrade project at Rocanville.
Cash provided by financing activities during the year was $21.4 million,
an increase of $65.0 million over 2003. This was mainly due to the
receipt of $102.3 million more proceeds from the issuance of common
shares (mostly arising from the exercise of stock options as our share
price appreciated substantially during the year). The proceeds were
offset by a $33.5-million net increase in short- and long-term debt
payments during the year. In 2003, we had issued $250.0 million of
notes under our US shelf registration statement, and the net proceeds
from that issue were put toward short-term debt repayments of
$296.8 million in that year. In 2004, we used our cash generated from
operations to reduce commercial paper balances by $82.7 million.
We have historically paid quarterly dividends to shareholders at a rate
of $0.125 per share on a post-split basis. In July 2004, we announced
that our quarterly cash dividend payment would be increasing to
$0.15 per share, commencing in November 2004. As a result, total
dividend payments to shareholders increased by $3.8 million.
We believe that internally generated cash flow, supplemented by
borrowing from existing financing sources, will be sufficient to meet
our anticipated capital expenditures and other cash requirements in
2005, exclusive of any possible acquisitions. At this time, we do not
reasonably expect any presently known trend or uncertainty to affect
our ability to access our historical sources of cash.
we renewed the facility for one year. The amount available to us is
the total committed amount less direct borrowings and commercial
paper outstanding. No funds were borrowed under the facility as of
December 31, 2004. The line of credit is also renewable annually,
and outstanding letters of credit and direct borrowings reduce the
amount available. Both the line of credit and the syndicated credit
facility have financial tests and other covenants with which we must
comply at each quarter-end. Principal covenants and events of default
under the credit facility and line of credit require debt to capital of
less than or equal to 0.55:1, long-term debt to EBITDA (defined in
the respective agreements as earnings before interest, income taxes,
provincial mining and other taxes, depreciation, amortization and
other non-cash expenses) of less than or equal to 3.5:1, tangible
net worth greater than or equal to $1,250.0 million and debt of
subsidiaries less than $590.0 million. The syndicated credit facility
and line of credit are also subject to other customary covenants and
events of default, including an event of default for non-payment of
other debt in excess of Cdn $40.0 million. Non-compliance with any
of the above covenants could result in accelerated payment of the
related debt and termination of the line of credit. We were in
compliance with all covenants as at December 31, 2004.
The commercial paper market is a source of "same day" cash for
the company, and we have a commercial paper program of up to
$500.0 million. Access to this source of short-term financing depends
primarily on maintaining our R1 low credit rating by Dominion Bond
Rating Service (DBRS) and conditions in the money markets. Our credit
rating, as measured by Standard & Poor's senior debt ratings, remained
unchanged at BBB+ with a stable outlook, and our Moody's rating was
unchanged at Baa2 with a positive outlook.
We also have a US shelf registration statement under which we may
issue up to an additional $750.0 million in unsecured debt securities.
DEBT INSTRUMENTS
Dollars (millions)
Amount Amount
Outstanding at Available at
Total December 31 December 31
Amount 2004 2004
Syndicated credit facility $ 750.0 $ - $ 656.5
Line of credit 75.0 15.1 59.9
Commercial paper 500.0 93.5 406.5
US shelf registration 2,000.0 1,250.0 750.0
For 2004, our weighted average cost of capital was 8.4 percent
(2003 - 7.3 percent), of which 90 percent represented equity. The
increase was principally due to a shift in mix to equity - which carries
a higher cost than debt - as the average stock price for the year rose
55 percent compared to 2003 and closed 92 percent higher.
OFF-BALANCE SHEET ARRANGEMENTS
We enter into off-balance sheet arrangements in the normal course
of our business, including guarantee contracts, certain derivative
instruments and long-term fixed price contracts. We do not reasonably
39
POTASHCORP 2004 ANNUAL REPORT I MD&A
expect any presently known trend or uncertainty to affect our ability
to continue using these arrangements. These types of arrangements
are discussed below.
Guarantee Contracts
In the normal course of operations, we provide indemnifications that
are often standard contractual terms to counterparties in transactions
such as purchase and sale contracts, service agreements, director/officer
contracts and leasing transactions. These indemnification agreements
may require us to compensate the counterparties for costs incurred
as a result of various events. The terms of these indemnification
agreements will vary based upon the contract, the nature of which
prevents us from making a reasonable estimate of the maximum
potential amount that could be required to pay to counterparties.
Historically, we have not made any significant payments under
such indemnifications and no amounts have been accrued in our
consolidated financial statements with respect to these guarantees.
We have guaranteed various debt obligations (such as overdrafts,
lines of credit with counterparties for derivatives, and back-to-back
loan arrangements) and other commitments (such as railcar leases)
for certain subsidiaries. We would be required to perform on these
guarantees in the event of default by the guaranteed parties. No
material loss is anticipated by reason of such anrppMantc _^4
yua aline .. HL uecember 31, 2004, the maximum potential amount
of future (undiscounted) payments under significant guarantees
provided to third parties approximated $159.9 million, representing
the maximum risk of loss if there were a total default by the
guaranteed parties, without consideration of possible recoveries
under recourse provisions or from collateral held or pledged. At
December 31, 2004, no subsidiary balances subject to guarantees
were outstanding in connection with the company's cash
management facilities, and we had no liabilities recorded for other
obligations other than subsidiary bank borrowings of approximately
$5.9 million and cash margin requirements of $28.5 million to
maintain derivatives.
We have also guaranteed the gypsum stack capping, closure and post-
closure obligations of White Springs and PCS Nitrogen, in Florida and
Louisiana, respectively, pursuant to the financial assurance regulatory
requirements in those states. The State of Florida is presently reviewing,
and is expected to revise, its financial assurance requirements to ensure
that responsible parties have sufficient resources to cover all closure
and post-closure costs and liabilities associated with gypsum stacks.
This review may result in the imposition of more stringent requirements
to demonstrate financial responsibility and/or inclusion of a greater
scope of closure and post-closure costs than under current law. All
amounts subject to guarantee are included in the accrued costs
reflected in Note 15 to the consolidated financial statements.
The environmental regulations of the Province of Saskatchewan
require each potash mine to have decommissioning and reclamation
(D&R) plans. In 2001, agreement was reached with the provincial
government on the financial assurances for the D&R plan to cover
an interim period to July 1, 2005. In October 2004, this interim
period was extended to July 1, 2006. A government/industry task
force has been established to assess decommissioning options for all
Saskatchewan potash producers and to produce mutually acceptable
revisions to the plan schedules. We have posted a Cdn $2.0 million
letter of credit as collateral that will remain in effect until the revised
plans are accepted.
Derivative Instruments
We use derivative financial instruments to manage exposure to
commodity price, interest rate and foreign exchange rate fluctuations.
Only our hedging activities represent off-balance sheet items.
We employ derivative instruments to hedge the future cost of
committed and anticipated natural gas purchases primarily for our US
nltrocien Dlantt Rv nnli- +h -- r li;vu ivi uie?e neages
cannot exceed five years. Exceptions to policy may be made with the
specific approval of our Gas Policy Advisory Committee. The fair value
of our gas hedging contracts at December 31, 2004 was $66.5
million (2003 - $59.8 million).
We primarily use interest rate swaps to manage the interest rate
mix of our total debt portfolio and related overall cost of borrowing.
In January and February 2004, we entered into interest rate swap
agreements with total notional amounts of $300.0 million, whereby
we, over the remaining terms of the underlying notes, would receive a
fixed rate payment equivalent to the fixed interest rate of the underlying
note and pay a floating rate of interest based on six-month US dollar
LIBOR. In October 2004, we terminated the interest rate swap contracts.
Note 29 to our consolidated financial statements provides more
detail on our accounting for and types of derivatives.
Long-Term Fixed Price Contracts
Certain of our long-term raw materials agreements contain fixed
price components. Our significant agreements, and the related
obligations under such agreements, are discussed in
Cash Requirements.
40
POTASHCORP 2004 ANNUAL REPORT I MD&A
Market Risks Associated with Financial
Instruments
Market risk is the potential for loss from changes in the value of
financial instruments. The following discussion provides additional
detail regarding our exposure to the risks of changing commodity
prices, interest rates and foreign exchange rates. A discussion of
enterprise-wide risk management can be found on Pages 44 and 45.
COMMODITY RISK
Our US nitrogen results are significantly affected by the price
of natural gas. As discussed on Page 39, we employ derivative
commodity instruments related to a portion of our natural gas
requirements (primarily futures, swaps and options) for the purpose
of managing our exposure to commodity price risk in the purchase of
natural gas, not for speculative or trading purposes. Changes in the
market value of these derivative instruments have a high correlation
to changes in the spot price of natural gas.
A sensitivity analysis has been prepared to estimate our market risk
exposure arising from derivative commodity instruments. The fair
value of such instruments is calculated by valuing each position
using quoted market prices. Market risk is estimated as the potential
loss in fair value resulting from a hypothetical 10-percent adverse
change in such prices. The results of this analysis indicate that as of
December 31, 2004, our estimated derivative commodity instruments'
market risk exposure was $46.2 million (2003 - $27.5 million). Actual
results may differ from this estimate. Changes in the fair value of such
derivative instruments, with maturities in 2005 through 2014, will
generally relate to changes in the spot price of natural gas purchases.
INTEREST RATE RISK
We address interest rate risk by using a diversified portfolio of fixed
and floating rate instruments. This exposure is also managed by
aligning current and long-term assets with demand and fixed-term
debt and by monitoring the effects of market changes in interest rates.
As at December 31, 2004, our short-term debt (comprised of
commercial paper) was $93.5 million, our current portion of long-term
debt was $10.3 million and our long-term portion was $1,258.6 million.
Long-term debt is comprised primarily of $1,250.0 million of notes
payable that were issued under our US shelf registration statements.
Since most of our outstanding borrowings have fixed interest rates,
the primary market risk exposure is to changes in fair value. It is
estimated that, all else constant, a hypothetical 10-percent change in
interest rates would not materially impact our results of operations or
financial position. If interest rates changed significantly, management
would likely take actions to manage our exposure to the change.
However, due to the uncertainty of the specific actions that would be
taken and their possible effects, the sensitivity analysis assumes no
changes in our financial structure.
FOREIGN EXCHANGE RISK
We also enter into foreign currency forward contracts for the sole
purpose of limiting exposure to exchange rate fluctuations relating to
Canadian dollar operating and capital expenditures. These contracts are
not designated as hedging instruments for accounting purposes. Gains
or losses resulting from foreign exchange contracts are recognized in
earnings in the period in which changes in fair value occur.
As at December 31, 2004, we had entered into foreign currency
forward contracts to sell US dollars and receive Canadian dollars in
the notional amount of $54.1 million (2003 - $46.0 million) at an
average exchange rate of 1.2306 (2003 - 1.3315). We also had
small forward contracts outstanding as at December 31, 2004 to
reduce exposure to the euro and Swiss franc. Maturity dates for all
forward contracts are within 2005.
Related Party Transactions

The company sells potash from our Saskatchewan mines for use
outside of North America exclusively to Canpotex Limited. Sales for
the year ended December 31, 2004 were $421.9 million (2003 -
$260.6 million; 2002 - $241.2 million). Sales to Canpotex are at
prevailing market prices and are settled on normal trade terms.
In connection with entering into the share transfer agreement with
SQM, PCS Yumbes agreed to purchase potash from SQM and sell to
SQM all of its potassium nitrate production at a negotiated price that
approximated market value. Both agreements were in effect until closing
of the PCS Yumbes sale agreement in December 2004. Potash purchases
from SQM for the year were $7.0 million (2003 - $13.1 million;
2002 - $17.9 million). Potassium nitrate sales to SQM for the year
were $25.1 million (2003 - $25.8 million; 2002 - $2.1 million). All
transactions with SQM are settled on normal trade terms.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results
of operations are based upon our consolidated financial statements,
which have been prepared in accordance with Canadian GAAP. These
principles differ in certain significant respects from US GAAP, and
these differences are described and quantified in Note 36 to the
consolidated financial statements.
Al
POTASHCORP 2004 ANNUAL REPORT I MD&A
A
P
Our significant accounting policies are contained in Note 2 to the
consolidated financial statements. Certain of these policies involve
critical accounting estimates because they require us to make
particularly subjective or complex judgments about matters that are
inherently uncertain and because of the likelihood that materially
different amounts could be reported under different conditions or
using different assumptions. We have discussed the development,
selection and application of our key accounting policies, and the
critical accounting estimates and assumptions they involve, with the
audit committee of the Board of Directors, and it has reviewed the
disclosures described in this section.
The following section discusses the critical accounting estimates
and assumptions that management has made and how they affect
the amounts reported in the consolidated financial statements.
ASSET DjiPARFVIENI
We review long-lived assets and intangible assets with finite lives
whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be fully recoverable. Determination
of recoverability is based on an estimate of undiscounted future cash
flows, and measurement of an impairment loss is based on the fair
value of the assets. We believe that the accounting estimate related
to asset impairment is a critical accounting estimate because: (1) it is
highly susceptible to change from period to period as it requires
management to make assumptions about future sales, margins and
market conditions over the long-term life of the assets; and (2) the
impact that recognizing an impairment would have on our financial
position and results of operations may be material. During 2003, we
indefinitely shut down certain nitrogen operations, ceased operations
at a phosphate feed plant and entered into an agreement to sell
our shares of PCS Yumbes. In connection with these activities, we
recognized various impairment charges, as more fully described in
Notes 22 and 23 to the consolidated financial statements. As at
December 31, 2004, we determined that there were no other
triggering events requiring additional impairment analysis.
be recognized immediately. The fair value of our reporting units is
determined from internally developed valuation models that consider
various factors such as normalized and projected earnings, present
value of future cash flows and discount rates. In each of the last
two years we tested goodwill for impairment, and in each year we
determined that, based on our assumptions, the fair value of our
reporting units exceeded their carrying amounts and therefore we
did not recognize impairment.
Long-term investments that are carried at cost or accounted for using
the equity method are also reviewed to determine whether fair value
is below carrying value. An investment is considered impaired if any
such decline is considered other than temporary. Factors we consider
in determining whether a loss is temporary include the length of time
and extent to which fair value has been below cost; financial
condition and near-term prospects of the investee; and our ability
and intent to hold the investment for a period of time sufficient to
allow for any anticipated recovery. For actively traded securities, we
typically consider quoted market value to be fair value. For thinly
traded securities where market quotes are either not available or not
representative of fair value, we use estimation techniques such as
market or income valuation approaches to determine fair value.
Although we believe our estimates are reasonable and consistent
with current conditions, internal planning and expected future
operations, such estimates are subject to significant uncertainties and
judgments. As a result, it is reasonably possible that the amounts
reported for asset impairments could be different if we were to use
different assumptions or if market and other conditions were to
change. The changes could result in non-cash charges that could
materially affect our consolidated financial statements.

We approved plans to restructure various operations in 2003 which
required us to make critical estimates regarding exit costs. Because
such activities are complex processes that take several months to
complete, they involve periodically reassessing the estimates made
when the original decision to exit the activities was made. As a result,
Goodwill is not amortized, but is assessed for impairment at the
reporting unit level annually, or sooner if events or changes in
circumstances indicate that the carrying amount could exceed
fair value. Goodwill is assessed for impairment using a two-step
approach, with the first step being to assess whether the fair value
of the reporting unit to which the goodwill is associated is less than
its carrying value. If this is the case, a second impairment test is
performed which requires a comparison of the fair value of goodwill
to its carrying amount. If fair value is less than carrying value,
goodwill is considered impaired and an impairment charge must
we may have to change originally reported estimates as actual
payments are made or the related activities are completed.
t S i it4=`t 4E?t:iVi? iv`a AND POST-EMPLOYMENT COSTS
We sponsor plans that provide pensions and other retirement and
post-employment benefits for most of our employees. We believe
the accounting estimates related to our employee benefit plan costs
are critical accounting estimates because: (1) the amounts are based
on complex actuarial calculations using several assumptions; and
42
POTASHCORP 2004 ANNUAL REPORT I MD&A
(2) given the magnitude of our estimated costs, differences in actual
results or changes in assumptions could materially affect our
consolidated financial statements.
Due to the long-term nature of these plans, the calculation of expenses
and obligations depends on various assumptions such as discount
rates, expected rates of return on assets, health-care cost trend rates,
projected salary increases, retirement age, mortality and termination
rates. These assumptions are determined by management and are
reviewed annually by our actuaries. The discount rate assumptions used
in determining obligations and expense reflect market yields on high-
quality debt instruments with cash flows that match expected benefit
payments. The expected rate of return on plan assets assumption
is based on expected returns for the various asset classes. Other
assumptions are based on actual experience and our best estimates.
Actual results that differ from the assumptions are accumulated
and amortized over future periods and, therefore, generally affect
recognized expense and the recorded obligation in future periods.
The following table provides the sensitivity of benefit obligations and
expense for our US plans (which represent 90 percent of our benefit
obligations) to changes in the discount rate, expected long-term
return on plan assets assumption and rate of compensation increase.
The sensitivity analysis should be used with caution as the changes
are hypothetical and the impact of changes in each key assumption
may not be linear. For further details on our annual expense and
obligation, see Note 14 to the consolidated financial statements.
IMPACT OF A 0.5% CHANGE IN KEY ASSUMPTIONS
Dollars (millions)
Pension Plans Other Plans
Obligation Expense Obligation Expense
Discount rate
Decrease in assumption $ 34.0 $ 3.1 $ 16.9 $ 1.7
Increase in assumption (32.7) (3.2) (16.2) (1.8)
Expected long-term rate of return
Decrease in assumption n/a 1.6 n/a n/a
Increase in assumption n/a (1.6) n/a n/a
Rate of compensation increase
Decrease in assumption (7.7) (1.3) n/a n/a
Increase in assumption 7.5 1.3 n/a n/a
ASSET RETIREMENT OBLIGATIONS AND OTHER
ENVIRONMENTAL COSTS
We have significant liabilities relating to asset retirement obligations
and other environmental matters. The major categories of our asset
retirement obligations include reclamation and restoration costs at
our potash and phosphate mining operations (most particularly
phosphate mining). Other environmental liabilities typically relate to
regulatory compliance, environmental management associated with
ongoing operations other than mining, and site assessment and
remediation of contamination related to the activities of the company
and its predecessors.
We believe the accounting estimates related to asset retirement
obligations and other environmental costs are critical accounting
estimates because: (1) we will not incur most of these costs for a
number of years, requiring us to make estimates over a long period;
(2) environmental laws and regulations and interpretations by regulatory
authorities could change in the future or circumstances affecting our
operations could change, either of which could result in significant
changes to our current plans; and (3) given the magnitude of our
estimated costs, changes in any or all of these estimates could have
a material impact on our consolidated financial statements.
Accruals for asset retirement obligations and other environmental
matters totalled $100.7 million at December 31, 2004. In arriving
at this amount we considered the nature, extent and timing of
current and proposed reclamation and closure techniques in view of
present environmental laws and regulations. It is reasonably possible
the ultimate costs could change in the future and that changes to
these estimates could have a material effect on our consolidated
financial statements.
DEPRECIATION AND AMORTIZATION
We depreciate certain mining and milling assets using the units of
production method based on the shorter of estimates of reserve or
service lives. We have other assets that we depreciate on a straight-
line basis over their estimated useful lives.
We perform assessments of our existing assets and depreciable lives
in connection with the review of mine operating plans. When we
determine that assigned asset lives do not reflect the expected
remaining period of benefit, we make prospective changes to their
depreciable lives. There are a number of uncertainties inherent in
estimating reserve quantities, particularly as they relate to
assumptions regarding future prices, the geology of our mines, the
mining methods we use and the related costs we incur to develop
and mine our reserves. Changes in these assumptions could result
in material adjustments to our reserve estimates, which could result
in changes to units of production depreciation expense in future
periods. Although some degree of variability is expected, we believe
the extent of our technical data and operating experience mitigates
the potential for significant changes in reserve estimates.
43
POTASHCORP 2004 ANNUAL REPORT I MD&A
As discussed on Page 41, we review and evaluate our long-lived
assets for impairment when events or changes in circumstances
indicate that the related carrying amounts may not be recoverable.
We believe it is unlikely that revisions to our estimates of reserves
would give rise to an impairment of our assets because of their
significant size in relation to our asset carrying values.

We operate in a specialized industry and in several tax jurisdictions. As
such, our income is subject to various rates of taxation. The breadth
of the company's operations and the global complexity of tax regulations
require assessments of uncertainties and judgments in estimating the
ultimate taxes the company will pay. The final taxes paid are dependent
upon many factors, including negotiations with taxing authorities in
various jurisdictions, outcomes of tax litigation and resolution of
disputes arising from federal, provincial, state and local tax audits.
The resolution of these uncertainties and the associated final taxes
may result in adjustments to our tax assets and tax liabilities.
We estimate future income taxes based upon temporary differences
between the income and losses that we report in our consolidated
financial statements and our taxable income and losses as
determined under applicable tax laws. We record a valuation
allowance against our future income tax assets when we believe,
based on all available evidence, that it is not "more likely than not"
that all of our future income tax assets recognized will be realized
prior to their expiration. The amount of the future income tax asset
recognized and considered realizable could, however, be reduced if
projected income is not achieved.
Recent Accounting Changes
GU"a4
Effective January 1, 2004, we changed certain of our accounting
policies in response to new accounting standards. We now report
sales, freight costs and transportation and distribution expenses
separately on our Consolidated Statements of Operations and
Retained Earnings, rather than on a net basis. This had no effect on
gross margin or net income, and all comparative information has been
appropriately reclassified. Other changes related to our accounting for
asset retirement obligations and hedging relationships. Neither of
these changes had a significant effect on our results of operations
or financial position. For further information, see Note 3 to our
consolidated financial statements.
2005
The US accounting standard for variable interest entities (VIEs) was
effective for the company in the first quarter of 2004, and there was
no material impact on our consolidated financial statements from
adoption. The standard provided direction for applying consolidation
principles to certain entities that are subject to control on a basis
other than ownership of voting interests. The CICA's guideline on
VIEs is similar to US GAAP and is effective in fiscal 2005. We do not
expect its application to have a material impact on our consolidated
financial statements.
In November 2004, the US accounting standards for inventory were
amended, requiring abnormal amounts of idle facility expense,
freight, handling costs and spoilage to be recognized as current-
period charges. The guidance is effective for our 2006 fiscal year,
and we are currently assessing the potential impact, if any, on our
consolidated financial statements.
In December 2004, US accounting requirements relating to share-
based payments were revised. With limited exceptions, compensation
cost will now be measured based on the grant-date fair value of the
equity or liability instruments issued. In addition, liability awards will
be remeasured each reporting period. Compensation cost will be
recognized over the period that an employee provides service in
exchange for the award. The new guidance is effective in the third
quarter of 2005. We are currently assessing the potential impact, if
any, on our consolidated financial statements.
In January 2005, the CICA issued Section 1530, "Comprehensive
Income", Section 3251, "Equity", Section 3855, "Financial
Instruments - Recognition and Measurement" and Section 3865,
"Hedges". Under the new standards: a new location for recognizing
certain gains and losses - other comprehensive income - has been
introduced, providing for certain gains and losses arising from
changes in fair value to be temporarily recorded outside the income
statement, but in a transparent manner; existing requirements for
hedge accounting are extended; and all financial instruments,
including derivatives, are to be included on a company's balance
sheet and measured (in most cases) at fair value. The guidance will
apply for interim and annual financial statements relating to fiscal
years beginning on or after October 1, 2006. Earlier adoption will be
permitted only as of the beginning of a fiscal year. We are currently
assessing the potential impact of these new standards on our
consolidated financial statements.
For further information, see Notes 2 and 36 to our consolidated
financial statements.
44
POTASHCORP 2004 ANNUAL REPORT I MD&A
Risk Management
Understanding and managing risk are important parts of PotashCorp's
strategic planning. In previous years, we identified and analyzed the
risks facing the company, ranked them by likelihood of occurrence
and significance of consequences, and determined the most effective
ways to manage this risk universe.
In 2004, we introduced a new integrated risk-management framework
that allowed for a comprehensive evaluation of the interdependence
of the risks across all segments of the company. We reviewed historical
risks, identified new risks and delineated all risks into categories that
could interfere with successful implementation of our strategy. We
saw those risk categories as markets/business, distribution, operational,
financial/information technology, regulatory and integrity/empowerment.
Together and separately, these risks affect our ability to take advantage
of opportunities. The greatest consequence of all risks is a loss of
reputation, for it can threaten our earnings, access to capital or our
brand by creating negative opinions of the company in the minds of
employees, customers, investors or our communities. As the risk globe
turns, a risk to reputation affects our ability to execute our strategies.
All risks were plotted on a matrix which recognized that the inherent
risks to the company can be reduced by lowering either the expected
frequency or the consequences. These mitigation activities result in
lower residual risk levels. Management focused on the most
significant residual risks to our strategy, as follows, and reported to
the board on plans to manage them.
Risk to Strategy
Risks to strategy limit the implementation of these
strategies due to a lack of integration or changes
in the business environment, hindering our ability
to take advantage of opportunities.
r
Risk Categories
m Market / Business Risk
m Distribution Risk
o Operational Risk
o Financial / Information Technology Risk
m Regulatory Risk
m Integrity / Empowerment Risk
r
Risk to Reputation
Risks to reputation threaten PotashCorp's earnings,
capital or brand by creating negative opinions of
the company in the minds of employees, customers,
investors or our communities.
Global Risk Environment
World events and trends that are not unique to our sector but rather
impact the international business environment - e.g. interest rates,
exchange rates or wars affecting international trade.
RISK TO POTASH PRODUCTION
As potash is the cornerstone of our success, our ability to bring on our
excess capacity in a timely manner is key to the credibility of our strategy.
Higher-than-trend growth rates in the last three years have absorbed the
excess production of our global competitors, putting expectations on
PotashCorp to deliver our excess capacity moving forward.
In Saskatchewan, we have increased production at Rocanville,
added fourth shifts at Lanigan and Allan and reduced the number
of shutdown weeks taken. In addition, we have the ability to bring
on another 2.9 million tonnes. We could get 1.5 million tonnes from
the Lanigan phase I mill, 400,000 tonnes from debottlenecking at
Allan and another 1 million tonnes, total, at Cory and Patience Lake.
All these projects can be brought on stream within three years at a
current estimate of $300 million. At New Brunswick we are exploring
a potential adjacent deposit that could be developed.
NEW SUPPLY CREATES STRUCTURAL MARKET IMBALANCE
An increase in competitive supply in potash or nitrogen that outpaced
the growth in world consumption could upset the supply/demand
balance of those nutrients and depress prices for a prolonged period.
We partially mitigate the risk in potash by ensuring additional supply
is available from our excess capacity only as required by the market.
In nitrogen, capacity growth has generally matched consumption, but
abundant low-cost natural gas has encouraged many developing
countries to exploit their gas by producing ammonia for the US
market. Closure of high-cost US facilities has cushioned the effect
of these imports and is expected to continue to do so. Our nutrient
diversity mitigates this risk through strong potash profits and specialty
phosphate sales. We are examining nitrogen expansions in lower-cost
gas regions which would have a low capital investment and stable
returns, consistent with our asset-light/fee-heavy strategy.
RISK OF CYCLICALITY
The risk of short-term cyclicality in product prices is most significant
in phosphate and nitrogen.
Competitive costs, availability of supply and world demand affect short-
term nitrogen and phosphate pricing. This results in supply/demand
imbalances, pressure on prices and margins, unprofitable operations
and, eventually, shutdown costs.
To help mitigate this cyclicality in phosphate, we work through
PhosChem to export excess DAP, MAP and phosphoric acid so our
plants operate at cost-effective utilization rates. We continue to
diversify our products by growing offshore feed sales and expanding
45
POTASHCORP 2004 ANNUAL REPORT I MD&A
purified acid production. In nitrogen, we target markets offering price
premiums and grow our more stable industrial markets, including those
requiring a physical link to our plant or specialized manufacturing. We
are expanding our low-cost Trinidad production and have indefinitely
shut down our Memphis facility and production of ammonia and
nitrogen solutions at Geismar. We continue to hedge a portion of
our US gas costs.
ihGaf?\y-
MViA fl(ET IMIBALANCE
A risk to our potash business would arise if growth in demand fell below
expectations, reducing world trade and affecting our sales volumes and
price realizations. This risk is mitigated by our long-held strategy of
matching supply to demand. We see a fall in global consumption as
less likely than a softening in demand that results in negligible growth.

PotashCorp's board has approved strategic acquisition of interests
in other low-cost potash producers with logistical advantages to
offshore markets. The goal is to achieve sustained returns without
threat of forced divestiture, political violence, selective discrimination
or inconvertibility of funds. Outside of Canada, viable low-cost
production is in areas which have elements of political risk.
A diversity of sources mitigates this risk. Interruptions in business
elsewhere allow us to produce more in Canada. Political risk insurance
is expensive, but we try to ensure that companies we invest in carry
business interruption insurance.
RAILCAR SHORTAGE'S
A shortage of railcars for carrying potash and increased transit time in
North America would result in customer dissatisfaction, loss of sales
and higher equipment costs. Strong demand for grain and other
exports affects railcar availability.
We seek to manage these risks through timely and accurate forecasting
to the railroads, balanced shipping patterns and by adding domestic
storage capacity that reduces seasonal shipping. We continue to
increase our private fleet of hopper cars and to work closely with
Canadian National and Canadian Pacific railroads.
OCEAN FREIGVIT V0LA_HLITY
A strong world economy is fueling higher dry bulk freight rates. The
shortage of bulk ships reflects the rise in exports encouraged by a
weaker US dollar, resurgent North American grain exports, China's
demand for bulk commodities and the long lead time required to
build new ships. As a result, vessel utilization is at an all-time high.
The consequences for PotashCorp are higher distribution costs,
reduced price realizations and delayed or missed shipments.
We seek to mitigate this through long-term charters, joint ventures,
vessel pools and contracts of affreightment. We are proactive in the
ocean freight market to minimize cost fluctuations and coordinate
potash shipments with other products to obtain more favorable
freight economics.
5EI- G 1 tY "e 4hSl
Such risks include a deliberate, malicious act involving product or facilities
that may expose employees, contractors or the public to extensive injury,
cause property damage or affect the company's reputation. Theft of
product for use in criminal acts or terrorism is included.
We seek to mitigate this risk by maintaining strict controls, standards
and operating procedures, while increasing security and intrusion
measures. We introduced a proof-of-delivery process and adopted
stricter identification requirements, and we cooperate with the US
Department of Transportation program to upgrade ammonia railcars.
R@31?l o iTrPU IIAT lON
Its reputation should be a company's most valuable corporate asset,
loss of that reputation its greatest risk. In any of the circumstances
outlined, PotashCorp's reputation could be damaged. Diminished
investor confidence can make raising capital difficult. Poor community
relations can result in loss of license to operate or public boycott of
products. Lack of customer confidence can result in irreversible loss
of market share. Employee apathy makes recruitment and retention
of the best people difficult. Negligence claims could be laid against
officers and directors.
We mitigate risk to our reputation by building goodwill, using best
practices, ensuring transparency and communicating with stakeholders.
Our commitment to sustainability helps reduce environmental and
social risks, which could affect economic performance. We regularly
survey all our key stakeholder groups to ensure we are enhancing our
brand and reducing any concerns they have about our business. We
maintain good relations with customers by focusing on service and
our customer complaint system. We encourage our employees to be
engaged with the company by fostering a culture of fair treatment
and providing training and opportunities for development. We aim for
leading-edge corporate governance and have timely and complete
disclosure. We have a code of conduct and a crisis communications
program, and introduced Fertile Minds to inform the public about the
science of fertilizer. With all stakeholders, we strive to have "no surprises"
to support our good reputation, which is key to achieving our strategies.
46
POTASHCORP 2004 ANNUAL REPORT I MD&A
2005 Outlook
ECONOMY: The global economic outlook remains very optimistic.
Factors affecting world economic growth include US interest rates,
China's foreign exchange policy and global inflation. The IMF forecast
for 4.3-percent growth for 2005 compares with 5 percent in 2004,
the highest in nearly 30 years. This is projected to support expenditures
on fertilizer and industrial products based on N, P & K.
AGRICULTURE: The outlook for agriculture is highly favorable.
Demand for grain is expected to continue to expand. Several
commodity prices, including those for rubber, tea, rice, coffee and
sugar, have improved. Grain stocks are historically low and a second
consecutive year of the ideal growing conditions that produced record
crops in 2004 is unlikely. The USDA recently estimated that at the end
of the current crop year, there will be only 2.3 months' worth of grain
in world bins. China is expected to look again to the US and Brazil
to make up its shortfall in grain and oilseed production, driving
agricultural output in those countries.
China's Grain Production and Consumption
Wheat and Coarse Grains
Million Tonnes
280 ® Production ¦ Forecast Use
240
200
160
120
80 101111111
97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05E05/06F06/07F07/08F
Source: USDA, PotashCorp
China is the world's largest wheat producer and second-largest
corn producer, yet its domestic production cannot keep up with
its rising consumption.
After harvesting the best crop in years in 2004, the world's farmers
have an improved financial position entering 2005. This will support
increased fertilizer consumption to replace nutrients drawn from the
soil by the large crop, and help farmers achieve their production goals.
World nutrient consumption is expected to rise by 3 to 4 percent in
2005, with projected US nutrient use up by 1 to 2 percent.
OCEAN FREIGHT RATES: Record ocean freight rates were established
in February 2004 and subsequently topped in December. The market is
expected to decline in 2005 from the December highs, with moderation
of China's industry boom and more new bulk vessels providing a
moderate decrease in global fleet utilization. However, average ocean
freight rates are expected to remain historically high in 2005.
NATURAL GAS: Futures price projections for US natural gas over the
period 2005-2008 are in the range of $5.00 to $7.00 per MMBtu.
Barring a major find, future drilling will be into smaller potential gas
pools which are expected to provide a lower average success rate
and a shorter production life. These factors are increasing the cost
of bringing natural gas to the marketplace and are expected to put
a floor under NYMEX futures prices.
NITROGEN: Tight supply/demand is expected to continue through
2005, as historically high US gas prices will likely keep some North
American production shuttered. We are proceeding with capacity
additions at our Trinidad operation, based on long-term, lower-cost
natural gas contracts. This should increase output capability by
15 percent by mid-2006. We will continue to evaluate our plant
shutdowns at Geismar and Memphis, basing any potential restart
decisions on a combination of market conditions and the right
balance of prices versus volumes.
Approximately 60 percent of our 2005 gas needs are hedged
through our indexed gas contracts in Trinidad. For our US gas needs,
the hedge gain in 2005 is currently expected to approximate 2004
levels. However, the ultimate gain is difficult to predict as the
nitrogen market and gas prices are highly volatile.
PHOSPHATE: The supply/demand balance tightened in late 2004 as
a series of hurricanes forced production outages in Florida. However,
the phosphate industry continues to face issues of oversupply.
China and India, large potential markets for US phosphate exports,
are expected to continue to support their domestic industries in 2005.
New DAP capacity is expected to exceed demand growth in the next
six years, with the result that US DAP exports will continue near
current levels or decline slightly.
High input costs are expected to continue. US natural gas prices
should provide a floor price for ammonia, and sulfur prices are
projected to remain high due to China's increasing need for sulfur
to grow its domestic phosphate production.
A $33-per-tonne price increase for feed products and the expected
resolution of our DFP operating problems at Aurora should improve
our feed margins. The outlook for industrial phosphate remains
positive, especially for purified acid which we are expanding.
47
POTASHCORP 2004 ANNUAL REPORT I MD&A
POTASH: The outlook for potash is bright. World demand is
expected to continue to trend upward in 2005, following three years
of spectacular growth totalling more than 20 percent. Soil nutrients
depleted by the record crops of 2004 must be replaced.
Canpotex is forecasting another record in 2005, with the expectation
of 8.7 million tonnes in sales as China and other nations in Southeast
Asia continue to increase consumption. Sinochem, a purchasing agent
for China, signed a 2005 contract with Canpotex for a minimum
17-percent increase in volumes with a $40-per-tonne increase in price
Since China purchases its own freight, this increase in price will
directly impact our realized prices.
In North America, our company expects to maintain the growth we
achieved in 2004 market share as other competitors operate at capacity.
Price increases announced in 2004 should be fully realized during the
second quarter of 2005.
Global producers other than PotashCorp ended 2004 with little
remaining excess capacity. Some debottlenecking projects have
been announced to increase future output, but most producers
have already exhausted such opportunities. PotashCorp is doing
engineering studies to define the work required to bring excess
capacity into production, and to establish priorities for proceeding at
our different production locations. As required by the marketplace, we
will operate the fourth production shifts at Lanigan and Allan and the
2005 Rocanville expansion.
New DAP Capacity vs Demari
Cumulative Growth
Million Tonnes Product
12 ¦ Other ¦ Morocco
¦ Vietnam ¦ Saudi Arabia
10 ¦ Uzbekistan €] China
Bangladesh Demand
8
6
2? k
0 E'• I.r
2005E 2006F 2007F 2008F 2009F 201OF
" Several projects uncertain, unlikely projects excluded Source: British Sulphur, Fertecon, PotashCorp
The supply/demand outlook for DAP looks difficult due to
announced capacity increases, but it would look even worse if
other, more uncertain projects went ahead in the absence of
industry consolidation.
POTASHCORP FINANCIAL OUTLOOK
Capital expenditures are expected to approximate $350.0 million, of
which approximately $125.0 million will be for sustaining capital.
Total expenditures are up from the $220.5 million in 2004, primarily
due to opportunity capital set aside for ramping up potash production
and the expansions of purified acid at Aurora and ammonia at Trinidad.
Selling and administrative expenses are expected to be similar to
2004 levels while other income should exceed 2004, excluding the
impact of the gain on sale of SQM shares. The increase is expected to
result from higher equity earnings from our potash investments in
SQM and APC and dividends from ICL.
The effective consolidated tax rate is expected to remain at
approximately 33 percent, with 90 percent expected to be current
and 10 percent future. Provincial mining and other taxes should
continue to approximate 21 percent of total potash gross margin.
Given the positive industry fundamentals, we anticipate another
record year in 2005 and expect net income to be in the range of
$400 million to $485 million or $3.50 to $4.25 per diluted share,
assuming a flat Canadian dollar from the end of 2004 at 1.20.
Capital expenditures of approximately $350 million will exceed
our expected non-cash charges of $250 million, which primarily
consist of depreciation and amortization.
Potash Demand Growth to Outstrip New Competitive Capacity*
Cumulative Growth
Million Tonnes KCI
7 Jordan
Brazil
6
¦ Germany
5 Spain
¦ Israel
¦ China
4
Agrium
3 Demand
2r
0r?
2005E 2006F 2007F 2008F 2009F 201OF
* Thailand and Uralkali excluded as projects unlikely Source: Fertecon, PotashCorp
World potash demand is expected to grow by 7 million tonnes
by the end of the decade and competitors' debottlenecking will
achieve only 2 million tonnes, leaving 5 million tonnes available
for PotashCorp's excess capacity.
48
POTASHCORP 2004 ANNUAL REPORT I MD&A
Quarterly Results and Review of Fourth-Quarter Performance (in millions of US dollars except per-share amounts)
2004 2003
Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total
Sales 728.4 833.7 815.7 866.6 3,244.4 661.8 745.0 674.6 717.6 2,799.0
Gross margin 124.0 170.7 189.4 197.3 681.4 81.1 122.3 84.5 92.5 380.4
Operating income (loss) 97.8 129.2 133.1 154.2 514.3 24.7 73.1 (210.9) 57.5 (55.6)
Net income (loss) 50.7 72.6 75.2 100.1 298.6 3.2 29.9 (185.9) 26.5 (126.3)
Net income (loss) per diluted share 0.47 0.67 0.68 0.88 2.70 0.03 0.29 (1.78) 0.25 (1.21)
Potash gross margin 66.7 121.4 120.8 113.9 422.8 49.3 60.7 52.3 41.4 203.7
Phosphate gross margin (0.9) 5.7 0.6 10.4 15.8 2.0 (1.0) (9.7) (7.8) (16.5)
Nitrogen gross margin 58.2 43.6 68.0 73.0 242.8 29.8 62.6 41.9 58.9 193.2
Net income (loss) per share for each quarter has been computed based on the weighted average number of shares issued and outstanding during the respective quarter; therefore, quarterly amounts
may not add to the annual total. All share and per-share data have been retroactively adjusted to reflect the stock dividend of one common share for each share owned by shareholders of record at
the close of business on August 11, 2004. The stock dividend had the same effect as a two-for-one stock split.
Our results in each quarter of 2004 were well above the prior year.
The most significant contributing factor to the trend of increasing
earnings was tight supply/demand fundamentals leading to greater
volumes, lower costs and better prices in potash. Our 2003 results
also reflect our decision to restructure various operations.
Certain aspects of our business can be impacted by seasonal factors.
Fertilizers are sold primarily for spring and fall application in both
northern and southern hemispheres. However, planting conditions
and the timing of customer purchases will vary each year and
fertilizer sales can be expected to shift from one quarter to another.
Most feed and industrial sales are by contract and are more evenly
distributed throughout the year.
Highlights of our 2004 fourth quarter include:
• Growing world potash consumption led to record sales volumes
and a positive pricing environment. North American and offshore
prices were up 33 percent and 52 percent respectively over last
year's fourth quarter, resulting in a 175-percent quarter-over-
quarter increase in gross margin.
• Phosphate, led by industrial products, had its best quarter of
the year.
• Nitrogen gross margin improved by 24 percent quarter over quarter
due to the high price environment. Our Trinidad operations were
responsible for 70 percent of fourth-quarter margin, with our US
operations and hedging programs accounting for the remainder.
• Earnings were negatively affected by the continued appreciation
of the Canadian dollar.
• Selling and administrative expenses rose compared to the
same quarter of 2003, primarily due to performance-based
compensation accruals.
• We concluded the sale of our shares of PCS Yumbes to SQM and
sold certain SQM shares for a non-taxable gain of $34.4 million.
Canadian Dollar Exchange Rate
$Cdn/$US
1.60
1.50
1.40
1.30
1.20
1.10 -1 L
Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan
03 03 03 03 03 03 04 04 04 04 04 04 05
Source: Bloomberg
The Canadian dollar ended the year at 1.20 against the US dollar,
negatively impacting fourth-quarter results by $0.11 per share.
For the year, the stronger Canadian dollar had a negative impact
of $0.16 per share.
49
POTASHCORP 2004 ANNUAL REPORT I MD&A p?
11 Year Report for the years ended December 31
2004 2003 2002 2001 2000 1999 1998 1997(3) 1996 1995(2) 19940)
Financial Data (in millions of US dollars except share and per-share amounts)
Sales
Potash 1,056.1 758.7 669.0 655.2 710.3 688.6 663.3 644.0 521.1 530.2 465.1
Phosphate 977.9 883.9 714.0 732.1 868.1 922.3 1,099.5 1,036.7 972.5 448.8 -
Nitrogen 1,210.4 1,156.4 841.4 993.5 964.5 744.7 844.2 939.3 111.3 23.8 -
Total sales 3,244.4 2,799.0 2,224.4 2,380.8 2,542.9 2,355.6 2,607.0 2,620.0 1,604.9 1,002.8 465.1
Gross margin
Potash 422.8 203.7 218.0 248.1 307.4 304.2 319.2 261.4 193.0 217.9 161.2
Phosphate 15.8 (16.5) 41.9 64.5 76.8 130.5 230.1 196.6 196.2 87.1 -
Nitrogen 242.8 193.2 47.4 94.7 104.7 (21.4) 64.8 133.0 2.1 2.3 -
Total gross margin 681.4 380.4 307.3 407.3 488.9 413.3 614.1 591.0 391.3 307.3 161.2
Depreciation and amortization
Potash 66.4 52.4 46.3 34.1 40.9 37.2 36.2 39.6 38.5 42.1 39.3
Phosphate 84.4 75.7 76.8 72.0 68.1 61.8 59.1 55.1 51.6 28.9 -
Nitrogen 79.7 89.6 88.0 72.8 66.1 83.5 86.7 69.0 - - -
Other 9.5 9.7 8.0 6.8 11.9 8.6 8.9 6.3 - - -
Total depreciation and amortization 240.0 227.4 219.1 185.7 187.0 191.1 190.9 170.0 90.1 71.0 39.3
Operating income (loss) 514.3 (55.6) 166.9 269.7 326.8 (353.0) 442.3 442.0 297.4 219.6 97.5
Net income (loss)*(4) 298.6 (126.3) 53.6 121.2 198.0 (412.0) 261.0 297.1 209.0 159.5 91.2
Net income (loss) per share - basic(5) 2.77 (1.21) 0.52 1.17 1.89 (3.80) 2.41 2.84 2.29 1.84 1.06
Net income (loss) per share - diluted(5) 2.70 (1.21) 0.51 1.16 1.88 (3.80) 2.39 2.81 2.27 1.82 1.06
Dividends per share(5) 0.55 0.50 0.50 0.50 0.50 0.50 0.48 0.52 0.53 0.53 0.39
Cash provided by operating activities 649.6 381.5 316.4 75.7 480.4 343.6 578.0 467.8 296.2 233.5 150.7
Working capital 539.9 176.1 8.6 47.1 (148.7) (104.8) 329.2 281.7 278.8 136.1 103.3
Total assets 5,126.8 4,567.3 4,685.6 4,597.3 4,145.7 3,916.8 4,534.3 4,427.6 2,494.4 2,581.8 1,027.8
Long-term debt 1,258.6 1,268.6 1,019.9 1,013.7 413.7 437.0 933.3 1,130.0 620.0 714.5 2.0
' Shareholders' equity 2,385.6 1,973.8 2,092.5 2,086.5 2,012.1 1,962.4 2,453.8 2,227.9 1,405.5 1,241.9 964.3
Shares outstanding at the end
of the year (in 000's)(5) 110,631 106,224 104,156 103,904 103,682 107,388 108,488 107,792 91,164 90,880 85,976
Operating Data (thousands)
Employees at year-end (actual #) 4,906 4,904 5,199 4,997 5,338 5,498 5,744 5,751 4,490 4,579 1,781
Potash production (KCI) tonnage 7,914 7,094 6,447 6,128 7,149 6,388 6,995 6,483 5,782 6,071 5,298
Phosphate production (P205) tonnage 1,962 1,861 1,512 1,573 2,042 2,124 2,363 2,282 2,096 1,008 -
Nitrogen production (N) tonnage 2,558 2,619 2,990 3,032 2,706 3,138 3,121 2,349 - - -
Potash sales - KCI tonnes 8,276 7,083 6,327 6,243 6,912 6,474 6,283 6,640 5,612 5,848 5,569
Phosphate sales - product tonnes 3,793 3,647 2,863 3,045 3,893 4,016 4,627 4,434 4,305 2,206 -
Nitrogen sales - product tonnes 5,350 6,080 6,391 6,381 6,760 6,705 6,596 5,851 535 115 -
(1) The consolidated financial statements of the company for 1994 have been restated to US dollar s using the tr anslation of convenience method. The Canadian dollar
amounts for this period have been converted to US dollars at the exchange rate of US $1.00 = Cdn $1.4028 .
(2) Data for 1995 and thereafter reflect the acquisition of Texasgulf Inc. on April 10, 1995 and the acquisition of White Spr ings Agricultural Chemicals, Inc.
on October 31, 1995.
(3) Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March 6, 1997.
(4) There were no extraordinary items nor were there any discontinued operations in any of the accounting periods.
(5) All share and per-share data have been retroactively adjusted to reflect the stock div idend of one common s hare for ea ch share own ed by shar eholders of record
at the close of business on August 11, 2004. The stock dividend had the same effect as a two-for-one stock split.
The consolidated financial statements of the company have been prepared in accordance with Canadian general ly accepted accounting principles. These principles differ
in some respects from those applicable in the United States. (See Note 36 to the compa ny's consolidated financial statements.) Certain of the prior years' figures have
been reclassified to conform with the current year's presentation.
Additional Information
* The after-tax effects of asset impairment, plant shutdown, plant closure and office con solidation charges and t he gain on sale of long- term inves tments and Moab Inc.
are included (as applicable) in the data for 2004, 2003, 2000 and 1999 in the amoun ts of $(30.8) million, $203.2 millio n, $1.5 million and $54 7.1 million, respectively.
50
POTASHCORP 2004 ANNUAL REPORT I MD&A
Key Earnings Sensitivities
A number of factors affect the earnings of the company's three nutrient segments. The table below shows the key factors and their
approximate effect on EPS based on the assumptions used in the 2005 earnings guidance of $3.50 to $4.25 per diluted share.
Input Cost Sensitivities
Effect
on EPS I Price and Volume Sensitivities
Effect
NYMEX gas price Nitrogen +013 Price Potash changes by $5/tonne t 0.19
increases by $1/MMBtu Potash -0.04 DAP/MAP changes by $5/tonne t 0.05
Sulfur changes by Phosphate t 0.06 Ammonia increases by $10/tonne a Nitrogen +0.05
$5/long ton • Phosphate -0.02
Canadian to US dollar Canadian operating expenses t 0.02 Urea changes by $1 0/tonne ± 0.08
changes by $0.01 net of provincial taxes
Volume Potash changes by 100,000 tonnes
t 0.05
Phosphate changes by 50,000 P205 tonnes - t 0.04
Translation gain/loss t 0.02
Nitrogen changes by 50,000 N tonnes t 0.04
The above sensitivities affect cash flow as well, except the translation gain/loss which is primarily non-cash.
Indicators to Watch in 2005
Fertilizer
Weather and global acreage planted
China's grain stocks and corn exports
US dollar exchange rates with global currencies
Global crop prices
Impact of Asian rust on the soybean market
Ocean freight rates
Prices for natural gas, sulfur and ammonia
Russia's energy policy as a condition for its WTO entry
India's reform of fertilizer subsidy policy
Impact of EU policy on fertilizer imports from Russia
Forward-Looking Statements
Certain statements in this annual report and this Management's
Discussion & Analysis of Financial Condition and Results of
Operations, including those in the "Outlook" section relating to the
period after December 31, 2004, are forward-looking statements
subject to risks and uncertainties. A number of factors could cause
actual results to differ materially from those expressed in the
forward-looking statements, including, but not limited to: fluctuation
in supply and demand in fertilizer, sulfur, petrochemical and
transportation markets; changes in competitive pressures, including
pricing pressures; risks associated with natural gas and other hedging
activities; changes in capital markets; changes in currency and
exchange rates; fluctuation in costs of distribution and transportation;
unexpected geological or environmental conditions; imprecision in
Feed and Industrial
Health of US and world economies
Effect of livestock disease-based restrictions on world trade
Potential tightening of restrictions on the use of meat and
bone meal in animal feeds
Impact of residual grain from ethanol production on US feed
phosphate consumption
Consumer spending, housing starts, household improvements
and vehicle production and sales
resource estimates; the outcome of legal proceedings; changes in
government policy and regulation including those with respect to
environmental matters; worldwide political conditions; acquisitions
the company may undertake in the future; and the Fertilizer and Feed
and Industrial indicators to Watch and other matters under Risk
Management as described previously. The company sells to a diverse
group of customers both by geography and by end product. Market
conditions will vary on a year-over-year basis and sales can be
expected to shift from one period to another. The company disclaims
any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise, other than as required by applicable law.
ZC
POTASHCORP 2004 ANNUAL REPORT MD&A 011E [- r ;tom
I
1
Gross margin
Potash 1,056.1 758.7 669.0 655.2 710.3 688.6 663.3 644.0 521.1 530.2
Phosphate 977.9 883.9 714.0 732.1 868.1 922.3 1,099.5 1,036.7 972.5 448.8
Nitrogen 1,210.4 1,156.4 841.4 993.5 964.5 744.7 844.2 939.3 111.3 23.8
Total sales 3,244.4 2,799.0 2,224.4 2,380.8 2,542.9 2,355.6 2,607.0 2,620.0 1,604.9 1,002.8
11 Year Report for the years ended December 31
2004 2003 2002 2001 2000 1999 1998 1997(3) 1996 1995(2) 19940)
Financial Data (in millions of US dollars except share and per-share amounts)
Sales
Potash 422.8 203.7 218.0 248.1 307.4 304.2 319.2 261.4 193.0 217.9
Phosphate 15.8 (16.5) 41.9 64.5 76.8 130.5 230.1 196.6 196.2 87.1
Nitrogen 242.8 193.2 47.4 94.7 104.7 (21.4) 64.8 133.0 2.1 2.3
Total gross margin 681.4 380.4 307.3 407.3 488.9 413.3 614.1 591.0 391.3 307.3
Depreciation and amortization
Potash 66.4 52.4 46.3 34.1 40.9 37.2 36.2 39.6 38.5 42.1
Phosphate 84.4 75.7 76.8 72.0 68.1 61.8 59.1 55.1 51.6 28.9
Nitrogen 79.7 89.6 88.0 72.8 66.1 83.5 86.7 69.0 - -
Other 9.5 9.7 8.0 6.8 11.9 8.6 8.9 6.3 - -
Total depreciation and amortization 240.0 227.4 219.1 185.7 187.0 191.1 190.9 170.0 90.1 71.0
Operating income (loss) 514.3 (55.6) 166.9 269.7 326.8 (353.0) 442.3 442.0 297.4 219.6
Net income (loss)*(4) 298.6 (126.3) 53.6 121.2 198.0 (412.0) 261.0 297.1 209.0 159.5
Net income (loss) per share - basic(') 2.77 (1.21) 0.52 1.17 1.89 (3.80) 2.41 2.84 2.29 1.84
Net income (loss) per share - diluted(5) 2.70 (1.21) 0.51 1.16 1.88 (3.80) 2.39 2.81 2.27 1.82
Dividends per share(5) 0.55 0.50 0.50 0.50 0.50 0.50 0.48 0.52 0.53 0.53
Cash provided by operating activities 649.6 381.5 316.4 75.7 480.4 343.6 578.0 467.8 296.2 233.5
Working capital 539.9 176.1 8.6 47.1 (148.7) (104.8) 329.2 281.7 278.8 136.1
Total assets 5,126.8 4,567.3 4,685.6 4,597.3 4,145.7 3,916.8 4,534.3 4,427.6 2,494.4 2,581.8
Long-term debt 1,258.6 1,268.6 1,019.9 1,013.7 413.7 437.0 933.3 1,130.0 620.0 714.5
Shareholders' equity 2,385.6 1,973.8 2,092.5 2,086.5 2,012.1 1,962.4 2,453.8 2,227.9 1,405.5 1,241.9
465.1
465.1
161.2
161.2
39.3
39.3
97.5
91.2
1.06
1.06
0.39
150.7
103.3
1,027.8
2.0
964.3
Shares outstanding at the end
of the year (in 000's)(5) 110,631 106,224 104,156 103,904 103,682 107,388 108,488 107,792 91,164 90,880 85,976
Operating Data (thousands)
Employees at year-end (actual #) 4,906 4,904 5,199 4,997 5,338 5,498 5,744 5,751 4,490 4,579 1,781
Potash production (KCI) tonnage 7,914 7,094 6,447 6,128 7,149 6,388 6,995 6,483 5,782 6,071 5,298
Phosphate production (P105)tonnage 1,962 1,861 1,512 1,573 2,042 2,124 2,363 2,282 2,096 1,008 -
Nitrogen production (N) tonnage 2,558 2,619 2,990 3,032 2,706 3,138 3,121 2,349 - - -
Potash sales - KCI tonnes 8,276 7,083 6,327 6,243 6,912 6,474 6,283 6,640 5,612 5,848 5,569
Phosphate sales - product tonnes 3,793 3,647 2,863 3,045 3,893 4,016 4,627 4,434 4,305 2,206 -
Nitrogen sales - product tonnes 5,350 6,080 6,391 6,381 6,760 6,705 6,596 5,851 535 115 -
j (1) The consolidated financial statements of the company for 1994 have been restated to US dollars using the translation of convenience method. The Canadian dollar
If amounts for this period have been converted to US dollars at the exchange rate of US $1.00 = Cdn $1.4028.
(2) Data for 1995 and thereafter reflect the acquisition of Texasgulf Inc. on April 10, 1995 and the acquisition of White Springs Agricultural Chemicals, Inc.
on October 31, 1995.
(3) Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March 6, 1997.
(4) There were no extraordinary items nor were there any discontinued operations in any of the accounting periods.
(5) All share and per-share data have been retroactively adjusted to reflect the stock dividend of one common share for each share owned by shareholders of record
at the close of business on August 11, 2004. The stock dividend had the same effect as a two-for-one stock split.
The consolidated financial statements of the company have been prepared in accordance with Canadian generally accepted accounting principles. These principles differ
in some respects from those applicable in the United States. (See Note 36 to the company's consolidated financial statements.) Certain of the prior years' figures have
been reclassified to conform with the current year's presentation.
Additional Information
* The after-tax effects of asset impairment, plant shutdown, plant closure and office consolidation charges and the gain on sale of long-term investments and Moab Inc.
are included (as applicable) in the data for 2004, 2003, 2000 and 1999 in the amounts of $(30.8) million, $203.2 million, $1.5 million and $547.1 million, respectively.
50
POTASHCORP 2004 ANNUAL REPORT i MD&A
Key Earnings Sensitivities
A number of factors affect the earnings of the company's three nutrient segments. The table below shows the key factors and their
approximate effect on EPS based on the assumptions used in the 2005 earnings guidance of $3.50 to $4.25 per diluted share.
Input Cost Sensitivities
Effect
on EPS I Price and Volume Sensitivities
NYMEX gas price Nitrogen +0.13
increases by $1/MMBtu Potash -0.04
Sulfur changes by Phosphate t 0.06
$5/long ton
Canadian to US dollar Canadian operating expenses ± 0.02
changes by $0.01 net of provincial taxes
Translation gain/loss t 0.02
Effect
on EPS
Price Potash changes by $5/tonne ± 0.19
DAP/MAP changes by $5/tonne ± 0.05
Ammonia increases by $10/tonne • Nitrogen +0.05
• Phosphate -0.02
Urea changes by $10/tonne ± 0.08
Volume Potash changes by 100,000 tonnes t 0.05
Phosphate changes by 50,000 P205 tonnes ± 0.04
Nitrogen changes by 50,000 N tonnes t 0.04
The above sensitivities affect cash flow as well, except the translation gain/loss which is primarily non-cash.
Indicators to Watch in 2005
Fertilizer
Weather and global acreage planted
China's grain stocks and corn exports
US dollar exchange rates with global currencies
Global crop prices
Impact of Asian rust on the soybean market
Ocean freight rates
Prices for natural gas, sulfur and ammonia
Russia's energy policy as a condition for its WTO entry
India's reform of fertilizer subsidy policy
Impact of EU policy on fertilizer imports from Russia
Forward-Looking Statements
Certain statements in this annual report and this Management's
Discussion & Analysis of Financial Condition and Results of
Operations, including those in the "Outlook" section relating to the
period after December 31, 2004, are forward-looking statements
subject to risks and uncertainties. A number of factors could cause
actual results to differ materially from those expressed in the
forward-looking statements, including, but not limited to: fluctuation
in supply and demand in fertilizer, sulfur, petrochemical and
transportation markets; changes in competitive pressures, including
pricing pressures; risks associated with natural gas and other hedging
activities; changes in capital markets; changes in currency and
exchange rates; fluctuation in costs of distribution and transportation;
unexpected geological or environmental conditions; imprecision in
Feed and Industrial
Health of US and world economies!
Effect of livestock disease-based restrictions on world trade
Potential tightening of restrictions on the use of meat and
bone meal in animal feeds
Impact of residual grain from ethanol production on US feed
phosphate consumption
Consumer spending, housing starts, household improvements
and vehicle production and sales
resource estimates; the outcome of legal proceedings; changes in
government policy and regulation including those with respect to
environmental matters; worldwide political conditions; acquisitions
the company may undertake in the future; and the Fertilizer and Feed
and Industrial Indicators to Watch and other matters under Risk
Management as described previously. The company sells to a diverse
group of customers both by geography and by end product. Market
conditions will vary on a year-over-year basis and sales can be
expected to shift from one period to another. The company disclaims
any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise, other than as required by applicable law.

POTASHCORP 2004 ANNUAL REPORT I MD&A
11 Year Report
for the years ended December 31
2004 2003 2002 2001 2000 1999 1998 1997(3) 1996 1995(2) 19940)
Financial Data (in millions of US doll ars except share and per-share a mounts)
Sales
Potash 1,056.1 758.7 669.0 655.2 710.3 688.6 663.3 644.0 521.1 530.2 465.1
Phosphate 977.9 883.9 714.0 732.1 868.1 922.3 1,099.5 1,036.7 972.5 448.8 -
Nitrogen 1,210.4 1,156.4 841.4 993.5 964.5 744.7 844.2 939.3 111.3 23.8 -
Total sales 3,244.4 2,799.0 2,224.4 2,380.8 2,542.9 2,355.6 2,607.0 2,620.0 1,604.9 1,002.8 465.1
Gross margin
Potash 422.8 203.7 218.0 248.1 307.4 304.2 319.2 261.4 193.0 217.9 161.2
Phosphate 15.8 (16.5) 41.9 64.5 76.8 130.5 230.1 196.6 196.2 87.1 -
Nitrogen 242.8 193.2 47.4 94.7 104.7 (21.4) 64.8 133.0 2.1 2.3 -
Total gross margin 681.4 380.4 307.3 407.3 488.9 413.3 614.1 591.0 391.3 307.3 161.2
Depreciation and amortization
Potash 66.4 52.4 46.3 34.1 40.9 37.2 36.2 39.6 38.5 42.1 39.3
Phosphate 84.4 75.7 76.8 72.0 68.1 61.8 59.1 55.1 51.6 28.9 -
Nitrogen 79.7 89.6 88.0 72.8 66.1 83.5 86.7 69.0 - - -
Other 9.5 9.7 8.0 6.8 11.9 8.6 8.9 6.3 - - -
Total depreciation and amortization 240.0 227.4 219.1 185.7 187.0 191.1 190.9 170.0 90.1 71.0 39.3
Operating income (loss) 514.3 (55.6) 166.9 269.7 326.8 (353.0) 442.3 442.0 297.4 219.6 97.5
Net income (loss)*(4) 298.6 (126.3) 53.6 121.2 198.0 (412.0) 261.0 297.1 209.0 159.5 91.2
Net income (loss) per share - basic(') 2.77 (1.21) 0.52 1.17 1.89 (3.80) 2.41 2.84 2.29 1.84 1.06
Net income (loss) per share - diluted(5) 2.70 (1.21) 0.51 1.16 1.88 (3.80) 2.39 2.81 2.27 1.82 1.06
Dividends per share(5) 0.55 0.50 0.50 0.50 0.50 0.50 0.48 0.52 0.53 0.53 0.39
1 Cash provided by operating activities 649.6 381.5 316.4 75.7 480.4 343.6 578.0 467.8 296.2 233.5 150.7
Working capital 539.9 176.1 8.6 47.1 (148.7) (104.8) 329.2 281.7 278.8 136.1 103.3
Total assets 5,126.8 4,567.3 4,685.6 4,597.3 4,145.7 3,916.8 4,534.3 4,427.6 2,494.4 2,581.8 1,027.8
Long-term debt 1,258.6 1,268.6 1,019.9 1,013.7 413.7 437.0 933.3 1,130.0 620.0 714.5 2.0
' Shareholders' equity 2,385.6 1,973.8 2,092.5 2,086.5 2,012.1 1,962.4 2,453.8 2,227.9 1,405.5 1,241.9 964.3
Shares outstanding at the end
of the year (in 000's)(5) 110,631 106,224 104,156 103,904 103,682 107,388 108,488 107,792 91,164 90,880 85,976
Operating Data (thousands)
Employees at year-end (actual #) 4,906 4,904 5,199 4,997 5,338 5,498 5,744 5,751 4,490 4,579 1,781
Potash production (KCI) tonnage 7,914 7,094 6,447 6,128 7,149 6,388 6,995 6,483 5,782 6,071 , 5,298
Phosphate production (P205) tonnage 1,962 1,861 1,512 1,573 2,042 2,124 2,363 2,282 2,096 1,008 -
Nitrogen production (N) tonnage 2,558 2,619 2,990 3,032 2,706 3,138 3,121 2,349 - - -
Potash sales - KCI tonnes 8,276 7,083 6,327 6,243 6,912 6,474 6,283 6,640 5,612 5,848 5,569
Phosphate sales - product tonnes 3,793 3,647 2,863 3,045 3,893 4,016 4,627 4,434 4,305 2,206 -
Nitrogen sales - product tonnes 5,350 6,080 6,391 6,381 6,760 6,705 6,596 5,851 535 115 -
I (1) The consolidated financial statements of the company for 1994 have been restated to US dollars using the translation of convenience method. The Canadian dollar
amounts for this period have been converted to US dollars at the exchange rate of US $1.00 = Cdn $1.4028.
(2) Data for 1995 and thereafter reflect the acquisition of Texasgulf Inc. on April 10, 1995 and the acquisition of White Springs Agricultural Chemicals, Inc.
on October 31, 1995.
(3) Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March 6, 1997.
(4) There were no extraordinary items nor were there any discontinued operations in any of the accounting periods.
(5) All share and per-share data have been retroactively adjusted to reflect the stock dividend of one common share for each share owned by shareholders of record
at the close of business on August 11, 2004. The stock dividend had the same effect as a two-for-one stock split.
The consolidated financial statements of the company have been prepared in accordance with Canadian generally accepted accounting principles. These principles differ
in some respects from those applicable in the United States. (See Note 36 to the company's consolidated financial statements.) Certain of the prior years' figures have
been reclassified to conform with the current year's presentation.
Additional Information
* The after-tax effects of asset impairment, plant shutdown, plant closure and office consolidation charges and the gain on sale of long-term investments and Moab Inc.
are included (as applicable) in the data for 2004, 2003, 2000 and 1999 in the amounts of $(30.8) million, $203.2 million, $1.5 million and $547.1 million, respectively.
50
POTASHCORP 2004 ANNUAL REPORT I MD&A
Key Earnings Sensitivities
A number of factors affect the earnings of the company's three nutrient segments. The table below shows the key factors and their
approximate effect on EPS based on the assumptions used in the 2005 earnings guidance of $3.50 to $4.25 per diluted share.
Input Cost Sensitivities
Effect
on EPS I Price and Volume Sensitivities
Effect
on EPS
NYMEX gas price Nitrogen +0.13 Price Potash changes by $5/tonne t 0.19
increases by $1/MMBtu Potash -0.04 DAP/MAP changes by $5/tonne t 0.05
Sulfur changes by Phosphate ± 0.06 Ammonia increases by $10/tonne • Nitrogen +0.05
$5/long ton • Phosphate - 0.02
Urea changes by $10/tonne t 0.08
Canadian to US dollar Canadian operating expenses ± 0.02
changes by $0.01 net of provincial taxes Volume Potash changes by 100,000 tonnes t 0.05
Phosphate changes by 50,000 P205 tonnes - t 0.04
Translation gain/loss f 0.02
Nitrogen changes by 50,000 N tonnes t 0.04
The above sensitivities affect cash flow as well, except the translation gain/loss which is primarily non-cash.
Indicators to Watch in 2005
Fertilizer
Weather and global acreage planted
China's grain stocks and corn exports
US dollar exchange rates with global currencies
Global crop prices
Impact of Asian rust on the soybean market
Ocean freight rates
Prices for natural gas, sulfur and ammonia
Russia's energy policy as a condition for its WTO entry
India's reform of fertilizer subsidy policy
Impact of EU policy on fertilizer imports from Russia
Forward-Looking Statements
Certain statements in this annual report and this Management's
Discussion & Analysis of Financial Condition and Results of
Operations, including those in the "Outlook" section relating to the
period after December 31, 2004, are forward-looking statements
subject to risks and uncertainties. A number of factors could cause
actual results to differ materially from those expressed in the
forward-looking statements, including, but not limited to: fluctuation
in supply and demand in fertilizer, sulfur, petrochemical and
transportation markets; changes in competitive pressures, including
pricing pressures; risks associated with natural gas and other hedging
activities; changes in capital markets; changes in currency and
exchange rates; fluctuation in costs of distribution and transportation;
unexpected geological or environmental conditions; imprecision in
Feed and Industrial
Health of US and world economies
Effect of livestock disease-based restrictions on world trade
Potential tightening of restrictions on the use of meat and
bone meal in animal feeds
Impact of residual grain from ethanol production on US feed
phosphate consumption
Consumer spending, housing starts, household improvements
and vehicle production and sales
resource estimates; the outcome of legal proceedings; changes in
government policy and regulation including those with respect to
environmental matters; worldwide political conditions; acquisitions
the company may undertake in the future; and the Fertilizer and Feed
and Industrial Indicators to Watch and other matters under Risk
Management as described previously. The company sells to a diverse
group of customers both by geography and by end product. Market
conditions will vary on a year-over-year basis and sales can be
expected to shift from one period to another. The company disclaims
any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise, other than as required by applicable law.
51
POTASHCORP 2004 ANNUAL REPORT I MD&A
P
Market and Industry Data
Some of the market and industry data contained in this annual report and this Management's Discussion & Analysis of Financial Condition and Results of Operations are
based on internal surveys, market research, independent industry publications or other publicly available information. Although we believe that the independent sources used
by us are reliable, we have not independently verified and cannot guarantee the accuracy or completeness of this information. Similarly, we believe our internal research is
reliable, but such research has not been verified by any independent sources.
Information in the preparation of this annual report is based on statistical data and other material available at February 28, 2005.
Sources and Glossary of Terms*
Paae 15 Footnotes
Fact Reference"
1 Geographic Availability of Source: Fertecon, EIA
Raw Materials
2 Cost of New Capacity Source: Fertecon
3 Greenfield Definition: New operation built on
undeveloped site
4 Greenfield Development Time Source: Fertecon
5 Producing Countries Source: Fertecon
6 State- or Subsidy-Controlled Definitions:
Production State-controlled: Operational control in
the hands of the state
Subsidy-controlled: The state provides
subsidies which control the economic
viability of the operation
7 Industry Operating Rate Source: Fertecon, PotashCorp
8 PotashCorp Capacity Source: Fertecon, PotashCorp
9 PotashCorp World Position Source: Fertecon, PotashCorp
by Capacity
Page 27 Footnotes
Fact Reference
10 Total World Demand Source: Fertecon
11 PotashCorp Share of Source: Fertecon, PotashCorp
World Production
Footnotes to the Appendix
* Where PotashCorp is listed as a source in conjunction with external sources, we
have supplemented the external data with internal analysis.
" Abbreviated Source Name Complete Source Name and Location
Blue, Johnson Blue, Johnson & Associates
Albuquerque, NM, USA
British Sulphur British Sulphur Consultants
London, England
Canpotex Canpotex Limited
Saskatoon, SK, Canada
EIA Energy Information Administration
Washington, DC, USA
Fertecon Fertecon Limited
Tunbridge Wells, Kent, England
IFA International Fertilizer Industry Association
Paris, France
IMF World Economic Outlook International Monetary Fund
Washington, DC, USA
NRCan Natural Resources Canada
Ottawa, ON, Canada
NYMEX New York Mercantile Exchange
New York, NY, USA
OANDA OANDA Corporation
New York, NY, USA; Toronto, ON, Canada
Overseas Marine Services Overseas Marine Services
New York, NY, USA
USDA US Department of Agriculture
Washington, DC, USA
Canpotex An export company owned by all Saskatchewan producers
(PotashCorp, Mosaic and Agrium). Sales through Canpotex are
generally allocated pro rata to each producer on the basis of
productive capacity. PotashCorp provides approximately 54%
of Canpotex product.
Consumption
vs Demand End use vs product purchased
North America The North American market includes Canada and the United States.
Offshore Offshore markets include all markets except Canada and the
United States.
PhosChem An association formed under the Webb-Pomerene Act for
US exports of phosphate fertilizer products. Members are
PotashCorp, Mosaic and Mississippi Phosphates Corporation.
PCS Sales is responsible for export sales of liquid fertilizers for
all PhosChem members while Mosaic is responsible for sales
of solid fertilizers for members.
Abbreviated Complete Company
Comoanv Name Name and Countrv
Agrium Agrium Inc. (TSX and NYSE: AGU), Canada
APC Arab Potash Company Ltd. (Amman: ARPT), Jordan
Astaris Astaris LLC, USA
BASF BASF Group (Xetra: BAS, NYSE: BF), USA
Belaruskali PA Belaruskali, Belarus
CF Industries CF Industries, Inc., USA
CNC Caribbean Nitrogen Company, Trinidad
CVRD Companhia Vale do Rio Doce, Brazil
DSM DSM Chemicals North America Inc. (XAMS: DSMA,
NYSE: DSMKY), USA
Emaphos Euro-Maroc- Phosphore, Morocco
ICL Israel Chemicals Ltd. (Tel Aviv: CHIM), Israel
Innophos Innophos, Inc., USA
Kali & Salz (K&S) Kali and Salz GmbH (Xetra: SDF), Germany
Koch Koch Industries, Inc., USA
Mosaic The Mosaic Company (NYSE: MOS), USA
OCP Office Cherifien des Phosphates, Morocco
Prayon Societe Chimique Prayon-Rupel SA, Belgium
Rotem Rotem Amfert Negev Limited (Tel Aviv: ROTM), Israel
Silvinit 1SC Silvinit, Russia
SQM Sociedad Quimica y Minera de Chile S.A. (Santiago Bolsa de
Comercio Exchange, NYSE: SQM), Chile
Terra Terra Industries, Inc. (NYSE: TRA), USA
Tringen Trinidad Nitrogen Co., Limited, Trinidad
Uralkali 1SC Uralkali, Russia
Yara Yara International (Formerly Hydro Agri and Hydro Gas
and Chemicals) (Oslo: YAR), Norway
Scientific Terms
Nitrogen HNO3 nitric acid (liquid)
UAN nitrogen solutions, 28-32% N (liquid)
Phosphate PZOs phosphoric acid
MGA merchant grade acid, 54% P205 (liquid)
DAP diammonium phosphate, 46% PZOs (solid)
MAP monoammonium phosphate, 52% P20s (solid)
SPA superphosphoric acid, 70% P205 (liquid)
Potash KCI potassium chloride
Fertilizer Meas ures
P205 tonne Measures the phosphorus content of fertilizers having different
chemical analyses
N tonne Measures the nitrogen content of fertilizers having different
chemical analyses
Product tonne Standard measure of the weights of all types of potash,
phosphate and nitrogen products
52
POTASHCORP 2004 ANNUAL REPORT I FINANCIAL PERFORMANCE INDICATORS
Financial Performance Indicators (in millions of US dollars except share and per-share amounts)
2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994
Summary
Net income (loss) 298.6 (126.3) 53.6 121.2 198.0 (412.0) 261.0 297.1 209.0 159.5 91.2
Adjusted net incomeM 267.8 76.9 53.6 121.2 199.5 135.1 261.0 297.1 209.0 159.5 91.2
Net income (loss) per diluted share 2.70 (1.21) 0.51 1.16 1.88 (3.80) 2.39 2.81 2.27 1.82 1.06
Adjusted net income per diluted share(') 2.42 0.73 0.51 1.16 1.89 1.23 2.39 2.81 2.27 1.82 1.06
EBITDA(2) 754.3 171.8 386.0 455.4 513.8 (161.9) 633.2 612.0 387.5 290.6 136.8
Adjusted EBITDA(2) 723.5 417.7 386.0 455.4 508.2 401.8 633.2 612.0 387.5 290.6 136.8
Cash flow prior to
working capital changes(') 529.6 364.5 289.2 345.8 405.1 319.6 556.2 489.3 321.7 242.1 130.9
Cash provided by operating activities 649.6 381.5 316.4 75.7 480.4 343.6 578.0 467.8 296.2 233.5 150.7
Return on assets 5.8% (2.8%) 1.1% 2.6% 4.8% (10.5%) 5.8% 6.7% 8.4% 6.2% 8.9%
Cash flow return(4) 12.4% 2.6% 6.7% 8.1% 11.0% (3.6%) 12.7% 12.9% 12.6% 13.8% 10.1%
Weighted average cost of capital 8.4% 7.3% 7.3% 7.7% 8.7% 8.7% 8.3% 8.8% 9.7% 8.5% n/a
Total shareholder return 93.4% 37.5% 5.2% (20.4%) 64.6% (23.0%) (21.9%) (1.1 %) 21.4% 111.6% 35.6%
Total debt to capital 36.4% 42.3% 41.7% 42.1% 31.1% 31.9% 29.5% 35.7% 30.9% 41.5% -
Net debt to capital (s) 27.5% 42.2% 41.3% 41.3% 28.7% 30.8% 28.1% 35.5% 30.9% 40.3% -
Reconciliations and Calculations
Net income (loss) 298.6 (126.3) 53.6 121.2 198.0 (412.0) 261.0 297.1 209.0 159.5 91.2
Provision for plant shutdowns - 123.7 - - - - - - - - -
Provision for PCS Yumbes 3.6 140.5 - - - - - - - - -
Other provisions for plant closures, office
consolidation and asset impairment - - - - 24.3 591.6 - - - - -
Gain on sale of long-term
investments and Moab Inc. (34.4) - - - (16.3) - - - - - -
Tax effect - (61.0) - - (6.5) (44.5) - - - - -
Adjusted net income0) 267.8 76.9 53.6 121.2 199.5 135.1 261.0 297.1 209.0 159.5 91.2
Net income (loss) per diluted share 2.70 (1.21) 0.51 1.16 1.88 (3.80) 2.39 2.81 2.27 1.82 1.06
After-tax effect per diluted share
for above provisions (0.28) 1.94 - - 0.01 5.03 - - - - -
Adjusted net income per diluted share0) 2.42 0.73 0.51 1.16 1.89 1.23 2.39 2.81 2.27 1.82 1.06
Net income (loss) 298.6 (126.3) 53.6 121.2 198.0 (412.0) 261.0 297.1 209.0 159.5 91.2
Income taxes 131.7 (20.6) 30.2 68.2 67.2 7.5 117.5 69.1 43.7 22.9 3.5
Interest expense 84.0 91.3 83.1 80.3 61.6 51.5 63.8 75.8 44.7 37.2 2.8
Depreciation and amortization 240.0 227.4 219.1 185.7 187.0 191.1 190.9 170.0 90.1 71.0 39.3
EBITDA(2) 754.3 171.8 386.0 455.4 513.8 (161.9) 633.2 612.0 387.5 290.6 136.8
Impairment charges and non-cash
shutdown/closure-related costs,
office consolidation costs and
the gain on sale of long-term
investments and Moab Inc. (30.8) 245.9 - - (5.6) 563.7 - - - - -
Adjusted EBITDA(2) 723.5 417.7 386.0 455.4 508.2 401.8 633.2 612.0 387.5 290.6 136.8
Cash flow prior to
working capital changes(3) 529.6 364.5 289.2 345.8 405.1 319.6 556.2 489.3 321.7 242.1 130.9
Accounts receivable (51.9) (39.5) (11.1) 69.9 (52.2) 33.8 48.8 23.5 (7.4) (48.8) (14.4)
Inventories (10.5) 11.8 (18.2) (76.1) (27.4) (16.1) (7.9) 19.9 2.5 9.3 14.6
Prepaid expenses and other
current assets (6.3) 11.4 (3.9) 2.3 (3.1) 3.2 (16.6) 3.7 (1.9) 2.5 0.5
Accounts payable and accrued charges 102.2 51.6 37.0 (244.6) 137.4 (5.0) 1.3 (72.0) 0.5 1.8 -
Current income taxes 86.5 (18.3) 23.4 (21.6) 20.6 8.1 (3.8) 3.4 (19.2) 26.6 19.1
Changes in non-cash operating
working capital 120.0 17.0 27.2 (270.1) 75.3 24.0 21.8 (21.5) (25.5) (8.6) 19.8
Cash provided by operating activities 649.6 381.5 316.4 75.7 480.4 343.6 578.0 467.8 296.2 233.5 150.7
1
1
i
Net income (loss) 298.6 (126.3) 53.6 121.2 198.0 (412.0) 261.0 297.1 209.0 159.5 91.2
Total assets 5,126.8 4,567.3 4,685.6 4,597.3 4,145.7 3,916.8 4,534.3 4,427.6 2,494.4 2,581.8 1,027.8
Return on assets 5.8% (2.8%) 1.1% 2.6% 4.8% (10.5%) 5.8% 6.7% 8.4% 6.2% 8.9%
53
POTASHCORP 2004 ANNUAL REPORT I FINANCIAL PERFORMANCE INDICATORS
Financial Performance Indicators (in millions of US dollars except share and per-share amounts)
Reconciliations and Calculations (continued)
2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994
Net income (loss) 298.6 (126.3) 53.6 121.2 198.0 (412.0) 261.0 297.1 209.0 159.5 91.2
Income taxes 131.7 (20.6) 30.2 68.2 67.2 7.5 117.5 69.1 43.7 22.9 3.5
Interest expense 84.0 91.3 83.1 80.3 61.6 51.5 63.8 75.8 44.7 37.2 2.8
Cash taxes paid (33.5) (22.8) (4.4) (41.5) (13.4) (5.8) (19.2) (41.3) (32.9) (6.2) (1.2)
Depreciation and amortization 240.0 227.4 219.1 185.7 187.0 191.1 190.9 170.0 90.1 71.0 39.3
Cash flow(4) 720.8 149.0 381.6 413.9 500.4 (167.7) 614.0 570.7 354.6 284.4 135.6
Total assets 5,126.8 4,567.3 4,685.6 4,597.3 4,145.7 3,916.8 4,534.3 4,427.6 2,494.4 2,581.8 1,027.8
Cash and cash equivalents (458.9) (4.7) (24.5) (45.3) (100.0) (44.0) (68.0) (8.8) - (40.5) (16.6)
Accumulated depreciation of
property, plant and equipment 1,754.9 1,576.2 1,454.7 1,274.3 1,111.8 951.0 812.4 662.0 528.7 454.1 388.4
Accumulated amortization of goodwill 7.3 7.3 7.3 7.3 4.3 1.4 27.4 12.7 0.3 - -
Accounts payable and accrued charges (599.9) (380.3) (347.0) (271.4) (525.9) (349.1) (349.7) (348.1) (180.0) (199.2) (60.9)
Adjusted assets 5,830.2 5,765.8 5,776.1 5,562.2 4,635.9 4,476.1 4,956.4 4,745.4 2,843.4 2,796.2 1,338.7
Average adjusted assets 5,798.0 5,771.0 5,669.2 5,099.1 4,556.0 4,716.3 4,850.9 4,432.2 2,819.8 2,067.5 1,348.2
Cash flow return (4) 12.4% 2.6% 6.7% 8.1% 11.0% (3.6%) 12.7% 12.9% 12.6% 13.8% 10.1%
Weighted average cost of capital 8.4% 7.3% 7.3% 7.7% 8.7% 8.7% 8.3% 8.8% 9.7% 8.5% n/a
End of year closing price (dollars) 83.06 43.24 31.80 30.69 39.16 24.10 31.94 41.50 42.50 35.44 17.00
Beginning of year opening price (dollars) 43.24 31.80 30.69 39.16 24.10 31.94 41.50 42.50 35.44 17.00 12.82
Change in share price (dollars) 39.82 11.44 1.11 (8.47) 15.06 (7.84) (9.56) (1.00) 7.06 18.44 4.18
Dividends per share (dollars) 0.55 0.50 0.50 0.50 0.50 0.50 0.48 0.52 0.53 0.53 0.39
Total shareholder return 93.4% 37.5% 5.2% (20.4%) 64.6% (23.0%) (21.9%) (1.1 %) 21.4% 111.6% 35.6%
Short-term debt 93.5 176.2 473.0 501.1 488.8 474.5 94.9 101.9 6.3 - -
Current portion of long-term debt 10.3 1.3 3.4 - 5.7 7.4 0.4 2.7 1.8 165.9 0.6
Long-term debt 1,258.6 1,268.6 1,019.9 1,013.7 413.7 437.0 933.3 1,130.0 620.0 714.5 2.0
Total debt 1,362.4 1,446.1 1,496.3 1,514.8 908.2 918.9 1,028.6 1,234.6 628.1 880.4 2.6
Cash and cash equivalents (458.9) (4.7) (24.5) (45.3) (100.0) (44.0) (68.0) (8.8) - (40.5) (16.6)
Net debt(5) 903.5 1,441.4 1,471.8 1,469.5 808.2 874.9 960.6 1,225.8 628.1 839.9 (14.0)
Shareholders' equity 2,385.6 1,973.8 2,092.5 2,086.5 2,012.1 1,962.4 2,453.8 2,227.9 1,405.5 1,241.9 964.3
Total debt to capital 36.4% 42.3% 41.7% 42.1% 31.1% 31.9% 29.5% 35.7% 30.9% 41.5% -
Net debt to capital (5) 27.5% 42.2% 41.3% 41.3% 28.7% 30.8% 28.1% 35.5% 30.9% 40.3% -
Current assets 1,243.6 733.9 832.0 819.6 871.7 726.2 774.2 734.5 467.0 501.1 164.7
Current liabilities (703.7) (557.8) (823.4) (772.5) (1,020.4) (831.0) (445.0) (452.8) (188.2) (365.0) (61.4)
Working capital 539.9 176.1 8.6 47.1 (148.7) (104.8) 329.2 281.7 278.8 136.1 103.3
Cash and cash equivalents (458.9) (4.7) (24.5) (45.3) (100.0) (44.0) (68.0) (8.8) - (40.5) (16.6)
Short-term debt 93.5 176.2 473.0 501.1 488.8 474.5 94.9 101.9 6.3 - -
Current portion of long-term debt 10.3 1.3 3.4 - 5.7 7.4 0.4 2.7 1.8 165.9 0.6
Non-cash operating working capital 184.8 348.9 460.5 502.9 245.8 333.1 356.5 377.5 286.9 261.5 87.3
Sales 3,244.4 2,799.0 2,224.4 2,380.8 2,542.9 2,355.6 2,607.0 2,620.0 1,604.9 1,002.8 465.1
Freight 238.7 234.5 215.2 216.7 222.1 212.5 216.5 226.6 144.6 92.8 85.2
Transportation and distribution 104.3 98.7 80.5 83.3 83.1 77.0 77.9 61.7 49.1 53.5 14.8
Net sales (6) 2,901.4 2,465.8 1,928.7 2,080.8 2,237.7 2,066.1 2,312.6 2,331.7 1,411.2 856.5 365.1
Weighted average shares outstanding
Basic (in 000's) 107,967 104,460 104,042 103,758 104,820 108,460 108,354 104,550 91,074 86,704 85,744
Diluted (in 000's) 110,739 104,460 104,632 104,372 105,406 108,460 109,003 105,642 92,119 87,729 86,305
All share and per-share data have been retroactively adjusted to reflect the stock dividend of one common share for each share owned by shareholders of record at the
close of business on August 11, 2004. The stock dividend had the same effect as a two-for-one stock split.
nla - not available
Certain of the prior years' figures have been reclassified to conform with the current year's presentation.
54
POTASHCORP 2004 ANNUAL REPORT I FINANCIAL PERFORMANCE INDICATORS
Financial Performance Indicators (in millions of US dollars except share and per-share amounts)
Non-GAAP Financial Measures and Footnotes to Reconciliations and Calculations
The following information is included for convenience only. Generally, a non-GAAP
financial measure is a numerical measure of a company's performance, financial
position or cash flows that either excludes or includes amounts that are not normally
excluded or included in the most directly comparable measure calculated and
presented in accordance with generally accepted accounting principles ("GAAP").
Adjusted net income, adjusted net income per diluted share, EBITDA, adjusted EBITDA,
cash flow prior to working capital changes, cash flow, cash flow return, net debt, net
debt to capital and consolidated net sales are not measures of financial performance
(nor do they have standardized meanings) under either Canadian GAAP or US GAAP.
In evaluating these measures, investors should consider that the methodology applied
in calculating such measures may differ among companies and analysts.
The company uses both GAAP and certain non-GAAP measures to assess performance.
The company's management believes these non-GAAP measures provide useful
supplemental information to investors in order that they may evaluate PotashCorp's
financial performance using the same measures as management. PotashCorp's
management believes that, as a result, the investor is afforded greater transparency
in assessing the financial performance of the company. These non-GAAP financial
measures should not be considered as a substitute for, nor superior to, measures of
financial performance prepared in accordance with GAAP.
(1) The company's management uses net income (loss) adjusted to exclude impairment
charges and shutdown/closure-related costs, office consolidation costs and the gain
on sale of long-term investments and Moab Inc., and diluted net income per share
excluding such items as supplemental financial measures. These measures are used
to evaluate PotashCorp's operating performance and to compare such performance
with the company's historical operating results and the operating results of other
companies. The company's management believes that these measures allow
management to consider the ongoing financial performance of the company
with respect to short-term patterns and long-term trends without the potentially
obscuring effects of the above-noted items.
As compared to net income (loss) according to GAAP, these measures are limited
by the exclusion of items that have been identified by the company's impairment,
shutdown and other analyses. PotashCorp's management compensates for these
limitations by applying the specific recognition, measurement, presentation and
disclosure provisions for such items as required under GAAP. Management also
evaluates such charges, costs and gains through other financial measures such
as cash flow provided by operating activities.
For periods in which there was a net loss applicable to common shareholders,
any outstanding stock options to purchase the company's common shares with
underlying exercise prices less than the average market prices were excluded from
the calculation of diluted net loss per share, as inclusion of these securities would
have been anti-dilutive to the net loss per share.
The weighted average number of shares used for calculating adjusted net income
in 2004, 2003, 2000 and 1999 was 110,739,000, 105,266,000, 105,406,000 and
109,954,000, respectively.
(2) PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures
of its operational performance. Management believes EBITDA and adjusted EBITDA
to be important measures as they exclude the effects of items which primarily reflect
the impact of long-term investment decisions, rather than the performance of the
company's day-to-day operations. As compared to net income (loss) according to GAAP,
these measures are limited in that they do not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating revenues in the company's
business, or the non-cash charges associated with impairments and shutdown-related
costs, or gain on sale of long-term investments. Management evaluates such items
through other financial measures such as capital expenditures and cash flow provided
by operating activities. The company believes that these measurements are useful to
measure a company's ability to service debt and to meet other payment obligations
or as a valuation measurement.
(3) Cash flow prior to working capital changes is defined as the cash provided by
operating activities, exclusive of changes in non-cash operating working capital.
PotashCorp uses cash flow prior to working capital changes as a supplemental
financial measure in its evaluation of liquidity. Management believes that adjusting
principally for the swings in non-cash working capital items due to seasonality
assists management in making long-term liquidity assessments. The company
also believes that this measurement is useful as a measure of liquidity or as a
valuation measurement.
(4) PotashCorp uses cash flow and cash flow return as supplemental measures to
evaluate the performance of the company's assets in terms of the cash flow they
have generated. Calculated on the total cost basis of the company's assets rather
than on the depreciated value, these measures reflect cash returned on the total
investment outlay. The company believes these measures are one of the best
predictors of shareholder value. As such, management believes this information
to be useful to investors.
(5) Management believes that net debt and net debt to capital ratio are useful to
investors because they are helpful in determining the company's leverage. It also
believes that since the company has the ability to and may elect to use a portion
of cash and cash equivalents to retire debt or to incur additional expenditures
without increasing debt, it is appropriate to apply cash and cash equivalents to
debt in calculating net debt and net debt to capital. PotashCorp believes that this
measurement is useful as a financial leverage measure.
(6) Management includes net sales in its segment disclosures in the consolidated
financial statements pursuant to Canadian GAAP, which requires segmentation
based upon the company's internal organization and reporting of revenue and
profit measures derived from internal accounting methods. Net sales (and related
per-tonne amounts and other ratios) are primary revenue measures it uses and
reviews in making decisions about operating matters on a business segment basis.
These decisions include assessments about potash, phosphate and nitrogen
performance and the resources to be allocated to these segments. It also uses
net sales (and related per-tonne amounts and other ratios) for business segment
planning and monthly forecasting. Net sales are calculated as sales revenues
less freight, transportation and distribution expenses. Net sales presented on a
consolidated basis rather than by business segment is considered a non-GAAP
financial measure.
Financial Terms
Total shareholder return = (change in market price per common share
+ dividends per share) / beginning market price per common share
Debt to capital = total debt / (total debt + total shareholders' equity)
Net debt to capital = (total debt - cash and cash equivalents) / (total
debt - cash and cash equivalents + total shareholders' equity)
Cash flow = net income or loss + income taxes + interest - cash taxes
paid + depreciation and amortization
Cash flow return = cash flow / average (total assets - cash and cash
equivalents + accumulated depreciation and amortization - accounts
payable and accrued charges)
EBITDA = earnings (net income or loss) before interest, taxes,
depreciation and amortization
Adjusted EBITDA = EBITDA + impairment charges + non-cash
shutdown / closure-related costs and office consolidation costs - gain
on sale of long-term investments and Moab Inc.
Return on assets = net income or loss / total assets
Market value of total capital = market value of total debt - cash and
cash equivalents + market value of equity
Weighted average cost of capital = simple quarterly average of
((market value of total debt - cash and cash equivalents) / market value
of total capital x after-tax cost of debt + market value of equity / market
value of total capital x cost of equity)
Average adjusted assets = simple average of the current year's adjusted
assets and the previous year's adjusted assets, except when a material
acquisition occurred, in which case the weighted average rather than the
simple average is calculated; the last material acquisition was in 1997.
1
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55
POTASHCORP 2004 ANNUAL REPORT I MANAGEMENT'S RESPONSIBILITY
F
Management's Responsibility for Financial Reporting
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
The accompanying consolidated financial statements and related financial information are the responsibility of PotashCorp management and
have been prepared in accordance with accounting principles generally accepted in Canada and include amounts based on estimates and
judgments. Financial information included elsewhere in this report is consistent with the consolidated financial statements.
Our independent auditors, Deloitte & Touche LLP, provide an audit of the consolidated financial statements, as reflected in their report for
2004 included on Page 56.
The consolidated financial statements are approved by the Board of Directors on the recommendation of the audit committee.
The audit committee of the Board of Directors is composed of directors who are not officers or employees of PotashCorp. PotashCorp's interim
consolidated financial statements and MD&A are discussed and reviewed by the audit committee with management and the independent
auditors before such information is approved by the committee and submitted to securities commissions or other regulatory authorities. The
annual consolidated financial statements and MD&A are also reviewed by the audit committee together with management and the independent
auditors and are approved by the board.
In addition, the audit committee has the duty to review critical accounting policies and significant estimates and judgments underlying the
consolidated financial statements as presented by management; and to approve the fees of the independent auditors.
? Deloitte & Touche LLP, the independent auditors, obtain an understanding of PotashCorp's internal controls and procedures for financial
reporting to plan and conduct such tests and other audit procedures as they consider necessary in the circumstances. The independent auditors
have full and independent access to the audit committee to discuss their audit and related matters.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. During the past
year, we have directed efforts to improve and document our internal control over financial reporting. Internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of the company's
internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and concluded that the company's internal control over financial reporting was
effective as of December 31, 2004. Management's assessment of the effectiveness of the company's internal control over financial reporting as
of December 31, 2004 has been audited by Deloitte & Touche LLP, as reflected in their report for 2004 included on Page 57.
W. Doyle
President an
Chief Executive Officer
W. Brownlee
Senior Vice President and
Chief Financial Officer
February 17, 2005
56
POTASHCORP 2004 ANNUAL REPORT I AUDITORS' REPORTS
Report of Independent Registered Chartered Accountants
TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC.
We have audited the consolidated statements of financial position of Potash Corporation of Saskatchewan Inc. (the Company) as at December 31,
2004 and 2003 and the consolidated statements of operations and retained earnings and cash flow for each of the years in the three-year
period ended December 31, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States). These standards require that we plan and perform an audit to obtain reasonable assurance
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Potash Corporation of
Saskatchewan Inc. as at December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-
year period ended December 31, 2004, in accordance with Canadian generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness
of the Company's internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
February 17, 2005 expressed an unqualified opinion on management's assessment of the effectiveness of the Company's internal control
over financial reporting and an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada
February 17, 2005
COMMENTS BY AUDITORS ON CANADA-UNITED STATES OF AMERICA REPORTING DIFFERENCES
The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following
the opinion paragraph) when there are changes that have an effect on the comparability of the consolidated financial statements or changes
that have been implemented in the financial statements, such as the changes described in Note 3, Note 14, Note 28 and Note 36 to Potash
Corporation of Saskatchewan Inc.'s consolidated financial statements. Our report to the shareholders dated February 17, 2005 is expressed in
accordance with Canadian reporting standards, which do not require a reference to such changes in accounting principles in the auditors'
report when the changes are properly accounted for and adequately disclosed in the consolidated financial statements.
1
Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada
February 17, 2005
57
POTASHCORP 2004 ANNUAL REPORT I AUDITORS' REPORTS
Report of Independent Registered Chartered Accountants
TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC.
We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting,
that Potash Corporation of Saskatchewan Inc. (the Company) maintained effective internal control over financial reporting as of December 31,
2004, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating
management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive
M and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
` external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
r permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial statements.
r Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that Potash Corporation of Saskatchewan Inc. maintained effective internal control over financial reporting
as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, Potash Corporation of Saskatchewan Inc.
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States), the consolidated statements of financial position of Potash Corporation of Saskatchewan Inc. as
at December 31, 2004 and the consolidated statements of operations and retained earnings and cash flow for the year ended December 31,
2004 and our report dated February 17, 2005 expressed an unqualified opinion on these financial statements and included comments on
Canada-United States of America Reporting Differences.

Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada
February 17, 2005
58
POTASHCORP 2004 ANNUAL REPORT I CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
as at December 31
in millions of US dollars except share amounts
2004 2003
Assets
Current assets
Cash and cash equivalents $ 458.9 $ 4.7
Accounts receivable (Note 5) 352.6 305.0
Inventories (Note 6) 396.8 395.2
Prepaid expenses and other current assets 35.3 29.0
1,243.6 733.9
Property, plant and equipment (Note 7) 3,098.9 3,108.1
Other assets (Note 8) 650.2 595.4
Intangible assets (Note 8) 37.1 32.9
Goodwill (Note 9) 97.0 97.0
$ 5,126.8 $ 4,567.3
Liabilities
Current liabilities
Short-term debt (Note 10) $ 93.5 $ 176.2
Accounts payable and accrued charges (Note 11) 599.9 380.3
Current portion of long-term debt (Note 12) 10.3 1.3
703.7 557.8
Long-term debt (Note 12) 1,258.6 1,268.6
Future income tax liability (Note 26) 499.4 484.2
Accrued post-retirement/post-employment benefits (Note 14) 193.4 194.5
Accrued environmental costs and asset retirement obligations (Note 15) 81.2 81.3
Other non-current liabilities and deferred credits 4.9 7.1
2,741.2 2,593.5
Commitments, Contingencies and Guarantees (Notes 13,30 and 31, respectively)
Shareholders' Equity
Share capital (Note 16) 1,408.4 1,245.8
Unlimited authorization of common shares without par value;
issued and outstanding 110,630,503 and 106,224,432 shares
in 2004 and 2003, respectively
Unlimited authorization of first preferred shares; none outstanding
Contributed surplus (Note 17) 275.7 265.2
Retained earnings 701.5 462.8
2,385.6 1,973.8
$ 5,126.8 $ 4,567.3
(See Notes to the Consolidated Financial Statements)
Approved by the Board,
Director Director

r
59
> POTASHCORP 2004 ANNUAL REPORT I CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
for the years ended December 31 in millions of US dollars except per-share amounts
2004 2003 2002
Sales (Note 18) $ 3,244.4 $ 2,799.0 $ 2,224.4
Less: Freight 238.7 234.5 215.2
Transportation and distribution 104.3 98.7 80.5
Cost of goods sold (Note 19) 2,220.0 2,085.4 1,621.4
Gross Marain 681.4 380.4 307.3
Selling and administrative (Note 20) 130.6 96.1 91.7
Provincial mining and other taxes (Note 21) 92.6 57.0 68.0
Provision for plant shutdowns (Note 22) - 123.7 -
Provision for PCS Yumbes S.C.M. (Note 23) 3.6 140.5 -
Foreign exchange loss 19.7 51.9 5.5
Other income (Note 24) (79.4) (33.2) (24.8)
167.1 436.0 140.4
Operating Income (Loss) 514.3 (55.6) 166.9
Interest Expense (Note 25) 84.0 91.3 83.1

Income (Loss) Before Income Taxes 430.3 (146.9) 83.8
Income Taxes (Note 26) 131.7 (20.6) 30.2
I Net Income (Loss) 298.6 (126.3) 53.6
Retained Earnings, Beginning of Year 462.8 641.4 639.8
Dividends (59.9) (52.3) (52.0)

Retained Earnings, End of Year $ 701.5 $ 462.8 $ 641.4

Net Income (Loss) per Share - Basic (Note 27) $ 2.77 $ (1.21) $ 0.52

Net Income (Loss) per Share - Diluted (Note 27) $ 2.70 $ (1.21) $ 0.51

Dividends per Share $ 0.55 $ 0.50 $ 0.50
(See Notes to the Consolidated Financial Statements)
60
POTASHCORP 2004 ANNUAL REPORT I CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOW
for the years ended December 31
2004 in millions of US dollars
2003 2002
Operating Activities
Net income (loss) $ 298.6 $ (126.3) $ 53.6
Items not affecting cash
Depreciation and amortization 240.0 227.4 219.1
Stock-based compensation 11.1 1.0 -
(Gain) loss on disposal of property, plant and equipment (03) 1.0 1.0
Gain on sale of long-term investments (Note 4) (34.4) - -
Provision for plant shutdowns - 118.3 -
Provision for PCS Yumbes S.C.M. 3.6 127.6 -
Foreign exchange on future income tax 17.2 35.9 1.0
Provision for (recovery of) future income tax 26.3 (20.6) 6.0
Share of earnings of equity investees (30.9) (12.4) (5.3)
(Recovery of) provision for post-retirement/post-employment benefits (1.1) 9.7 18.2
Accrued environmental costs and asset retirement obligations (0.1) 1.3 (3.0)
Other non-current liabilities and deferred credits - 1.6 (1.4)
Subtotal of items not affecting cash 231.0 490.8 235.6
Changes in non-cash operating working capital
Accounts receivable (51.9) (39.5) (11.1)
Inventories (10.5) 11.8 (18.2)
Prepaid expenses and other current assets (6.3) 11.4 (3.9)
Accounts payable and accrued charges 102.2 51.6 37.0
Current income taxes 86.5 (18.3) 23.4
Subtotal of changes in non-cash operating working capital 120.0 17.0 27.2
Cash provided by operating activities 649.6 381.5 316.4
Investing Activities
Additions to property, plant and equipment (220.5) (150.7) (212.2)
Proceeds from disposal of property, plant and equipment 2.5 - -
Investment in Sociedad Quimica y Minera de Chile S.A. ("SQM") (Note 4) (97.2) - (23.2)
Investment in Arab Potash Company ("APC") (8.3) (178.3) -
Proceeds from sale of long-term investments (Note 4) 66.3 - -
Proceeds from sale of shares of PCS Yumbes S.C.M. (Note 23) 34.5 - -
Dividends received from equity investees 8.7 4.0 -
Other assets and intangibles (2.8) (32.7) (36.0)
Cash used in investing activities (216.8) (357.7) (271.4)
Cash before financing activities 432.8 23.8 45.0
Financing Activities
Proceeds from long-term debt obligations - 250.0 11.2
Repayment of long-term debt obligations (1.0) (3.4) (1.3)
Repayment of short-term debt obligations (82.7) (296.8) (28.1)
Dividends (56.1) (52.3) (52.0)
Issuance of shares 161.2 58.9 4.4
Cash provided by (used in) financing activities 21.4 (43.6) (65.8)
Increase (Decrease) in Cash and Cash Equivalents 454.2 (19.8) (20.8)
Cash and Cash Equivalents, Beginning of Year 4.7 24.5 45.3
Cash and Cash Equivalents, End of Year $ 458.9 $ 4.7 $ 24.5
Supplemental cash flow disclosure
Interest paid $ 83.3 $ 83.8 $ 81.2
Income taxes paid $ 33.5 $ 22.8 $ 4.4
(See Notes to the Consolidated Financial Statements)
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
in millions of US dollars except share and per-share amounts
1. DESCRIPTION OF BUSINESS
With its subsidiaries, Potash Corporation of Saskatchewan Inc. ("PCS")
- together known as "PotashCorp" or "the company" except to the
extent the context otherwise requires - forms an integrated fertilizer
and related industrial and feed products company. The company has
producing assets in the following locations:
• Potash
- five mines and mills and mining rights to potash reserves at a sixth
location, all in the province of Saskatchewan
- one mine and two mills in the province of New Brunswick
• Phosphate
- a mine and processing plant in the state of North Carolina
- a mine and two processing plants in the state of Florida
- a processing plant in the state of Louisiana
- phosphate feed plants in five states and one in Brazil
- two industrial phosphoric acid plants, in the states of North Carolina
and Ohio
• Nitrogen
- four plants in the states of Georgia, Louisiana, Ohio and Tennessee
- large-scale operations in Trinidad
The company owns or leases approximately 175 terminal and warehouse
facilities strategically located in Canada and the United States, and
services customers with a fleet of approximately 6,600 railcars.
PotashCorp sells potash from its Saskatchewan mines for use outside
North America exclusively to Canpotex Limited ("Canpotex").
Canpotex, a potash export, sales and marketing company owned in
equal shares by the three potash producers in the Province of
Saskatchewan (including the company), resells potash to offshore
customers. PCS Sales (Canada) Inc. and PCS Sales (USA), Inc., wholly
owned subsidiaries of PotashCorp, execute marketing and sales for the
company's potash, phosphate and nitrogen products in North America.
PCS Sales (Canada) Inc. executes offshore marketing and sales for
the company's New Brunswick potash. PCS Sales (USA), Inc. generally
executes offshore marketing and sales for the company's nitrogen
products. Phosphate Chemicals Export Association, Inc. ("PhosChem"),
an unrelated phosphate export association established under United
States law, is the principal vehicle through which the company executes
offshore marketing and sales for its phosphate fertilizers.
2. SIGNIFICANT ACCOUNTING POLICIES
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
As described in Notes 22 and 23, during 2003 the company approved
plans to restructure certain operations. Those plans required significant
estimates to be made of: (i) the recoverability of the carrying value of
certain assets based on their capacity to generate future cash flows;
and (ii) employee termination, contract termination and other exit
costs. Because restructuring activities are complex processes that can
take several months to complete, they involve periodically reassessing
estimates. As a result, the company may have to change originally
reported estimates when actual payments are made or the activities
are completed.
As described in Note 16, on July 21, 2004, the Board of Directors of
PCS approved a split of the company's outstanding common shares on
a two-for-one basis. The stock split was effected in the form of a stock
dividend. All equity-based benefit plans, share and per-share data have
been retroactively adjusted to reflect the stock split.
The following accounting policies are considered to be significant:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
PotashCorp and its principal operating subsidiaries:
• PCS Sales (Canada) Inc.
- PCS Joint Venture, L.P.
• PCS Sales (USA), Inc.
• PCS Phosphate Company, Inc.
- PCS Purified Phosphates
• White Springs Agricultural Chemicals, Inc. ("White Springs")
• PCS Nitrogen, Inc. ("PCS Nitrogen")
- PCS Nitrogen Fertilizer, L.P.
- PCS Nitrogen Ohio, L.P.
- PCS Nitrogen Trinidad Limited
• PCS Cassidy Lake Company ("PCS Cassidy Lake")
• PCS Yumbes S.C.M. ("PCS Yumbes") - sold in 2004 (see Note 23)
• PCS Fosfatos do Brasil Ltda.
All significant intercompany balances and transactions have been
eliminated.
CASH EQUIVALENTS
Highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents.
BASIS OF PRESENTATION
The company's accounting policies are in accordance with Canadian
generally accepted accounting principles ("Canadian GAAP"). These
policies are consistent with accounting principles generally accepted
in the United States ("US GAAP") in all material respects except as
outlined in Note 36. The preparation of consolidated financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
INVENTORIES
Inventories of finished product, raw materials and work in process are
valued at the lower of cost and market. Cost for substantially all raw
materials and work in process inventories is determined using the first
in, first out (FIFO) method. Certain inventories of materials and supplies
are valued at the lower of average cost and replacement cost and
certain inventories of materials and supplies are valued at the lower
of cost and market. Cost for substantially all finished product is
determined using the weighted average cost method.
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREPAID EXPENSES
Prepaid expenses include prepaid freight relating to product inventory
stored at warehouse and terminal facilities.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (which includes mine development
costs) are carried at cost. Costs of additions, betterments, renewals and
interest during construction are capitalized.
Maintenance and repair expenditures, which do not improve or extend
productive life, are expensed as incurred.
DEPRECIATION AND AMORTIZATION
Certain mining and milling assets are depreciated using the units of
production method based on the shorter of estimates of reserves or
service lives. Other asset classes are depreciated or amortized on a
straight-line basis as follows: land improvements 5 to 30 years,
buildings and improvements 6 to 30 years and machinery and
equipment (comprised primarily of plant equipment) 20 to 25 years.
GOODWILL
All business combinations are accounted for using the purchase
method. Goodwill is carried at cost, is not amortized and represents
the excess of the purchase price and related costs over the fair value
assigned to the net tangible assets of businesses acquired.
OTHER ASSETS AND INTANGIBLES
Issue costs of long-term obligations are capitalized to deferred charges
and are amortized to expense over the term of the related liability.
Preproduction costs are capitalized to deferred charges and represent
costs incurred prior to obtaining commercial production at new
facilities, net of revenue earned, and are amortized on either a straight-
line or units of production basis over a maximum of 10 years.
The costs of constructing bases for gypsum stacks and settling ponds
are capitalized to deferred charges and are amortized on a straight-line
basis over their estimated useful lives of 3 to 5 years.
Investments in which the company exercises significant influence (but
does not control) are accounted for using the equity method. Other
investments are stated at cost. An investment is considered impaired if
its fair value falls below its cost, and the decline is considered other
than temporary.
Rotational plant maintenance costs, which consist primarily of
planned major maintenance projects (also known as "turnarounds"),
are capitalized when incurred and are amortized over a period that
generally does not exceed 1 year.
Finite-lived intangible assets are amortized over their estimated useful
lives as follows: production and technology rights 25 to 30 years and
computer software 5 years.
ASSET IMPAIRMENT
The company reviews both long-lived assets to be held and used and
identifiable intangible assets with finite lives whenever events or
changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable. Determination of recoverability is
based on an estimate of undiscounted future cash flows resulting from
the use of the asset and its eventual disposition. Measurement of an
impairment loss for long-lived assets and certain identifiable intangible
assets that management expects to hold and use is based on the fair
value of the assets, whereas such assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell. During
2004 and 2003, the company recognized asset impairment charges as
described in Notes 22 and 23. As at December 31, 2004, the company
determined that there were no other triggering events requiring
impairment analysis.
Goodwill impairment is assessed at the reporting unit level at least
annually, in April. Reporting units comprise business operations with
similar economic characteristics and strategies and may represent
either a business segment or a business unit within a business
segment. Potential impairment is identified when the carrying value of
a reporting unit, including the allocated goodwill, exceeds its fair value.
Goodwill impairment is measured as the excess of the carrying amount
of the reporting unit's allocated goodwill over the implied fair value of
the goodwill, based on the fair value of the assets and liabilities of the
reporting unit.
The fair values are estimated using accepted valuation methodologies
such as discounted future net cash flows, earnings multiples or prices for
similar assets, whichever is most appropriate under the circumstances.
LEASES
Leases entered into are classified as either capital or operating leases.
Leases that transfer substantially all of the benefits and risks of
ownership of property to the company are accounted for as capital
leases. Equipment acquired under capital leases is depreciated on the
same basis as other property, plant and equipment. Gains or losses
resulting from sale/leaseback transactions are deferred and amortized
in proportion to the amortization of the leased asset. Rental payments
under operating leases are expensed as incurred.
POST EMPLOYMENT AND POST RETIREMENT BENEFITS
The company offers a number of benefit plans that provide pension and
other benefits to qualified employees. These plans include defined benefit
pension plans, supplemental pension plans, defined contribution plans
and health, disability, dental and life insurance plans.
The company accrues its obligations under employee benefit plans and
the related costs, net of plan assets. The cost of pensions and other
retirement benefits earned by employees is generally actuarially
determined using the projected benefit method prorated on service
and management's best estimate of expected plan investment
performance, salary escalation, retirement ages of employees and
expected health-care costs. For the purpose of calculating the expected
return on plan assets, those assets are valued at fair value. Prior service
costs from plan amendments are deferred and amortized on a straight-
line basis over the average remaining service period of employees
active at the date of amendment. Actuarial gains (losses) arise from
the difference between actual long-term rate of return on plan assets
for a period and the expected long-term rate of return on plan assets
for that period, or from changes in actuarial assumptions used to
determine the accrued benefit obligation. The excess of the net
accumulated actuarial gain (loss) over 10 percent of the greater of
the benefit obligation and the fair value of plan assets is amortized
over the average remaining service period of active employees. The
average remaining service period of the active employees covered by
the company's pension plans is 16.3 years (2003 - 15.3). The average
remaining service period of the active employees covered by the
4
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
F
t
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
company's other benefits plans is 13.7 years (2003 - 13.5). When
the restructuring of a benefit plan gives rise to both a curtailment
and a settlement of obligations, the curtailment is accounted for prior
to the settlement. Actuaries perform valuations on a regular basis to
determine the actuarial present value of the accrued pension and other
retirement benefits.
Pension expense includes the net of management's best estimate of
the cost of benefits provided, interest cost of projected benefits, return
on plan assets, amortization of experience gains or losses and plan
amendments, and changes in the valuation allowance.
Defined contribution plan costs are recognized in earnings for services
rendered by employees during the period.
ENVIRONMENTAL COSTS AND ASSET RETIREMENT
OBLIGATIONS
Environmental costs that relate to current operations are expensed or
capitalized as appropriate. Environmental costs are capitalized if the
costs extend the life of the property, increase its capacity, mitigate or
prevent contamination from future operations, or relate to legal asset
retirement obligations. Costs that relate to existing conditions caused
by past operations and that do not contribute to current or future
revenue generation are expensed. Provisions for estimated costs are
recorded when environmental remedial efforts are likely and the
costs can be reasonably estimated. In determining the provisions, the
company uses the most current information available, including similar
past experiences, available technology, regulations in effect, the timing
of remediation and cost-sharing arrangements.
The company recognizes its obligations to retire certain tangible
long-lived assets in accordance with Canadian Institute of Chartered
Accountants ("CICA") Section 3110, "Accounting for Asset Retirement
Obligations" (see Note 3). Under Section 3110, the fair value of a liability
for an asset retirement obligation is recognized in the period in which
it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset and then amortized over its estimated
useful life. In subsequent periods, the asset retirement obligation is
adjusted for the passage of time and any changes in the amount or
timing of the underlying future cash flows through charges to earnings.
A gain or loss may be incurred upon settlement of the liability.
STOCK-BASED COMPENSATION PLANS
The company has four stock-based compensation plans, which are
described in Note 28. The company accounts for its grants under those
plans in accordance with the fair value based method of accounting
for stock-based compensation. For stock option plans, the fair value of
stock options is determined on their grant date and recorded as
compensation expense over the period that the stock options vest,
with a corresponding increase to contributed surplus. When stock
options are exercised, the proceeds, together with the amount
recorded in contributed surplus, are recorded in share capital.
FOREIGN EXCHANGE TRANSACTIONS
The company's functional currency is the US dollar.
Canadian dollar operating transactions are translated to US dollars at
the average exchange rate for the previous month. Trinidad dollar
operating transactions are translated to US dollars at the average
exchange rate for the period. Monetary assets and liabilities are
translated at period-end exchange rates. Non-monetary assets owned
at December 31, 1994 have been translated under the translation of
convenience method at the December 31, 1994 year-end exchange rate
of US $ 1.00 = Cdn $1.4028. Additions subsequent to December 31,
1994 are translated at the exchange rate prevailing at the time of
the transaction. Translation exchange gains and losses of integrated
foreign operations are reflected in earnings.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are used by the company to manage
its exposure to exchange rate, interest rate and commodity price
fluctuations. The company's policy is not to utilize derivative financial
instruments for trading or speculative purposes. The company formally
documents all relationships between hedging instruments and hedged
items, as well as its risk-management objective and strategy for
undertaking the hedge transaction. This process includes linking
derivatives to specific assets and liabilities or to specific firm
commitments or forecasted transactions. The company also assesses,
both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values of hedged items. When derivative
instruments have been designated within a hedge relationship and
are highly effective in offsetting the identified risk characteristics of
specific financial assets and liabilities, or groups of financial assets and
liabilities, hedge accounting is applied to these derivative instruments.
Hedge accounting requires that gains, losses, revenue and expenses of
a hedging item be recognized in the same period that the associated
gains, losses, revenue and expenses of the hedged item are recognized.
A hedging relationship is terminated if the hedge ceases to be effective;
if the underlying asset or liability being hedged is derecognized or if it
is no longer probable that the anticipated transaction will occur and the
derivative instrument is still outstanding; or if the derivative instrument
is no longer designated as a hedging instrument. If a hedging relationship
is terminated, the difference between the fair value and the accrued
value of the hedging derivatives upon termination is deferred and
recognized into earnings on the same basis as gains, losses, revenue
and expenses of the previously hedged item are recognized.
The company enters into natural gas futures, swaps and option
agreements to manage the cost of natural gas. Gains or losses resulting
from changes in the fair value of natural gas hedging transactions which
have not yet been settled are not recognized, as they generally relate
to changes in the spot price of anticipated natural gas purchases. Gains
or losses arising from gas hedging transactions that have been settled,
terminated or cease to be effective prior to maturity are deferred as a
component of inventory until the product containing the hedged item
is sold, at which time both the natural gas purchase cost and the
related hedging deferral are recorded as cost of sales. The company
regularly evaluates its unrecognized or deferred gains and losses on
these derivatives from a net realizable value of inventory perspective
and establishes appropriate provisions, if necessary.
The company periodically uses interest rate swaps to manage the
interest rate mix of the total debt portfolio and related overall cost of
borrowing. Hedge accounting treatment for interest rate swaps results
in interest expense on the related debt being reflected at hedged rates
rather than original contractual interest rates.
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The company enters into foreign currency forward contracts in respect
of its Canadian dollar requirements for operating and capital
expenditures. These contracts are not designated as hedging
instruments for accounting purposes. Accordingly, they are marked-to-
market and carried at fair value as assets or liabilities, as appropriate,
with changes in fair value recognized in earnings.
REVENUE RECOGNITION
Sales revenue is recognized when the product is shipped, the sales price is
determinable and collectability is reasonably assured. Revenue is recorded
based on the FOB mine, plant, warehouse or terminal price, except for
certain vessel sales which are shipped on a delivered basis. Transportation
costs are recovered from the customer through sales pricing.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2003, the CICA issued Accounting Guideline 15 ("AcG-15"),
"Consolidation of Variable Interest Entities". In August 2004, a revised
guideline ("AcG-15(R)") was issued to ensure that AcG-15 was
harmonized with FIN 46(R), its US GAAP equivalent. AcG-15(R)
provides guidance for applying consolidation principles to certain
entities that are subject to control on a basis other than ownership of
voting interests. AcG-15(R) is effective for annual and interim periods,
beginning on or after November 1, 2004. The company does not
expect application of the guideline to have a material impact on its
consolidated financial statements.
In January 2005, the CICA issued Section 1530, "Comprehensive
Income", Section 3251, "Equity", Section 3855, "Financial Instruments-
Recognition and Measurement" and Section 3865, "Hedges". Under the
new standards: a new location for recognizing certain gains and losses
- other comprehensive income - has been introduced providing an
ability for certain gains and losses arising from changes in fair value
to be temporarily recorded outside the income statement, but in a
transparent manner; all financial instruments, including derivatives, are
to be included on a company's balance sheet and measured in most
cases at their fair values; and existing requirements for hedge accounting
are extended. The guidance will apply for interim and annual financial
statements relating to fiscal years beginning on or after October 1, 2006.
Earlier adoption will be permitted only as of the beginning of a fiscal
year. The company is in the process of evaluating the impact of these
recently issued standards on its consolidated financial statements.
3. CHANGES IN ACCOUNTING POLICY
SOURCES OF GAAP
Effective January 1, 2004, the company prospectively adopted new
accounting requirements of the CICA as issued in Section 1100,
"Generally Accepted Accounting Principles". This section establishes
standards for financial reporting in accordance with Canadian GAAP
and provides guidance on sources to consult when selecting
accounting policies and determining appropriate disclosures when a
matter is not dealt with explicitly in the primary sources of Canadian
GAAR In light of the new Section 1100 provisions, the company
reviewed the application of its accounting policies and changed the
consolidated financial statement presentation of sales revenue, freight
costs and transportation and distribution expenses, which were
previously reported on a net basis, to now reporting as separate line
items on the Consolidated Statements of Operations and Retained
Earnings. There was no effect on gross margin or net income. All
comparative information has been appropriately reclassified.
ASSET RETIREMENT OBLIGATIONS
As described in Note 2, on January 1, 2004, the company retroactively
adopted CICA Section 3110, "Accounting for Asset Retirement
Obligations", which requires the company to record an asset and
related liability for the costs associated with the retirement of long-
lived tangible assets when a legal liability to retire such assets exists.
This includes obligations incurred as a result of acquisition, construction
or normal operation of a long-lived asset. The company has recorded
asset retirement obligations primarily associated with certain closure,
reclamation and restoration costs for its potash and phosphate
operations (see Note 15).
The adoption of Section 3110 did not have a significant effect on the
results of operations or financial position of the company. Had the
provisions of Section 3110 been applied as of January 1, 2003, the
pro forma effects on net loss would not have been material for the year
ended December 31, 2003.
HEDGING RELATIONSHIPS
Effective January 1, 2004, the company adopted CICA Accounting
Guideline 13 ("AcG-13"), "Hedging Relationships". This guideline sets
out the criteria that must be met in order to apply hedge accounting
for derivatives. The guideline provides detailed guidance on the
identification, designation, documentation and effectiveness of
hedging relationships for purposes of applying hedge accounting, and
the discontinuance of hedge accounting. Income and expenses on
derivative instruments designated and qualifying as hedges under this
guideline are recognized in earnings in the same period as the related
hedged item. Ineffective hedging relationships and hedges not
designated in a hedging relationship are carried at fair value on
the Consolidated Statement of Financial Position, and subsequent
changes in their fair value are recorded in earnings. The adoption of
this accounting guideline did not have a material impact on the
consolidated financial statements.
4. BUSINESS ACQUISITION
On December 21, 2004, the company acquired all the outstanding
shares of RAC Investments Ltd. ("RAC Investments"), an indirect
subsidiary of Israel Chemicals Ltd. ("ICU'), for $100.7, including
acquisition costs. RAC Investments is an investment holding company
which indirectly owns 19,200,242 Series A shares and 2,699,773
Series B shares in SQM, a Chilean specialty fertilizer, iodine and
lithium company. RAC Investments' earnings have been included in
the consolidated financial statements since the acquisition date.
The following table summarizes the fair value of the assets acquired
and liabilities assumed at the date of acquisition.
Cash $ 3.5
Investment in SQM 97.2
Total assets acquired 100.7
Future income taxes -
Total liabilities assumed -
Net assets acquired 100.7
Less: cash acquired (3.5)
Cash consideration $ 97.2
I

65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
r
4. BUSINESS ACQUISITION (CONTINUED)
Prior to execution of the above noted transaction, the company
(through a subsidiary) sold 8,500,000 Series A shares of SQM via
public auction on the Santiago Stock Exchange (the "Exchange") and
1,301,724 Series A shares in other Exchange transactions. Proceeds
on sale were $66.3, resulting in a non-taxable gain recorded in Other
Income of $34.4, net of selling costs (see Note 24). The company now
indirectly holds 63,062,037 Series A shares and 2,699,773 Series B
shares of SQM.
5. ACCOUNTS RECEIVABLE
2004 2003
Trade accounts - Canpotex $ 55.7 $ 28.3
- Other 260.0 244.8
Non-trade accounts 41.5 36.8
357.2 309.9
Less allowance for doubtful accounts (4.6) (4.9)
$ 352.6 $ 305.0
6. INVENTORIES
2004 2003
Finished product $ 181.8 $ 160.7
Materials and supplies 97.7 108.0
Raw materials 50.3 54.1
Work in process 67.0 72.4
$ 396.8 $ 395.2
7. PROPERTY, PLANT AND EQUIPMENT
2004
Accumulated
Depreciation and Net Book
Cost Amortization Value
Land and improvements $ 223.7 $ 42.5 $ 181.2
Buildings and improvements 481.0 177.6 303.4
Machinery and equipment 4,011.1 1,474.9 2,536.2
Mine development costs 138.0 59.9 78.1
$4,853.8 $1,754.9 $3,098.9
2003
Accumulated
Depreciation and Net Book
Cost Amortization Value
Land and improvements $ 225.7 $ 38.6 $ 187.1
Buildings and improvements 469.0 164.9 304.1
Machinery and equipment 3,856.4 1,317.2 2,539.2
Mine development costs 133.2 55.5 77.7
$ 4,684.3 $ 1,576.2 $ 3,108.1
Depreciation and amortization of property, plant and equipment
included in cost of goods sold and in selling and administrative was
$210.9 (2003 - $193.9; 2002 - $188.2). The net carrying amount of
property, plant and equipment not being amortized at December 31,
2004 because it was under construction or development was $234.9
(2003 - $170.8).
During the year, the company recorded an impairment charge of $6.2
(2003 - $117.6; 2002 - $NIL) relating to certain assets (see Notes 22
and 23). Interest capitalized to property, plant and equipment during
the year was $2.5 (2003 - $1.5; 2002 - $4.2).
8. OTHER ASSETS AND INTANGIBLE ASSETS
2004 2003
Other assets
Investments at equity
APC - 27 percent ownership;
quoted market value of $346.2 $ 202.0 $ 181.5
SQM - 25 percent ownership;
quoted market value of $445.5 240.2 164.7
Other 20.4 17.0
Investments at cost
ICL - 9 percent ownership;
quoted market value of $254.5 92.8 92.8
Deferred charges - net of accumulated
amortization of $35.0 (2003 - $26.1) 34.8 44.1
Accrued pension benefit asset 25.6 22.2
Rotational plant maintenance costs
- net of accumulated amortization
of $48.0 (2003 - $33.2) - 14.8
Other 34.4 58.3
$ 650.2 $ 595.4
Intangible assets - net of accumulated
amortization of $11.4 (2003 - $7.9) $ 37.1 $ 32.9
The company's share of earnings of equity investees of $30.9 (2003 -
$12.4; 2002 - $ 5.3) is included in other income (see Note 24).
During the year, the company recorded an impairment charge of $NIL
(2003 - $65.4; 2002 - $NIL) relating to certain deferred charges.
Amortization of deferred charges and rotational plant maintenance
costs included in cost of goods sold and in selling and administrative
was $25.6 (2003 - $28.5; 2002 - $30.2).
Intangible assets relate primarily to production and technology rights
and computer software. Other than goodwill (see Note 9), the company
has not recognized any intangible assets with indefinite useful lives.
Total amortization expense relating to finite-lived intangible assets for
2004 was $3.5 (2003 - $5.0; 2002 - $0.7). Amortization expense in
each of the next five years is estimated to be $5.3 for 2005, $6.0 for
2006, $5.2 for 2007, $3.9 for 2008 and $3.1 for 2009.
9. GOODWILL
2004 2003
Cost $ 104.3 $ 104.3
Accumulated amortization 7.3 7.3
$ 97.0 $ 97.0
10. SHORT-TERM DEBT
Short-term debt was $93.5 at December 31, 2004 (2003 - $176.2). The
weighted average interest rate on this debt was 1.42 percent (2003 -
1.43 percent; 2002 - 1.70 percent). The company had an unsecured line
of credit available for short-term financing (net of letters of credit of $15.1
and direct borrowings of $NIL) in the amount of $59.9 at December 31,
2004 (2003 - $45.3). In addition, the company is authorized to borrow
a further $406.5 under its commercial paper program.
The line of credit is subject to financial tests and other covenants. The
principal covenants require a debt to capital ratio of less than or equal
to 0.55:1, a long-term debt to EBITDA (defined in the agreement as
earnings before interest, income taxes, provincial mining and other
taxes, depreciation, amortization and other non-cash expenses) ratio of
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
10. SHORT-TERM DEBT (CONTINUED)
less than or equal to 3.5:1, tangible net worth in an amount greater
than or equal to $1,250.0 and debt of subsidiaries not to exceed
$590.0. The line of credit is subject to other customary covenants and
events of default, including an event of default for non-payment of
other debt in excess of Cdn $40.0. Non-compliance with such covenants
could result in accelerated payment of amounts due under the line of
credit, and its termination. The company was in compliance with the
above-mentioned covenants at December 31, 2004.
11. ACCOUNTS PAYABLE AND ACCRUED CHARGES
2004 2003
Trade accounts $ 193.0 $ 161.6
Other payables 127.7 93.1
Current portion accrued environmental
costs and asset retirement obligations 19.5 18.7
Accrued interest 16.8 16.1
Accrued compensation 58.8 32.8
Current portion post-retirement/
post-employment benefits 23.8 15.3
Income taxes 143.6 29.4
Dividends 16.7 13.3
$ 599.9 $ 380.3
12. LONG-TERM DEBT
2004 2003
Industrial Revenue and Pollution
Control Obligations $ 9.0 $ 9.0
Adjustable Rate Industrial Revenue and Pollution
Control Obligations bearing interest at an average
rate of 1.307% (2003 -1.166%; 2002 - 1.725%)
and maturing in 2005. There are no sinking fund
requirements prior to maturity. Bank letters of
credit are pledged as collateral for these loans.
Notes Payable
7.125% notes payable June 15, 2007 400.0 400.0
7.750% notes payable May 31, 2011 600.0 600.0
4.875% notes payable March 1, 2013 250.0 250.0
There are no sinking fund requirements prior to
maturity. These notes were issued under US shelf
registration statements covering up to $2,000.0
of debt securities. The notes are unsecured. The
2011 and 2013 notes are redeemable, in whole
or in part, at the company's option at any time
prior to maturity for a price at least equal to the
principal amount of the notes to be redeemed,
plus accrued interest.
Other 9.9 10.9
1,268.9 1,269.9
Less current maturities 10.3 1.3
$1,258.6 $ 1,268.6
The company has entered into back-to-back loan arrangements
involving certain financial assets and financial liabilities. The company
has presented financial assets of $310.1 and financial liabilities of
$316.0 on a net basis because a legal right to set-off exists, and
intends to settle on a net basis. Other long-term debt in the above
table includes a net financial liability of $5.9 (2003 - $5.9) pursuant
to these arrangements.
The company has a syndicated credit facility, renewable annually, which
provides for unsecured advances of up to $750.0 (less the amount
of direct borrowings and commercial paper outstanding). As at
December 31, 2004, no amounts were outstanding and $656.5 was
available under the facility. Principal covenants and events of default
under the credit facility requirements are the same as the line of credit
as described in Note 10. The notes payable are not subject to any
financial test covenants but are subject to certain customary covenants
(including limitations on liens and sale and leaseback transactions) and
events of default, including an event of default for acceleration of other
debt in excess of $50.0. Neither the Industrial Revenue and Pollution
Control Obligations nor the other long-term debt instruments are subject
to any financial test covenants but each is subject to certain customary
covenants and events of default, including, for other long-term debt,
an event of default for non-payment of other debt in excess of $25.0.
Non-compliance with such covenants could result in accelerated
payment of the related debt. The company was in compliance with the
above-mentioned covenants at December 31, 2004.
Long-term debt at December 31, 2004 will mature as follows:
2005 $ 10.3
2006 1.3
2007 400.6
2008 0.3
2009 0.3
Subsequent years 856.1
$1,268.9
13. COMMITMENTS
LEASE COMMITMENTS
The company has various long-term operating lease agreements for
buildings, port facilities, equipment, ocean-going transportation
vessels, mineral leases and railcars, the latest of which expires in 2025.
Rental expense for operating leases for the years ended December 31,
2004, 2003 and 2002 was $69.6, $39.9 and $41.2, respectively.
PURCHASE COMMITMENTS
The company has long-term agreements for the purchase of sulfur for
use in the production of phosphoric acid. These agreements provide for
minimum purchase quantities, and certain prices are based on market
rates at the time of delivery. The commitments included in the table
below are based on contract prices as at December 31, 2004.
The company has entered into long-term natural gas contracts with the
National Gas Company of Trinidad. The contracts provide for prices that
vary with ammonia market prices, escalating floor prices and minimum
purchase quantities. The commitments included in the table below are
based on floor prices and minimum purchase quantities.
The company also has a long-term agreement for the purchase of
phosphate rock used at the Geismar facility. The commitments included
in the table below are based on the expected purchase quantity and
current base prices (less applicable discounts).
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts

13. COMMITMENTS (CONTINUED)
OTHER COMMITMENTS
Other operating commitments consist principally of amounts relating to
the company's contracts to purchase limestone that run through 2007
and various rail freight contracts, the latest of which expire in 2010.
Minimum future commitments under these contractual arrangements
for the next five years and thereafter are shown below.
Operating Purchase Other
Leases Commitments Commitments
2005 $ 78.9 $ 104.5 $ 13.4
2006 69.8 99.7 10.8
2007 62.9 91.2 9.1
2008 50.9 79.9 8.4
2009 47.2 79.9 8.4
Thereafter 257.3 452.0 4.2
Total $ 567.0 $ 907.2 $ 54.3
14. POST-RETIREMENT/POST-EMPLOYMENT BENEFITS
PENSION PLANS
Canada
Substantially all employees of the company are participants in either a
defined contribution or a defined benefit pension plan.
The company has established a supplemental retirement income plan for
senior management which is unfunded, non-contributory and provides a
supplementary pension benefit. The plan is provided for by charges to
earnings sufficient to meet the projected benefit obligation.
United States
The company has defined benefit pension plans that cover a substantial
majority of its employees. Benefits are based on a combination of years
of service and compensation levels, depending on the plan. Generally,
contributions to the US plans are made to meet or exceed minimum
funding requirements of the Employee Retirement Income Security Act
of 1974 ("ERISA").
Trinidad
The company has contributory defined benefit pension plans that cover
a substantial majority of its employees. Benefits are based on service.
The plans' assets consist mainly of local government and other bonds,
local mortgage and mortgage-backed securities, fixed income deposits
and cash.
OTHER POST-RETIREMENT PLANS
The company provides certain contributory health-care plans and
non-contributory life insurance benefits for retired employees. These
plans contain certain cost-sharing features such as deductibles and
coinsurance, and are unfunded, with benefits subject to change.
DEFINED BENEFIT PENSION AND OTHER POST-RETIREMENT/POST-EMPLOYMENT BENEFIT PLANS
The components of net expense for the company's pension and other post-retirement/post-employment benefit plans, computed actuarially,
were as follows:
Pension Other
2004 2003 2002 2004 2003 2002
Costs arising in the period
Service cost for benefits earned during the year $ 12.9 $ 12.2 $ 12.0 $ 5.2 $ 5.5 $ 4.1
Interest cost on projected benefit obligations 30.2 29.6 28.1 13.2 12.9 13.9
Actual return on plan assets (47.1) (73.3) 18.1 - - -
Actuarial loss (gain) 23.3 27.3 37.1 (6.8) 25.7 7.4
Plan amendments - 2.3 1.9 - (12.6) -
Change in valuation allowance (2.2) 2.0 - - - -
Costs arising in the period 17.1 0.1 97.2 11.6 31.5 25.4
Difference between costs arising in the period and
costs recognized in the period in respect of:
Return on plan assets 13.6 42.9 (50.0) - - -
Actuarial (gain) loss (20.2) (27.4) (36.5) 9.5 (13.6) 3.5
Plan amendments 0.4 (2.2) (1.8) (1.9) 2.5 (9.7)
Transitional obligation 1.5 5.1 - - - -
Net expense $ 12.4 $ 18.5 $ 8.9 $ 19.2 $ 20.4 $ 19.2
The assumptions used to determine the benefit obligation and expense for the company's significant plans were as follows (weighted average
as of December 31):
Pension Other
2004 2003 2002 2004 2003 2002
Discount rate - obligation 5.75% 6.10% 6.50% 5.75% 6.10% 6.50%
Discount rate - expense 6.10% 6.50% 7.25% 6.10%(1) 6.50% 7.25%
Long-term rate of return on assets 8.50% 8.50% 9.00% n/a n/a n/a
Rate of increase in compensation levels 4.00% 4.00% 4.00% n/a n/a n/a
(1) Discount rate changed to 6.25% effective July 1, 2004, upon recognition of Medicare Part D
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
14. POST-RETIREMENT/POST-EM PLOYMENT BENEFITS (CONTINUED)
The assumed health-care cost trend rates are as follows:
2004 2003 2002
Health-care cost trend rates assumed for next year 6.00% 6.00% 10.00%
Ultimate health-care cost trend rate assumed 6.00% 6.00% 6.00%
Year that the rate reaches the ultimate trend rate 2004 2003 2006
Effective January 1, 2004, the company's largest retiree medical plan limits the company's share of annual medical cost increases to 4.5 percent
for recent and future retirees. Any cost increases in excess of this amount are funded by increased retiree contributions.
The company employs a building block approach in determining the long-term rate of return for pension plan assets. Historical markets are studied
and long-term historical relationships between equities and fixed-income are preserved consistent with the widely accepted capital market principle
that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated
before long-term capital market assumptions are determined. The long-term rate of return is established with proper consideration of diversification
and rebalancing. Peer data and historical returns are considered to check for reasonability and appropriateness.
The company is a sponsor of certain US post-retirement health-care plans that were impacted by the US Medicare Prescription Drug, Improvement
and Modernization Act of 2003. This legislation expanded Medicare to include (for the first time) coverage for prescription drugs and introduced
a prescription drug benefit and federal subsidy to sponsors of retiree health-care benefit plans that provide benefits at least "actuarially
equivalent" to Medicare Part D. The company has accounted for the impact of the legislation prospectively as of July 1, 2004. The federal subsidy
had the effect of reducing the company's accumulated post-retirement benefit obligation by $23.2 and reducing the net periodic post-retirement
benefit cost for the period by $ 1.7.
The company uses a December 31 measurement date for the majority of its plans. The most recent actuarial valuations of the majority of the
pension plans for funding purposes were as of January 1, 2004, and the next required valuations will be as of January 1, 2005. The change in
benefit obligations and change in plan assets for the above pension and other post-retirement/post-employment plans were as follows:
Pension Other
2004 2003 2004 2003
Change in Benefit Obligations
Balance, beginning of year $ 502.4 $ 449.2 $ 230.7 $ 208.3
Service cost 12.9 12.2 5.2 5.5
Interest cost 30.2 29.6 13.2 12.9
Participants' contributions 0.2 0.3 2.8 1.8
Actuarial loss (gain) 23.9 27.3 (6.8) 25.7
Foreign exchange rate changes 3.1 6.4 1.1 -
Amendments - 2.3 - (14.0)
Benefits paid (24.1) (24.9) (10.8) (9.5)
Balance, end of year 548.6 502.4 235.4 230.7
Change in Plan Assets
Fair value, beginning of year 406.1 330.4 - -
Actual return on plan assets 47.1 73.6 - -
Employer contributions 20.5 23.3 8.0 7.7
Participants' contributions 0.2 0.3 2.8 1.8
Foreign exchange rate changes 3.1 3.4 - -
Benefits paid (24.1) (24.9) (10.8) (9.5)
Fair value, end of year 452.9 406.1 - -
Funded Status (95.7) (96.3) (235.4) (230.7)
Valuation allowance (11.7) (13.9) - -
Unamortized net actuarial loss 93.1 86.1 55.3 70.5
Unamortized prior service cost 3.8 4.4 (9.1) (15.3)
Unamortized transitional obligation 6.7 7.6 1.4 -
Accrued post-retirement/post-employment benefits $ (3.8) $ (12.1) $ (187.8) $ (175.5)
Amounts included in:
Liabilities
Current (Note 11) $ (16.0) $ (7.7) $ (7.8) $ (7.6)
Long-term (4.6) (17.7) (188.8) (176.8)
Other assets (Note 8) 16.8 13.3 8.8 8.9
$ (3.8) $ (12.1) $ (187.8) $ (175.5)
14

69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
14. POST-RETIREMENT/POST EMPLOYMENT BENEFITS
(CONTINUED)
The accumulated benefit obligation for all defined benefit pension
plans was $484.7 and $439.6 at December 31, 2004 and 2003,
respectively. The aggregate projected benefit obligation, accumulated
benefit obligation and aggregate fair value of plan assets for pension
plans with accumulated benefit obligations in excess of plan assets
were as follows:
2004 2003
Projected benefit obligation $ 520.4 $ 460.1
Accumulated benefit obligation 467.9 411.4
Fair value of plan assets 391.1 355.0
SENSITIVITY OF ASSUMPTIONS
Furthermore, equity investments are diversified across US and non-US
stocks, as well as growth, value and small and large capitalizations. US
equities also are diversified across actively managed and passively
invested portfolios. Other assets such as private equity and hedge
funds are not used at this time. Derivatives may be used to gain market
exposure in an efficient and timely manner; however, derivatives may
not be used to leverage the portfolio beyond the market value of the
underlying investments. Investment risk is measured and monitored
on an ongoing basis through quarterly investment portfolio reviews,
annual liability measurements and periodic asset/liability studies.
Investment strategy in Trinidad is largely dictated by local investment
restrictions (maximum of 50 percent in equities and 20 percent
foreign) and asset availability since the local equity market is small
and there is little secondary market activity in debt securities.
The effect of a change in the health-care cost trend rate on the other
post-retirement/post-employment benefit obligation and the aggregate
of service and interest cost would have been as follows:
2004 2003 2002
As reported:
Benefit obligation $ 235.4 $ 230.7 $ 208.3
Aggregate of service
and interest cost 18.4 18.4 18.0
Increase of 1.0 percentage point:
Benefit obligation 34.4 36.3 35.0
Aggregate of service
and interest cost 3.3 3.8 3.3
Decrease of 1.0 percentage point:
Benefit obligation (35.3) (31.7) (28.7)
Aggregate of service
and interest cost (3.4) (3.1) (2.7)
The above sensitivities should be used with caution. Changes in amounts
based on a 1.0 percentage point variation in assumptions generally
cannot be extrapolated because the relationship of the change in
assumption to the change in amounts may not be linear. The sensitivities
have been calculated independently of changes in other key variables.
Changes in one factor may result in changes in another, which could
amplify or reduce certain sensitivities.
PLAN ASSETS
Approximate asset allocations, by asset category, of the company's
significant pension plans were as follows at December 31:
Asset Category Target 2004 2003
Equity securities 65% 67% 67%
Debt securities 35% 32% 32%
Real estate - - -
Other - 1% 1%
Total 100% 100% 100%
The company employs a total return investment approach whereby a mix
of equities and fixed income investments is used to maximize the long-
term return of plan assets for a prudent level of risk. Risk tolerance is
established through careful consideration of plan liabilities, plan funded
status and corporate financial condition. The investment portfolio
contains a diversified blend of equity and fixed income investments.
DEFINED CONTRIBUTION SAVINGS PLANS
All of the company's US employees may participate in defined
contribution savings plans. These plans are subject to US federal
tax limitations and provide for voluntary employee salary deduction
contributions. The company suspended its contributions of up to
5 percent of salary in July 2003. Contributions were reinstated in
August 2004, providing a minimum of 3 percent (to a maximum of
6 percent) of salary based on company performance. The company's
2004 contributions were $2.9 (2003 - $3.4; 2002 - $5.0). All of the
company's Canadian salaried employees and certain hourly employees
participate in the PCS Inc. Savings Plan and may make voluntary
contributions. The company suspended its contributions to this plan in
July 2003. Contributions were reinstated in August 2004, providing a
minimum of 3 percent (to a maximum of 6 percent) of salary based on
company performance. The company's contributions in 2004 were $0.7
(2003 - $0.9; 2002 - $1.5).
CASH PAYMENTS
Total cash payments for pensions and other post-retirement/
post-employment benefits for 2004, consisting of cash contributed by
the company to its funded pension plans, cash payments directly to
beneficiaries for its unfunded other benefit plans and cash contributed
to its defined contribution plans, were $32.4 (2003 - $35.5).
Approximately $35.1 is expected to be contributed by the company to
all plans during 2005.
ESTIMATED FUTURE BENEFIT PAYMENTS
The following benefit payments, which reflect expected future service,
as appropriate, are expected to be paid from either corporate assets or
the qualified pension trusts:
Other
Reduction due
to Medicare
Pension Gross Part D Subsidy Net
2005 $ 23.5 $ 9.0 $ - $ 9.0
2006 24.0 9.4 0.6 8.8
2007 24.8 10.0 0.6 9.4
2008 25.9 10.5 0.6 9.9
2009 27.4 11.0 0.7 10.3
2010-2014 162.9 65.8 4.3 61.5
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
15. ENVIRONMENTAL COSTS AND ASSET RETIREMENT
OBLIGATIONS
The company records an asset and related retirement obligation for the
costs associated with the retirement of long-lived tangible assets when
a legal liability to retire such assets exists. The major categories of asset
retirement obligations include reclamation and restoration costs at the
company's potash and phosphate mining operations (most particularly
phosphate mining), including management of mining byproducts
such as gypsum and various mine tailings, land reclamation and
revegetation programs, decommissioning of underground and surface
operating facilities, general clean-up activities aimed at returning the
areas to an environmentally acceptable condition, and post-closure
care and maintenance. The asset retirement obligations are generally
incurred over an extended period of time.
The estimation of asset retirement obligation costs depends on the
development of environmentally acceptable closure and post-closure
plans. In some cases, this may require significant research and
development to identify preferred methods for such plans which are
economically sound and which, in most cases, may not be implemented
for several decades. The company has continued to utilize appropriate
technical resources, including outside consultants, to develop specific
site closure and post-closure plans in accordance with the requirements
of the various jurisdictions in which it operates. The company estimates
that the undiscounted cash flows required to settle the asset retirement
obligations approximate $2,040.0. The estimated cash flows have been
discounted at credit-adjusted risk-free rates ranging from 5.00 percent
to 6.75 percent. Other than certain land reclamation programs,
settlement of the obligations is typically correlated with mine life
estimates. Cash flow payments are expected to occur principally over
the next 75 years for the company's phosphate operations. Payments
relating to most potash operations are not expected to occur until after
that time. The present value of the company's asset retirement
obligations at December 31, 2004 totalled $85.0 (2003 - $81.6), as set
out in the table below. The current portion totalled $4.8 (2003 - $3.5).
Other environmental liabilities typically relate to regulatory compliance,
environmental management associated with ongoing operations other
than mining, site assessment and remediation of environmental
contamination related to the activities of the company and its
predecessors, including waste disposal practices and ownership and
operations of real property and facilities.
SITE ASSESSMENT AND REMEDIATION COSTS
The company has accrued assessment costs, including legal and
consulting fees, and remediation costs related to the clean-up of
contaminated sites currently or formerly associated with the company
or its predecessors' business in the amount of $14.4 (2003 - $14.9)
for certain PCS Joint Venture facilities, $0.3 (2003 - $03) for various
sulfur facilities and $1.0 (2003 - $2.0) for other matters in the
phosphate and nitrogen businesses. The current portion of these costs
totalled $14.7 (2003 - $15.2).
ENVIRONMENTAL OPERATING COSTS AND CAPITAL
EXPENDITURES
The company's operating expenses, other than costs associated
with asset retirement obligations, relating to compliance with
environmental laws and regulations governing ongoing operations
were approximately $68.9 (2003 - $59.0; 2002 - $52.7). These
amounts include environmental operating expenses related primarily
to the production of phosphoric acid, fertilizer, feed and other products.
The company routinely undertakes environmental capital projects. In
2004, capital expenditures of $7.6 (2003 - $12.1) were incurred to
meet pollution prevention and control objectives and $0.3 (2003 -
$0.3) were incurred to meet other environmental objectives.
Following is a reconciliation of asset retirement and other environmental
obligations as at December 31:
2004 2003
Asset retirement obligations,
beginning of year $ 81.6 $ 83.0
Liabilities incurred 15.7 14.4
Liabilities settled (16.0) (14.4)
Accretion expense 5.2 3.3
Revisions in estimated cash flows (1.5) (4.7)
Asset retirement obligations, end of year 85.0 81.6
Other environmental liabilities 15.7 18.4
Less current portion (Note 11) (19.5) (18.7)
$ 81.2 $ 81.3
16. SHARE CAPITAL
AUTHORIZED:
The company is authorized to issue an unlimited number of common
shares without par value and an unlimited number of first preferred
shares. The first preferred shares may be issued in one or more series
with rights and conditions to be determined by the Board of Directors.
Issued: 2004 2003 2002
Consideration Consideration Consideration
Issued, beginning of year $1,245.8 $ 1,186.9 $ 1,182.5
Shares issued under option 162.1 58.7 4.3
Shares issued for dividend
reinvestment plan 0.5 0.2 0.1
Issued, end of year $1,408.4 $ 1,245.8 $ 1,186.9
Issued: 2004 2003 2002
Number of Number of Number of
Common Shares Common Shares Common Shares
Issued, beginning of year 106,224,432 104,155,296 103,904,964
Shares issued under option 4,397,324 2,061,700 243,800
Shares issued for dividend
reinvestment plan 8,747 7,436 6,532
Issued, end of year 110,630,503 106,224,432 104,155,296
On July 21, 2004, the Board of Directors of PCS approved a split of the
company's outstanding common shares on a two-for-one basis. The
stock split was effected in the form of a stock dividend of one
additional common share for each share owned by shareholders of
record at the close of business on August 11, 2004. All equity-based
benefit plans and share data have been retroactively adjusted to reflect
the stock split.
17. CONTRIBUTED SURPLUS
2004 2003 2002
Balance, beginning of year $ 265.2 $ 264.2 $ 264.2
Stock-based compensation 10.5 1.0 -
Balance, end of year $ 275.7 $ 265.2 $ 264.2
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
18. SEGMENT INFORMATION
The company has three reportable business segments: potash, phosphate and nitrogen. These business segments are differentiated by the chemical
nutrient contained in the product that each produces. Inter-segment sales are made under terms that approximate market value. The accounting
policies of the segments are the same as those described in Note 2.
2004
Potash Phosphate Nitrogen All others Consolidated
Sales $ 1,056.1 $ 977.9 $ 1,210.4 $ - $ 3,244.4
Freight 128.7 71.9 38.1 - 238.7
Transportation and distribution 32.6 29.4 42.3 - 104.3
Net sales - third party 894.8 876.6 1,130.0 -
Cost of goods sold 472.0 860.8 887.2 - 2,220.0
Gross Margin 422.8 15.8 242.8 - 681.4
Inter-segment sales 5.9 12.1 92.9 - -
Depreciation and amortization 66.4 84.4 79.7 9.5 240.0
Provision for PCS Yumbes 3.6 - - - 3.6
Goodwill - - 96.6 0.4 97.0
Assets 1,576.9 1,532.9 1,511.1 505.9 5,126.8
Additions to property, plant and equipment 92.2 55.9 63.0 9.4 220.5
2003
Potash Phosphate Nitrogen All others Consolidated
Sales $ 758.7 $ 883.9 $ 1,156.4 $ - $ 2,799.0
Freight 109.9 75.8 48.8 - 234.5
Transportation and distribution 29.7 26.2 42.8 - 98.7
Net sales - third party 619.1 781.9 1,064.8 -
Cost of goods sold 415.4 798.4 871.6 - 2,085.4
Gross Margin 203.7 (16.5) 193.2 - 380.4
Inter-segment sales 6.0 9.4 67.8 - -
Depreciation and amortization 52.4 75.7 89.6 9.7 227.4
Provision for plant shutdowns - 4.9 118.8 - 123.7
Provision for PCS Yumbes 140.5 - - - 140.5
Goodwill - - 96.6 0.4 97.0
Assets 1,240.1 1,541.3 1,479.1 306.8 4,567.3
Additions to property, plant and equipment 50.9 51.0 44.1 4.7 150.7
2002
Potash Phosphate Nitrogen All others Consolidated
Sales $ 669.0 $ 714.0 $ 841.4 $ - $ 2,224.4
Freight 99.9 58.8 56.5 - 215.2
Transportation and distribution 24.6 18.4 37.5 - 80.5
Net sales - third party 544.5 636.8 747.4 -
Cost of goods sold 326.5 594.9 700.0 - 1,621.4
Gross Margin 218.0 41.9 47.4 - 307.3
Inter-segment sales 6.4 6.4 24.6 - -
Depreciation and amortization 46.3 76.8 88.0 8.0 219.1
Goodwill - - 96.6 0.4 97.0
Assets 1,198.4 1,577.0 1,602.4 307.8 4,685.6
Additions to property, plant and equipment 35.5 126.3 47.0 3.4 212.2
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
18. SEGMENT INFORMATION (CONTINUED)
As described in Note 1, PhosChem and Canpotex execute marketing and sales for certain of the company's offshore sales. Financial information
by geographic area is summarized in the following table:
Country of Origin
Canada United States Trinidad Other Consolidated
2004
Sales to customers outside the company
Canada $ 48.3 $ 87.5 $ - $ - $ 135.8
United States 443.0 1,383.7 413.1 2.8 2,242.6
PhosChem - 140.4 - - 140.4
Canpotex 421.9 - - - 421.9
Ca
Country of Origin
Canada United States Trinidad Other Consolidated
2003
Sales to customers outside the company
Canada $ 41.1 $ 91.4 $ - $ - $ 132.5
United States 314.9 1,392.4 350.6 11.7 2,069.6
PhosChem - 87.0 - - 87.0
Canpotex 260.6 - - - 260.6
Other 96.8 58.9 49.0 44.6 249.3
$ 713.4 $ 1,629.7 $ 399.6 $ 56.3 $ 2,799.0
Operating income (loss) $ 97.8 $ (82.7) $ 91.4 $ (162.1) $ (55.6)
Capital assets and goodwill $ 786.2 $ 1,745.6 $ 604.7 $ 68.6 $ 3,205.1
Country of Origin
Canada United States Trinidad Other Consolidated
2002
Sales to customers outside the company
Canada $ 27.8 $ 79.1 $ - $ - $ 106.9
United States 301.8 1,099.5 209.6 9.0 1,619.9
PhosChem - 37.6 - - 37.6
Canpotex 241.2 - - - 241.2
Other 73.0 67.4 49.4 29.0 218.8
$ 643.8 $ 1,283.6 $ 259.0 $ 38.0 $ 2,224.4
Operating income (loss) $ 145.6 $ 17.8 $ 20.5 $ (17.0) $ 166.9
Capital assets and goodwill $ 778.0 $ 1,875.3 $ 627.9 $ 85.7 $ 3,366.9
19. COST OF GOODS SOLD
The primary components of cost of goods sold are labor, employee benefits, services, raw materials (including inbound freight and purchasing
and receiving costs), operating supplies, energy costs, property and miscellaneous taxes, and depreciation and amortization.
20. SELLING AND ADMINISTRATIVE
The primary components of selling and administrative are compensation, employee benefits, supplies, communications, travel, professional
services and depreciation and amortization.
21. PROVINCIAL MINING AND OTHER TAXES
Provincial mining and other taxes consist of:
2004 2003 2002
Potash Production Tax $ 63.7 $ 35.8 $ 47.7
Saskatchewan corporate capital taxes and other 28.9 21.2 20.3
$ 92.6 $ 57.0 $ 68.0
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
22. PROVISION FOR PLANT SHUTDOWNS
MEMPHIS AND GEISMAR NITROGEN OPERATIONS - 2003
In June 2003, the company indefinitely shut down its Memphis, Tennessee
plant and suspended production of ammonia and nitrogen solutions at its
Geismar, Louisiana facilities due to high US natural gas costs and low
product margins. The operations have not been restarted.
The company determined that all employee positions pertaining to
the affected operations would be eliminated, and recorded $4.8 in
connection with costs of special termination benefits in 2003. The
number of employees terminated as a result of the shutdowns was
187, of whom 186 had left the company as of December 31, 2004. The
company has made payments relating to the terminations totalling
$4.4 and expects to pay the remainder in 2005.
In connection with the shutdowns, management had determined that
the carrying amounts of the long-lived assets at the Memphis and
Geismar nitrogen facilities were not fully recoverable, and an impairment
loss of $101.6, equal to the amount by which the carrying amount of
the facilities' asset groups exceeded their respective fair values, was
recognized. Of the total impairment charge, $100.6 related to property,
plant and equipment and $1.0 related to other assets. As part of its
review, management also wrote down certain parts inventories at
these plants in the amount of $12.4.
In addition to the costs described above, management expects to incur
other shutdown-related costs of approximately $12.1 and nominal
annual expenditures for site security and other maintenance costs.
The other shutdown-related costs have not been recorded in the
consolidated financial statements as of December 31, 2004. Such costs
will be recognized and recorded in the period in which they are incurred.
KINSTON PHOSPHATE FEED PLANT - 2003
The phosphate feed plant at Kinston, North Carolina ceased operations
in 2003. In that year, the company recorded $0.6 for costs of special
termination benefits, $0.3 for parts inventory writedowns and $4.0 for
long-lived asset impairment charges.
The Kinston property was sold in 2004 for nominal proceeds. There was
no significant gain or loss on sale.
No additional significant costs were incurred in connection with the
plant shutdowns in 2004. The following table summarizes, by reportable
segment, the total costs incurred to date and the total costs expected
to be incurred in connection with the plant shutdowns described above:
Costs Total Costs
Incurred Expected to
to Date Be Incurred
Nitrogen Segment
Employee termination and related benefits $ 4.8 $ 4.8
Writedown of parts inventory 12.4 12.4
Asset impairment charges 101.6 101.6
Other related exit costs - 12.1
118.8 130.9
Phosphate Segment
Employee termination and related benefits 0.6 0.6
Writedown of parts inventory 0.3 0.3
Asset impairment charges 4.0 4.0
4.9 4.9
$ 123.7 $ 135.8
Fair value for purposes of all impairment measurements was determined
based on discounted expected future net cash flows.
The following table summarizes, by reportable segment, the costs accrued as of December 31, 2004 in connection with the plant shutdowns
described above:
Accrued Balance Cash Payments Accrued Balance
December 31, 2003 and Adjustments December 31, 2004
Nitrogen Segment
Employee termination and related benefits
2.1 $ (1.7) $ 0.4
Phosphate Segment
Employee termination and related benefits 0.5 (0.5) -
$ 2.6 $ (2.2) $ 0.4
The accrued balance is included in accounts payable and accrued charges in the Consolidated Statement of Financial Position as of December 31, 2004.
23. PROVISION FOR PCS YUMBES S.C.M.
2004
In December 2004, the company concluded the sale of 100 percent of its shares of PCS Yumbes to SQM. Acquired by the company in 1999,
PCS Yumbes holds mining concessions on certain sodium nitrate deposits in the Atacama Desert in northern Chile and is a producer of potassium
nitrate, sodium nitrate and iodine. Proceeds pursuant to the agreement totalled $42.3, including certain working capital adjustments of $6.2 and
contingent consideration of $1.1. The company received $34.5 of the sale price prior to the end of the year. The total gain on sale was $3.5, of
which $2.6 has been recognized in 2004. The deferred portion of the gain will be recognized in earnings in proportion to any future dilution or
sale of part or all of the company's interest in SQM.
During the year, the company recorded an additional writedown of $6.2, relating primarily to certain mining machinery and equipment that was
not transferred to SQM under the terms of the agreement and that management plans to sell prior to the end of 2005. As of December 31, 2004,
the fair value and carrying amount of the machinery and equipment that remained to be sold was $0.5. For measurement purposes, fair value
was determined in reference to market prices for similar assets.
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
23. PROVISION FOR PCS YUMBES S.C.M. (CONTINUED)
2003
In 2003, in connection with entering into the share purchase (and related) agreement with SQM, management conducted an assessment of the
recoverability of the long-lived assets of the PCS Yumbes operations. As a result of its review, management determined that the carrying amounts
of PCS Yumbes' long-lived assets were not recoverable and recorded an impairment charge of $77.4, equal to the amount by which the carrying
amount of the asset group exceeded fair value. Of the total impairment charge, $13.0 related to property, plant and equipment, $63.9 related
to deferred pre-production costs and $0.5 related to deferred acquisition costs. For purposes of the impairment measurement, fair value was
determined in reference to the commercial agreement referred to above. As part of the review, management also wrote down certain non-parts
inventory by $50.2 due to the need to liquidate all inventories that would not be transferred to SQM under the agreement.
The company recorded a provision of $1.8 in 2003 pertaining to contractual termination benefits to be paid to employees, primarily under Chilean
law. The company had also incurred early termination penalties in respect of certain PCS Yumbes contractual arrangements and recorded a
provision of $ 11.1 in 2003 for these contract termination costs.
The following table summarizes the amounts recognized during 2004 and 2003 in connection with PCS Yumbes:
Amounts
Cumulative to Recognized
December 31, 2003 in 2004 Total
Potash Segment
Contract termination costs $ 11.1 $ - $ 11.1
Employee termination and related benefits 1.8 - 1.8
Writedown of non-parts inventory 50.2 - 50.2
Asset impairment charges 77.4 6.2 83.6
Gain on sale - (2.6) (2.6)
$ 140.5 $ 3.6 $ 144.1
The following table summarizes the costs accrued as of December 31, 2004 in connection with PCS Yumbes as described above:
Accrued Balance Costs Incurred Cash Payments Non-cash Accrued Balance
December 31, 2003 During 2004 and Adjustments Settlements December 31, 2004
Potash Segment
Contract termination costs $ 0.6 $ - $ (0.6) $ - $ -
Employee termination and related benefits 1.2 - (1.2) - -
Asset impairment charges - 6.2 - (6.2)
-
$ 1.8 $ 6.2 $ (1.8) $ (6.2) $ -
24. OTHER INCOME
2004 2003 2002
Share of earnings of equity investees $ 30.9 $ 12.4 $ 5.3
Dividend income 8.2 5.6 7.7
Gain on sale of long-term investments (Note 4) 34.4 - -
Other 5.9 15.2 11.8
$ 79.4 $ 33.2 $ 24.8
25. INTEREST EXPENSE
2004 2003 2002
Interest (income) expense on
Short-term debt and cash and cash equivalents $ (1.8) $ 3.6 $ 8.0
Long-term debt 85.8 87.7 75.1
$ 84.0 $ 91.3 $ 83.1
I
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
26. INCOME TAXES
As the company operates in a specialized industry and in several tax jurisdictions, its income is subject to various rates of taxation.
The provision for income taxes differs from the amount that would have resulted from applying the Canadian statutory income tax rates to income
(loss) before income taxes as follows:
2004 2003 2002
Income (loss) before income taxes
Canada $ 175.0 $ 16.3 $ 56.8
United States 69.1 (86.3) 21.5
Trinidad 118.5 80.6 20.5
Other 67.7 (157.5) (15.0)
$ 430.3 $ (146.9) $ 83.8
Federal and provincial statutory tax rates 43.36% 44.36% 46.12%
Tax at statutory rates $ 186.6 $ (65.2) $ 38.7
Adjusted for the effect of:
Writedown of PCS Yumbes 1.4 50.8 -
Gain on sale of long-term investments (14.9) - -
Net non-deductible provincial taxes and royalties and resource allowances 8.1 7.5 10.2
Stock-based compensation deduction (17.1) (5.4) -
Additional tax deductions (11.0) (11.8) (18.6)
Difference between Canadian rate and rates applicable to subsidiaries in other countries (26.7) 4.4 0.8
Other 5.3 (0.9) (0.9)
Income tax expense (recovery) $ 131.7 $ (20.6) $ 30.2
Details of income tax expense (recovery) are as follows
2004 2003 2002
Canada
Current $ 69.4 $ 14.9 $ 46.2
Future 11.5 20.6 (10.1)
United States - Federal
Current 14.7 (16.4) (27.5)
Future (19.4) (40.7) 19.2
United States - State
Current 2.2 (0.6) 1.6
Future 12.5 (8.5) (1.5)
Trinidad and other
Current 19.1 2.1 3.9
Future 21.7 8.0 (1.6)
Income tax expense (recovery) $ 131.7 $ (20.6) $ 30.2
The tax effects of temporary differences that give rise to significant
portions of the net future income tax liability are:
2004 2003
Future income tax assets:
Loss and credit carryforwards $ 294.2 $ 271.3
Post-retirement/post-employment benefits 78.3 55.2
Accrued environmental costs and
asset retirement obligations 0.9 4.0
Other 31.8 29.5
Total future income tax assets 405.2 360.0
Future income tax liabilities:
Basis difference in fixed assets 814.3 806.1
Basis difference in investments 27.6 -
Other 62.7 38.1
Total future income tax liabilities 904.6 844.2
Net future income tax liabilitv $ 499.4 $ 484.2
Earnings of certain international subsidiaries would be taxed upon
their repatriation. The company has not recognized a future income tax
liability for these undistributed earnings as it does not currently expect
them to be repatriated. Taxes that would be payable, at existing tax
rates, if all foreign subsidiaries' accumulated unremitted earnings were
repatriated as at December 31, 2004 are estimated to be $30.3.
At December 31, 2004, the company has income tax losses carried forward
of approximately $644.9 which will begin to expire in 2010. In addition,
the company has alternative minimum tax credits of approximately $0.2
which carry forward indefinitely. The benefit relating to these amounts
has been recognized by reducing future income tax liabilities.
27. NET INCOME (LOSS) PER SHARE
2004 2003 2002
Basic net income (loss) per share
Net income (loss) available
to common shareholders $ 298.6 $ (126.3) $ 53.6
Weighted average number
of common shares 107,967,000 104,460,000 104,042,000
Basic net income (loss)
per share $ 2.77 $ (1.21) $ 0.52
Diluted net income (loss) per share
Net income (loss) available
to common shareholders $ 298.6 $ (126.3) $ 53.6
Weighted average number
of common shares 107,967,000 104,460,000 104,042,000
Dilutive effect of
stock options 2,772,000 - 590,000
Weighted average number
of diluted common shares 110,739,000 104,460,000 104,632,000
Diluted net income (loss)
per share $ 2.70 $ (1.21) $ 0.51
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
27. NET INCOME (LOSS) PER SHARE (CONTINUED)
Diluted net income (loss) per share is calculated based on the weighted
average number of shares issued and outstanding during the year. The
denominator is: (i) increased by the total of the additional common
shares that would have been issued assuming exercise of all stock
options with exercise prices at or below the average market price for
the year; and (ii) decreased by the number of shares that the company
could have repurchased if it had used the proceeds from the exercise
of stock options to repurchase them on the open market at the average
share price for the year. For years in which there was a loss applicable
to common shares, stock options with exercise prices at or below the
average market price for the year were excluded from the calculations
of diluted net loss per share, as inclusion of these securities would have
been anti-dilutive to the net loss per share.
Excluded from the calculation of diluted net income (loss) per share
were average options outstanding of NIL (2003 - 2,239,861; 2002 -
4,230,525) as the options' exercise price was greater than the average
market price of the common shares for the year.
All per-share data have been retroactively adjusted to reflect the stock
split described in Note 16.
Under the Directors Plan, the company may, after January 24, 1995,
issue up to 912,000 common shares pursuant to the exercise of
options. Under both plans, the exercise price is the quoted market
closing price of the company's common shares on the last trading day
immediately preceding the date of the grant, and an option's maximum
term is 10 years. All options granted to date have provided that one-half
of the options granted in a year will vest one year from the date of the
grant, with the other half of the options vesting the following year.
The company did not grant any stock options in 2004. A summary of the
status of the plans as of December 31, 2004, 2003 and 2002 and
changes during the years ending on those dates is presented as follows:
Number of Shares Subject to Option
2004 2003 2002
Outstanding, beginning
of year 10,876,022 11,638,750 10,088,550
Granted - 1,399,072 1,815,200
Exercised (4,397,324) (2,061,700) (243,800)
Cancelled (77,968) (100,100) (21,200)
Outstanding, end of year 6,400,730 10,876,022 11,638,750
Weighted Average Exe rcise Price
2004 2003 2002
28. STOCK-BASED COMPENSATION
The company has four stock-based compensation plans, which are
described below. The company accounts for its grants under those plans
in accordance with the fair value based method of accounting for stock-
based compensation. The compensation cost that has been charged
against income for those plans was $35.3 (2003 - $6.6; 2002 - $5.7).
STOCK OPTION PLANS
The company has two option plans. Under the Officers and Employees
Plan, the company may, after February 3, 1998, issue up to 13,852,250
common shares pursuant to the exercise of options.
Outstanding, beginning
of year $ 34.70 $ 32.99 $ 32.61
Granted - 39.50 33.25
Exercised 34.34 28.28 17.47
Cancelled 38.78 35.41 39.20
Outstanding, end of year 34.97 34.70 32.99
The weighted average gra nt-date fair value of options granted during
the year was $NIL (2003 - $15.7; 2002 - $20.1).
The following table summarizes information about stock options outstanding at December 31, 2004:
Options Outstanding Options Exercisable
Range of Number Weighted Average Weighted Average Weighted Average
Exercise Prices Outstanding Remaining Life Exercise Price Number Exercise Price
$21.84 287,500 5 years $21.84 287,500 $21.84
$30.64 698,200 6 years 30.64 698,200 30.64
$29.04 to $32.69 855,500 7 years 31.45 855,500 31.45
$33.25 1,208,350 8 years 33.25 1,208,350 33.25
$33.94 733,600 4 years 33.94 733,600 33.94
$35.19 to $37.38 626,400 1.5 years 36.18 626,400 36.18
$39.50 1,250,320 9 years 39.50 574,400 39.50
$40.88 to $43.38 740,860 3 ears 43.33 740,860 43.33
6,400,730 6 years $34.97 5,724,810 $34.43
The foregoing options have expiry dates ranging from November 7, 2005 to November 20, 2013.
Prior to 2003, the company applied the intrinsic value based method of accounting for the plans. Effective December 15, 2003, the company
adopted the fair value based method of accounting for stock options prospectively to all employee awards granted, modified or settled after
January 1, 2003. Since the company's stock option awards vest over two years, the compensation cost included in the determination of net
income (loss) for years ended December 31, 2004 and 2003 is less than that which would have been recognized if the fair value based method
had been applied to all awards since the original effective date of CICA Section 3870, "Stock-based Compensation and Other Stock-based
Payments". The following table illustrates the effect on net income (loss) and the related per-share amount if the fair value based method had
been applied to all outstanding and unvested awards in each period.
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
28. STOCK-BASED COMPENSATION (CONTINUED)
2004 2003 2002
Net income (loss) - as reported $ 298.6 $ (126.3) $ 53.6
Add: Stock-based employee compensation expense included in reported
net income (loss), net of related tax effects 8.8 0.8 -
Deduct: Total stock-based employee compensation expense determined under
fair value based method for all option awards net of related tax effects (12.8) (14.8) (14.3)
Net income (loss) - pro forma (1) $ 294.6 $ (140.3) $ 39.3
(1) Compensation expense under the fair value based method is recognized over the vesting period of the related stock options. Accordingly, the pro forma resu lts of applying this
method may not be indicative of future results.
2004 2003 2002
Basic net income (loss) per share
As reported
Pro forma
Diluted net income (loss) per share
As reported
Pro forma
in calculating the foregoing pro forma amounts, the fair value of each
option grant was estimated as of the date of grant using the modified
Black-Scholes option-pricing model with the following weighted-
average assumptions:
Year of Grant
2003 2002 2001
Expected dividend $0.50 $0.50 $0.50
Expected volatility 27% 32% 32%
Risk-free interest rate 4.06% 4.13% 4.54%
Expected life of options 8 years 8 years 8 years
Expected forfeitures 16% 10% 10%
DEFERRED SHARE UNIT AND OTHER PLANS
The company offers a deferred share unit plan to non-employee
directors, which entitles those directors to receive discretionary grants
of deferred share units (DSUs), each of which has a value equal to the
market value of a common share at the time of its grant. The plan also
allows each director to choose to receive, in the form of DSUs, all or a
percentage of the director's fee, which would otherwise be payable in
cash. Each DSU fully vests upon award, but is distributed only when the
director has ceased to be a member of the Board of Directors of the
company. Vested units are settled in cash based on the common share
price at that time. As of December 31, 2004, the total DSUs held by
participating directors was 50,999 (2003 - 35,906; 2002 - 20,526).
The company offers a long-term incentive plan to senior executives and
other key employees. The performance objectives under the plan are
designed to further align the interests of executives and key employees
with those of shareholders by linking the vesting of awards to the total
return to shareholders over the three-year performance period ending
December 31, 2005. Total shareholder return measures the capital
appreciation in the company's common shares, including dividends paid
over the performance period. Vesting of one-half of the awards is based
on increases in the total shareholder return over the three-year
performance period. Vesting of the remaining one-half of the awards is
based on the extent to which the total shareholder return matches or
exceeds the total shareholder return of the common shares of a pre-
defined peer group. Vested units are settled in cash based on the
common share price generally at the end of the performance period.
$ 2.77 $ (1.21) $ 0.52
2.73 (1.34) 0.38
$ 2.70 $ (1.21) $ 0.51
2.66 (1.34) 0.38
Compensation expense for this program is recorded over the three-year
performance cycle of the program. The amount of compensation expense
is adjusted over the three-year performance cycle to reflect the current
market value of common shares and the number of shares vested in
accordance with the vesting schedule based upon total shareholder
return and such return compared to the company's peer group.
29. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The company uses financial instruments, including foreign currency
forward contracts, futures, swaps and option agreements, to manage
foreign exchange, interest rate and commodity price risk. These hedging
derivatives represent off-balance sheet items, since these derivatives
are not recorded at fair value on the Consolidated Statements of
Financial Position.
The company manages interest rate exposures by using a diversified
portfolio of fixed and floating rate instruments. The company's sensitivity
to fluctuations in interest rates is substantially limited to certain of
its cash and cash equivalents, short-term debt and long-term debt. In
January and February 2004, the company entered into interest rate swap
contracts designated as fair value hedges that effectively converted a
notional amount of $300.0 of fixed rate debt (due 2011) into floating
rate debt based on six-month US dollar LIBOR rates. Net settlements on
the swap instruments have been recorded as adjustments to interest
expense. In October 2004, the company terminated the interest rate
swap contracts for cash proceeds of $3.0 and a gain of $0.8. Hedge
accounting was discontinued prospectively and the associated gain is
being amortized over the remaining term of the debt as a reduction
to interest expense. The company did not enter into any interest rate
swap contracts in 2003.
In addition to physical spot and term purchases, the company at times
employs futures, swaps and option agreements to establish the cost on a
portion of its natural gas requirements. These instruments are intended to
hedge the future cost of the committed and anticipated natural gas
purchases for its US nitrogen and phosphate plants. Under these
arrangements, the company receives or makes payments based on the
differential between a specified price and the actual spot price of natural
gas. The company has certain available lines of credit which are utilized
to reduce cash margin requirements to maintain the derivatives. At
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
29. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(CONTINUED)
December 31, 2004, the company had collected cash margin requirements
of $28.5 (2003 - $4.3) which were included in accounts payable.
As at December 31, 2004, the company had derivatives qualifying for
deferral in the form of futures and swaps. The futures represented a
notional amount of 2.8 MMBtu of natural gas with maturities in 2005.
The swaps represented a notional amount of 91.4 MMBtu with
maturities in 2005 through 2014. As at December 31, 2004, deferred
losses from settled hedging transactions were $3.0 (2003 - $2.7).
As at December 31, 2004, the company had entered into foreign
currency forward contracts to sell US dollars and receive Canadian
dollars in the notional amount of $54.1 (2003 - $46.0) at an average
exchange rate of 1.2306 (2003 - 1.3315). The company also had small
forward contracts outstanding as at December 31, 2004 to reduce
exposure to the euro and Swiss franc. The notional amounts of the
company's derivatives do not represent assets or liabilities and therefore
are not reflected in the Consolidated Statements of Financial Position.
Maturity dates for all forward contracts are within 2005.
The company is exposed to credit-related losses in the event of
non-performance by counterparties to derivative financial instruments.
The company anticipates, however, that counterparties will be able
to fully satisfy their obligations under the contracts.
The major concentration of credit risk arises from the company's
receivables. A majority of its sales are in North America and are
primarily for use in the agricultural industry. The company seeks to
manage the credit risk relating to these sales through a credit
management program. Internationally, the company's products are
sold primarily through two export associations whose accounts
receivable are substantially insured or secured by letters of credit.
FAIR VALUE
Fair value represents point-in-time estimates that may change in
subsequent reporting periods due to market conditions or other
factors. The estimated fair values disclosed below are designed to
approximate amounts at which the financial instruments could be
exchanged in a current transaction between willing parties. However,
some financial instruments lack an available trading market and
therefore certain fair values are based on estimates using net present
value and other valuation techniques, which are significantly affected
by assumptions as to the amount and timing of estimated future cash
flows and discount rates, all of which reflect varying degrees of risk.
Due to their short-term nature, the fair value of cash and cash
equivalents, accounts receivable, short-term debt, and accounts payable
and accrued charges is assumed to approximate carrying value. The fair
value of the company's gas hedging contracts at December 31, 2004
approximated $66.5 (2003 - $59.8). Futures contracts are exchange-
traded and fair value was determined based on exchange prices. Swaps
and option agreements are traded in the over-the-counter market and
fair value was calculated based on a price that was converted to an
exchange-equivalent price. The fair value of the company's notes payable
at December 31, 2004 approximated $1,383.2 (2003 - $1,417.8)
and reflects a current yield valuation based on observed market prices.
The fair value of the company's other long-term debt instruments
approximated carrying value.
30. CONTINGENCIES
CANPOTEX
PotashCorp is a shareholder in Canpotex which markets potash
offshore. Should any operating losses or other liabilities be incurred by
Canpotex, the shareholders have contractually agreed to reimburse
Canpotex for such losses or liabilities in proportion to their productive
capacity. There were no such operating losses or other liabilities in
2004, 2003 or 2002.
MINING RISK
In common with other companies in the industry, the company is
unable to acquire insurance for underground assets.
INVESTMENT IN APC
The terms of a shareholders agreement with Jordan Investment
Company ("JIC") provide that, from October 17, 2006 to October 16,
2009, JIC may seek to exercise a put option (the "Put") to require the
company to purchase JIC's remaining common shares in APC. If the Put
were exercised, the company's purchase price would be calculated in
accordance with a specified formula based, in part, on future earnings
of APC. The amount, if any, which the company may have to pay for
JIC's remaining common shares if there was to be a valid exercise of
the Put is not presently determinable.
LEGAL AND OTHER MATTERS
In 1998, the company, along with other parties, was notified by the US
Environmental Protection Agency ("EPA") of potential liability under the
US federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") with respect to certain soil and
groundwater conditions at a PCS Joint Venture blending facility in
Lakeland, Florida and certain adjoining property. In 1999, PCS Joint
Venture signed an Administrative Order on Consent with EPA pursuant
to which PCS Joint Venture agreed to conduct a Remedial Investigation
and Feasibility Study ("RI/FS") of these conditions. PCS Joint Venture
and another party are sharing the costs of the RI/FS. The draft feasibility
study has been submitted for review and approval, and selection of a
remedy is projected to occur some time in 2005. No final determination
has yet been made of the nature, timing or cost of remedial action that
may be needed, nor to what extent costs incurred may be recoverable
from third parties.
In 1994, PCS Joint Venture responded to information requests from the
EPA and the Georgia Department of Natural Resources, Environmental
Protection Division ("GEPY), regarding conditions at its Moultrie,
Georgia location. PCS Joint Venture believes that the lead-contaminated
soil and groundwater found at the site is attributable to former
operations at the site prior to PCS Joint Venture's ownership. PCS Joint
Venture initially submitted a proposed Corrective Action Plan to GEPD
in 1999, which has now been revised several times in response to GEPD
comments. PCS Joint Venture has also conducted and submitted an
assessment of the site. Based on its review of the assessment and the
Corrective Action Plan, GEPD has expressed its opinion that remediation
of the site will require some excavation and off-site disposal of
impacted soil and installation of a groundwater recovery and treatment
system. The company has continued discussions with GEPD regarding
a remedial plan for the site.
In 2003, EPA notified PCS Nitrogen that it considered PCS Nitrogen
to be a potentially responsible party with respect to a former fertilizer
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
30. CONTINGENCIES (CONTINUED)
blending operation in South Carolina formerly owned by a company
from which PCS Nitrogen acquired certain other assets. It is the
company's understanding that EPA is conducting an assessment of
conditions at the site and intends to propose a remedial plan for the
site in the coming year. The company intends to continue to assert its
position that it is not a responsible party. The company is also engaged
in ongoing site assessment and/or remediation activities at a number
of other facilities and sites. Based on current information, it believes
that its future obligations with respect to these facilities and sites will
not have a material adverse effect on the company's consolidated
financial position or results of operations.
The breadth of the company's operations and the global complexity of
tax regulations require assessments of uncertainties and judgments in
estimating the ultimate taxes the company will pay. The final taxes paid
are dependent upon many factors, including negotiations with taxing
authorities in various jurisdictions, outcomes of tax litigation and
resolution of disputes arising from federal, provincial, state and local
tax audits. The resolution of these uncertainties and the associated
final taxes may result in adjustments to the company's tax assets and
tax liabilities.
Various other claims and lawsuits are pending against the company in
the ordinary course of business. While it is not possible to determine
the ultimate outcome of such actions at this time, and there exist
inherent uncertainties in predicting such outcomes, it is management's
belief that the ultimate resolution of such actions will not have a
material adverse effect on the company's consolidated financial position
or results of operations.
31. GUARANTEES
In the normal course of operations, the company provides indemnifications
that are often standard contractual terms to counterparties in transactions
such as purchase and sale contracts, service agreements, director/officer
contracts and leasing transactions. These indemnification agreements
may require the company to compensate the counterparties for costs
incurred as a result of various events, including environmental liabilities
and changes in (or in the interpretation of) laws and regulations, or as
a result of litigation claims or statutory sanctions that may be suffered
by the counterparty as a consequence of the transaction. The terms of
these indemnification agreements will vary based upon the contract,
the nature of which prevents the company from making a reasonable
estimate of the maximum potential amount that it could be required
to pay to counterparties. Historically, the company has not made any
significant payments under such indemnifications and no amounts have
been accrued in the accompanying consolidated financial statements
with respect to these indemnification guarantees.
The company enters into agreements in the normal course of business
that may contain features which meet the definition of a guarantee.
Various debt obligations (such as overdrafts, lines of credit with
counterparties for derivatives, and back-to-back loan arrangements)
and other commitments (such as railcar leases) related to certain
subsidiaries have been directly guaranteed by the company under such
agreements with third parties. The company would be required to
perform on these guarantees in the event of default by the guaranteed
parties. No material loss is anticipated by reason of such agreements
and guarantees. At December 31, 2004, the maximum potential
amount of future (undiscounted) payments under significant guarantees
provided to third parties approximated $159.9, representing the
maximum risk of loss if there were a total default by the guaranteed
parties, without consideration of possible recoveries under recourse
provisions or from collateral held or pledged. At December 31, 2004,
no subsidiary balances subject to guarantees were outstanding in
connection with the company's cash management facilities, and the
company had no liabilities recorded for other obligations other than
subsidiary bank borrowings of approximately $5.9, which are reflected
in other long-term debt in Note 12, and the cash margin requirements
to maintain derivatives as disclosed in Note 29.
The company has guaranteed the gypsum stack capping, closure and
post-closure obligations of White Springs and PCS Nitrogen, in Florida
and Louisiana, respectively, pursuant to the financial assurance
regulatory requirements in those states. The State of Florida is presently
reviewing, and is expected to revise, its financial assurance
requirements to ensure that responsible parties have sufficient
resources to cover all closure and post-closure costs and liabilities
associated with gypsum stacks. This review may result in the imposition
of more stringent requirements to demonstrate financial responsibility
and/or inclusion of a greater scope of closure and post-closure costs
than under current law.
The environmental regulations of the Province of Saskatchewan require
each potash mine to have decommissioning and reclamation ("D&R")
plans. In 2001, agreement was reached with the provincial government
on the financial assurances for the D&R plan to cover an interim period
to July 1, 2005. In October 2004, this interim period was extended to
July 1, 2006. A government/industry task force has been established
to assess decommissioning options for all Saskatchewan potash
producers and to produce mutually acceptable revisions to the plan
schedules. The company has posted a Cdn $2.0 letter of credit as
collateral that will remain in effect until the revised plans are accepted.
During the year, the company entered into various other commercial
letters of credit in the normal course of operations.
The company expects that it will be able to satisfy all applicable credit
support requirements without disrupting normal business operations.
32. RELATED PARTY TRANSACTIONS
Sales to Canpotex are at prevailing market prices. Sales for the year
ended December 31, 2004 were $421.9 (2003 - $260.6; 2002 -
$241.2). Account balances resulting from the Canpotex transactions
are included in the Consolidated Statements of Financial Position and
settled on normal trade terms (see Note 5).
In connection with entering into the agreement with SQM as described
in Note 23, PCS Yumbes agreed to purchase potash from SQM at a
negotiated price that approximated market value. In addition, PCS
Yumbes agreed to sell to SQM all of its potassium nitrate production at
a negotiated price that approximated market value. Both agreements
were in effect until closing of the PCS Yumbes sale agreement in
December 2004. Potash purchases from SQM for the year were
$7.0 (2003 - $13.1; 2002 - $17.9). Potassium nitrate sales to SQM
for the year were $25.1 (2003 - $25.8; 2002 - $2.1). All transactions
with SQM are settled on normal trade terms.
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
33. QUARTERLY RESULTS (UNAUDITED)
The following quarterly information in management's opinion includes all adjustments (consisting solely of normal recurring adjustments)
necessary for fair presentation. All per-share data have been retroactively adjusted to reflect the stock split described in Note 16.
First Quarter Second Quarter Third Quarter Fourth Quarter
2004
Sales $ 728.4 $ 833.7 $ 815.7 $ 866.6
Less: Freight 58.1 68.9 51.2 60.5
Transportation and distribution 23.0 31.3 23.6 26.4
Cost of goods sold 523.3 562.8 551.5 582.4
Gross Margin $ 124.0 $ 170.7 $ 189.4 $ 197.3
Operating Income $ 97.8 $ 129.2 $ 133.1 $ 154.2
Net Income $ 50.7 $ 72.6 $ 75.2 $ 100.1
Net Income per Share - Basic $ 0.48 $ 0.68 $ 0.69 $ 0.91
Net Income per Share - Diluted $ 0.47 $ 0.67 $ 0.68 $ 0.88
First Quarter Second Quarter Third Quarter Fourth Quarter
2003
Sales $ 661.8 $ 745.0 $ 674.6 $ 717.6
Less: Freight 64.4 60.5 55.9 53.7
Transportation and distribution 23.0 27.5 28.3 19.9
Cost of goods sold 493.3 534.7 505.9 551.5
Gross Margin $ 81.1 $ 122.3 $ 84.5 $ 92.5
Operating Income (Loss) $ 24.7 $ 73.1 $ (210.9) $ 57.5
Net Income (Loss) $ 3.2 $ 29.9 $ (185.9) $ 26.5
Net Income (Loss) per Share - Basic $ 0.03 $ 0.29 $ (1.78) $ 0.25
Net Income (Loss) per Share - Diluted $ 0.03 $ 0.29 $ (1.78) $ 0.25
Net income (loss) per share for each quarter has been computed based on the weighted average number of shares issued and outstanding during
the respective quarter; therefore, quarterly amounts may not add to the annual total.
34. SEASONALITY
The company's sales of fertilizer can be seasonal. Typically, the second
quarter of the year is when fertilizer sales will be highest, due to the
North American spring planting season. However, planting conditions
and the timing of customer purchases will vary each year and sales can
be expected to shift from one quarter to another.
35. COMPARATIVE FIGURES
Certain of the prior years' figures have been reclassified to conform
with the current year's presentation.
36. RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
Canadian GAAP varies in certain significant respects from US GAAP.
As required by the United States Securities and Exchange Commission,
the effect of these principal differences on the company's consolidated
financial statements is described and quantified below:
Long-term investments: The company's investment in ICL is stated
at cost. US GAAP requires that this investment be classified as available-
for-sale and be stated at market value with the difference between
market value and cost reported as a component of Other Comprehensive
Income ("OCI"). Under US GAAP, when an investment previously
accounted for using the cost method qualifies for use of the equity
method, the investor should adopt the equity method of accounting. The
investment, results of operations (current and prior periods presented),
and retained earnings of the investor should be adjusted retroactively.
Under Canadian GAAP, equity accounting is generally not applied
retroactively. In 2002, the company acquired additional shares in SQM
and adopted the equity method of accounting, though not on a
retroactive basis. In 2004, the company corrected this omission in its US
GAAP reconciliation to reflect a reduction in 2002 opening accumulated
other comprehensive income, deferred income taxes payable and long-
term investments of $6.8, $3.9 and $10.7, respectively, and an increase
in other comprehensive income of $23.2. The revision had no effect on
2002 opening retained earnings, net income or net income per share.
Property, plant and equipment and goodwill: The net book value of
property, plant and equipment and goodwill under Canadian GAAP is
higher than under US GAAP, as past provisions for asset impairment
under Canadian GAAP were measured based on the undiscounted
cash flow from use together with the residual value of the assets.
Under US GAAP they were measured based on fair value, which was
lower than the undiscounted cash flow from use together with the
residual value of the assets. Fair value for this purpose was determined
based on discounted expected future net cash flows.
Depreciation and amortization: Depreciation and amortization
under Canadian GAAP is higher than under US GAAP, as a result of
differences in the carrying amounts of property, plant and equipment
under Canadian and US GAAP.
Pre-operating costs: Operating costs incurred during the start-up
phase of new projects are deferred under Canadian GAAP until
commercial production levels are reached, at which time they are
amortized over the estimated life of the project. US GAAP requires that
these costs be expensed as incurred.
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
36. RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
Asset retirement obligations: The company adopted SFAS No. 143,
"Accounting for Asset Retirement Obligations", for US GAAP purposes
effective January 1, 2003. As described in Note 3, the equivalent
Canadian standard was not adopted until January 1, 2004.
Post-retirement and post-employment benefits: Under Canadian
GAAP, when a defined benefit plan gives rise to an accrued benefit
asset, a company must recognize a valuation allowance for the excess
of the adjusted benefit asset over the expected future benefit to be
realized from the plan asset. Changes in the pension valuation
allowance are recognized in income. US GAAP does not specifically
address pension valuation allowances, and the US regulators have
interpreted this to be a difference between Canadian and US GAAP. In
light of this, a difference between Canadian and US GAAP has been
recorded for the effects of recognizing a pension valuation allowance
and the changes therein under Canadian GAAP.
The company's accumulated benefit obligation for its US pension plans
exceeds the fair value of plan assets. US GAAP requires the recognition
of an additional minimum pension liability in the amount of the excess
of the unfunded accumulated benefit obligation over the recorded
pension benefits liability. An offsetting intangible asset is recorded
equal to the unrecognized prior service costs, with any difference
recorded as a reduction of accumulated OCI. No similar requirement
exists under Canadian GAAP.
Foreign currency translation adjustment: The company adopted the
US dollar as its functional and reporting currency on January 1, 1995.
At that time, the consolidated financial statements were translated
into US dollars at the December 31, 1994 year-end exchange rate
using the translation of convenience method under Canadian GAAP.
This translation method was not permitted under US GAAP. US GAAP
required the comparative Consolidated Statements of Operations and
Consolidated Statements of Cash Flow to be translated at applicable
weighted-average exchange rates; whereas the Consolidated
Statements of Financial Position were permitted to be translated at
the December 31, 1994 year-end exchange rate. The use of disparate
exchange rates under US GAAP gave rise to a foreign currency
translation adjustment. Under US GAAP, this adjustment is reported as
a component of accumulated OCI.
Derivative instruments and hedging activities: Under Canadian
GAAP, effective January 1, 2004, derivatives used for non-trading
purposes that do not qualify for hedge accounting are carried at fair
value on the Consolidated Statements of Financial Position, with
changes in fair value reflected in earnings. Derivatives embedded
within hybrid instruments are generally not separately accounted for
except for those related to equity-linked deposit contracts, which are
not applicable to the company. Gains and losses on derivative
instruments held within an effective hedge relationship are recognized
in earnings on the same basis and in the same period as the underlying
hedged items. There is no difference in accounting between Canadian
and US GAAP in respect of derivatives that do not qualify for hedge
accounting. Unlike Canadian GAAP, however, the company recognizes
all of its derivative instruments (whether designated in hedging
relationships or not, or embedded within hybrid instruments) at fair
value on the Consolidated Statements of Financial Position for US
GAAP purposes. Under US GAAP, the accounting for changes in the fair
value (i.e. gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging
relationship. For strategies designated as fair value hedges, the
effective portion of the change in the fair value of the derivative is
offset in income against the change in fair value, attributed to the
risk being hedged, of the underlying hedged asset, liability or firm
commitment. For cash flow hedges, the effective portion of the
changes in the fair value of the derivative is accumulated in OCI until
the variability in cash flows being hedged is recognized in earnings in
future accounting periods. For both fair value and cash flow hedges, if
a derivative instrument is designated as a hedge and meets the criteria
for hedge effectiveness, earnings offset is available, but only to the
extent that the hedge is effective. Ineffective portions of fair value or
cash flow hedges are recorded in earnings in the current period.
Freight, transportation and distribution: The company has changed
its accounting policy regarding consolidated financial statement
presentation of freight costs and transportation and distribution
expenses under US GAAP. In prior years, the company included freight
costs in cost of goods sold and transportation and distribution
expenses in operating expenses under US GAAP. Effective January 1,
2004, the company discloses freight costs and transportation and
distribution expenses under US GAAP as separate line items within
gross margin on the Consolidated Statements of Operations and
Retained Earnings. This presentation is consistent with the new
Canadian GAAP presentation described in Note 3. All comparative
information has been appropriately reclassified.
Provision for plant shutdowns: The 2003 provision for plant
shutdowns under Canadian GAAP includes $12.7 for writedowns of
parts inventory. US GAAP requires that these writedowns be presented
as a component of cost of goods sold.
Provision for PCS Yumbes S.C.M.: The 2003 provision for PCS Yumbes
under Canadian GAAP includes $50.2 for writedowns of non-parts
inventory. US GAAP requires that these writedowns be presented as a
component of cost of goods sold.
Comprehensive income: Comprehensive income is recognized and
measured under US GAAP pursuant to SFAS No. 130, "Reporting
Comprehensive Income". This standard defines comprehensive income
as all changes in equity other than those resulting from investments
by owners and distributions to owners. Comprehensive income is
comprised of two components, net income and OCI. OCI refers to
amounts that are recorded as an element of shareholders' equity but
are excluded from net income because these transactions or events
were attributed to changes from non-owner sources. As described in
Note 2, Canadian standards relating to comprehensive income are not
effective until fiscal years beginning on or after October 1, 2006.
Income taxes: The income tax adjustment reflects the impact on
income taxes of the US GAAP adjustments described above.
Accounting for income taxes under Canadian and US GAAP is similar,
except that income tax rates of enacted or substantively enacted tax
law must be used to calculate future income tax assets and liabilities
under Canadian GAAP, whereas only income tax rates of enacted tax
law can be used under US GAAP.
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
36. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
The application of US GAAP, as described above, would have had the following effects on net income (loss), net income (loss) per share, total assets
and shareholders' equity. All share and per-share data have been retroactively adjusted to reflect the stock split described in Note 16.
2004 2003 20020)
Net income (loss) as reported - Canadian GAAP $ 298.6 $ (126.3) $ 53.6
Items increasing or decreasing reported net income (loss)
Cash flow hedge ineffectiveness 2.6 - -
Pre-operating costs - 63.0 2.6
Depreciation and amortization 8.4 8.5 8.4
Accretion of asset retirement obligations 3.3 (3.3) -
Post-retirement and post-employment benefits (2.2) 2.0 -
Deferred income taxes relating to the above adjustments (4.3) (23.7) (4.0)
Net income (loss) - US GAAP $ 306.4 $ (79.8) $ 60.6
Weighted average shares outstanding - US GAAP 107,967,000 104,460,000 104,042,000
Basic net income per share - US GAAP $ 2.84 $ (0.76) $ 0.58
Total assets as reported - Canadian GAAP
Items increasing (decreasing) reported total assets
Inventory
Other current assets
Available-for-sale securities (unrealized holding gain)
Fair value of derivative instruments
Property, plant and equipment
Pre-operating costs
Post-retirement and post-employment benefits
Intangible asset relating to additional minimum pension liability
Goodwill
Total assets - US GAAP
$5,126.8 $ 4,567.3 $ 4,685.6
(3.0) (2.7) (4.0)
2.6 - -
161.7 60.6 17.9
66.5 59.8 52.7
(126.5) (134.9) (143.4)
- - (63.0)
11.7 13.9 11.9
9.6 2.7 -
(46.7) (46.7) (46.7)
,202.7 $ 4,520.0 $ 4,511.0
Total shareholders' equity as reported - Canadian GAAP $2,385.6 $ 1,973.8 $ 2,092.5
Items increasing (decreasing) reported shareholders' equity
Accumulated other comprehensive income (loss), net of related income taxes 96.8 31.2 (13.6)
Foreign currency translation adjustment 20.9 20.9 20.9
Accretion of asset retirement obligations - (3.3) -
Provision for asset impairment (218.0) (218.0) (218.0)
Depreciation and amortization 44.8 36.4 27.9
Pre-operating costs - - (63.0)
Cash flow hedge ineffectiveness 2.6 - -
Post-retirement and post-employment benefits 11.7 13.9 11.9
Deferred income taxes relating to the above adjustments 30.4 34.7 58.4
Shareholders' equity - US GAAP $2,374.8 $ 1,889.6 $ 1,917.0
(1) Previously reported figures for 2002 have been adjusted for the US GAAP accounting for long-term investments as described on Page 80
SUPPLEMENTAL US GAAP DISCLOSURE
Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board ("FASB")
revised FIN No. 46, "Consolidation of Variable Interest Entities", which
clarifies the application of Accounting Research Bulletin No. 51
"Consolidated Financial Statements" to those entities (defined as VIES)
in which either the equity at risk is not sufficient to permit that entity to
finance its activities without additional subordinated financial support
from other parties, or equity investors lack voting control, an obligation
to absorb expected losses or the right to receive expected residual
returns. FIN No. 46(R) requires consolidation by a business of VIES in
which it is the primary beneficiary. The primary beneficiary is defined as
the party that has exposure to the majority of the expected losses and/or
expected residual returns of the VIE. FIN No. 46(R) was effective for the
company in the first quarter, and there was no material impact on its
financial position, results of operations or cash flows from adoption.
In July 2004, the Emerging Issues Task Force ("EITF") discussed Issue
No. 04-6, "Accounting for Post-Production Stripping Costs in the Mining
Industry". At its September meeting, the EITF generally supported an
approach that stripping costs incurred during production are mine-
development costs that should be capitalized as an investment in the
mine, and these capitalized costs should be attributed to reserves in a
systematic and rational manner. The EITF did not make this a final
consensus because it wanted to explore the impact of any consensus
on mines with differing physical patterns of ore location (which affects
the overall timing of attribution). Further discussion of this issue is
expected at a future EITF meeting.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
36. RECONCILIATION OF CANADIAN AND UNITED STATES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(CONTINUED)
In November 2004, the EITF ratified Issue No. 03-13, "Applying the
Conditions in Paragraph 42 of FASB Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, in Determining
Whether to Report Discontinued Operations". The EITF reached a
consensus that classification of a disposed of or held-for-sale component
as a discontinued operation is only appropriate if the ongoing entity (i)
expects to have no continuing "direct" cash flows, and (ii) does not
retain or expect to retain an interest, contract or other arrangement
sufficient to enable it to exert significant influence over the disposed
component's operating and financial policies after the disposal
transaction. Application of this consensus did not have a material
impact on the company's consolidated financial statements.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs",
to clarify that abnormal amounts of idle facility expense, freight,
handling costs and wasted materials (spoilage) should be recognized as
current-period charges, and to require the allocation of fixed production
overheads to inventory based on the normal capacity of the production
facilities. The guidance is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Earlier application is
permitted. The company is reviewing the guidance to determine the
potential impact, if any, on its consolidated financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment", that will require compensation costs related
to share-based payment transactions to be recognized in financial
statements. With limited exceptions, the amount of compensation cost
will be measured based on the grant-date fair value of the equity
or liability instruments issued. In addition, liability awards will be
remeasured each reporting period. Compensation cost will be
recognized over the period that an employee provides service in
exchange for the award. The standard replaces SFAS No. 123,
"Accounting for Stock-Based Compensation", and supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees". It is
effective for the first interim or annual reporting period beginning after
June 15, 2005, meaning that the company will apply the guidance to
all employee awards of share-based payment granted, modified or
settled in the third quarter of 2005. The company is reviewing the
standard to determine the potential impact, if any, on its consolidated
financial statements.
Available-for-Sale Security
The company's investment in ICL is classified as available-for-sale. The
fair market value of this investment at December 31, 2004 was $254.5
and the unrealized holding gain was $161.7.
Deferred Income Taxes
The total valuation allowance recognized for deferred income tax assets
in 2004 was $29.4 (2003 - $11.4). The company has determined that
it is more likely than not that the deferred income tax asset net of the
valuation allowance will be realized through a combination of future
reversals of temporary differences and taxable income.
Stock-Based Compensation
Prior to 2003, the company applied the intrinsic value based method
of accounting for its stock option plans under US GAAP. No stock-
based employee compensation cost is reflected in 2002 net income, as
all options granted under the plans had an exercise price equal to the
market value of the underlying common stock on the date of grant.
Effective December 15, 2003, the company adopted the fair value
based method of accounting for stock options prospectively to all
employee awards granted, modified or settled after January 1, 2003
pursuant to the transitional provisions of SFAS No. 148, "Accounting
for Stock-Based Compensation -Transition and Disclosure". Since the
company's stock option awards vest over two years, the compensation
cost included in the determination of net income (loss) for years ended
December 31, 2004 and 2003 is less than that which would have been
recognized if the fair value based method had been applied to all
awards since the original effective date of SFAS No. 123, "Accounting
for Stock-Based Compensation". The following table illustrates the
effect on net income (loss) and net income (loss) per share under
US GAAP if the fair value based method had been applied to all
outstanding and unvested awards in each period.
2004 2003 2002
Net income (loss) - as reported under US GAAP $ 306.4 $ (79.8) $ 60.6
Add: Stock-based employee compensation expense included
in reported net income (loss), net of related tax effects 8.8 0.8 -
Less: Total stock-based employee compensation expense determined under
fair value based method for all option awards, net of related tax effects (12.8) (14.8) (14.3)
Net income (loss) - pro forma under US GAAP (1) $ 302.4 $ (93.8) $ 46.3
Compensation expense under the fair value based method is recognized over the vesting period of the related stock options. Accordingly, the pro forma results of applying this
method may not be indicative of future results.
2004 2003 2002
Basic net income (loss) per share
As reported $ 2.84 $ (0.76) $ 0.58
Pro forma 2.80 (0.90) 0.45
Diluted net income (loss) per share
As reported $ 2.77 $ (0.76) $ 0.58
Pro forma 2.73 (0.90) 0.44
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
36. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
Derivative Instruments and Hedging Activities
The company has designated its natural gas derivative instruments as cash flow hedges.
The portion of gain or loss on derivative instruments designated as cash flow hedges that are effective at offsetting changes in the hedged item
is reported as a component of accumulated OCI and then is reclassified into cost of goods sold when the product containing the hedged item is
sold. Any hedge ineffectiveness is recorded in cost of goods sold in the current period. During the year, a gain of $43.0 was recognized in cost
of goods sold (2003 - $89.9; 2002 - $15.5). Of the deferred gains at year-end, approximately $36.7 will be reclassified to cost of goods sold
within the next 12 months.
Related Party Transactions
During the year, sales to a company associated with the immediate family of a member of the Board of Directors of PCS totalled $16.2 (2003 - $9.1).
These transactions were conducted in the normal course of business at the prevailing market prices and on normal trade terms.
SUPPLEMENTAL SCHEDULES
The following supplemental schedules present the consolidated Financial Position, Operations and Retained Earnings, Comprehensive Income
(Loss), Accumulated Other Comprehensive Income (Loss), and Cash Flow in accordance with US GAAP as adjusted for the GAAP differences
described in this note.
SUPPLEMENTAL SCHEDULE OF CONSOLIDATED FINANCIAL POSITION
As at December 31
2004 2003
Assets
Current assets
Cash and cash equivalents $ 458.9 $ 4.7
Accounts receivable 352.6 305.0
Inventories 393.8 392.5
Prepaid expenses and other current assets 37.9 29.0
Current portion of derivative instruments 38.2 37.5
1,281.4 768.7
Derivative instruments 28.3 22.3
Property, plant and equipment 2,972.4 2,973.2
Other assets 833.2 672.6
Intangible assets 37.1 32.9
Goodwill 50.3 50.3
$5,202.7 $ 4,520.0
Liabilities
Current liabilities
Short-term debt $ 93.5 $ 176.2
Accounts payable and accrued charges 599.9 380.3
Current portion of long-term debt 10.3 1.3
703.7 557.8
Long-term debt 1,258.6 1,268.6
Deferred income tax liability 521.6 469.8
Accrued post-retirement/post-employment benefits 257.9 242.5
Accrued environmental costs and asset retirement obligations 81.2 84.6
Other non-current liabilities and deferred credits 4.9 7.1
2,827.9 2,630.4
Shareholders' Equity
Share capital 1,408.4 1,245.8
Additional paid-in capital 275.7 265.2
Retained earnings 593.9 347.4
Accumulated other comprehensive income 96.8 31.2
2,374.8 1,889.6
$5,202.7 $ 4,520.0

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
36. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
SUPPLEMENTAL SCHEDULE OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS
For the Years Ended December 31
2004 2003 2002
Sales $3,244.4 $ 2,799.0 $ 2,222.4
Less: Freight 238.7 234.5 215.2
Transportation and distribution 104.3 98.7 80.5
Cost of goods sold 2,207.9 2,141.2 1,610.4
Gross Margin 693.5 324.6 318.3
Selling and administrative 130.6 96.1 91.7
Provincial mining and other taxes 92.6 57.0 68.0
Provision for plant shutdowns - 111.0 -
Provision for PCS Yumbes S.C.M. 3.6 27.3 -
Foreign exchange loss 19.7 51.9 5.5
Share of earnings of equity investees (30.9) (12.4) (5.3)
Other income (48.5) (20.8) (19.5)
167.1 310.1 140.4
Operating Income 526.4 14.5 177.9
Interest Expense 84.0 91.3 83.1
Income (Loss) Before Income Taxes 442.4 (76.8) 94.8
Income Taxes 136.0 3.0 34.2
Net Income (Loss) 306.4 (79.8) 60.6
Retained Earnings, Beginning of Year 347.4 479.5 470.9
Dividends (59.9) (52.3) (52.0)
Retained Earnings, End of Year $ 593.9 $ 347.4 $ 479.5
Net Income (Loss) Per Share - Basic $ 2.84 $ (0.76) $ 0.58
Net Income (Loss) Per Share - Diluted $ 2.77 $ (0.76) $ 0.58
Dividends Per Share $ 0.55 $ 0.50 $ 0.50
SUPPLEMENTAL SCHEDULE OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31
2004 2003 20020)
Net income (loss) $ 306.4 $ (79.8) $ 60.6
Other comprehensive income (loss)
Change in unrealized holding gains and losses on available-for-sale securities 101.2 42.7 (6.3)
Change in gains and losses on derivatives designated as cash flow hedges 49.3 98.3 66.0
Reclassification to income of gains and losses on cash flow hedges (43.0) (89.9) (15.5)
Adjustment to additional minimum pension liability (9.6) 23.4 (68.7)
Deferred income taxes related to other comprehensive income (32.3) (29.7) 8.8
Other comprehensive income (loss), net of related income taxes 65.6 44.8 (15.7)
Comprehensive income (loss) $ 372.0 $ (35.0) $ 44.9
SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31
2004 2003 200210
Accumulated other comprehensive income (loss), beginning of year $ 31.2 $ (13.6) $ 2.1
Other comprehensive income (loss), net of related income taxes 65.6 44.8 (15.7)
Accumulated other comprehensive income (loss), end of year $ 96.8 $ 31.2 $ (13.6)
The balances related to each component of accumulated other comprehensive income (loss), net of related income taxes, are as follows:
2004 2003 200210
Unrealized gains and losses on available-for-sale securities $ 106.7 $ 39.0 $ 13.3
Gains and losses on derivatives designated as cash flow hedges 47.4 43.1 38.0
Additional minimum pension liability (36.4) (30.0) (44.0)
Foreign currency translation adjustment (20.9) (20.9) (20.9)
Accumulated other comprehensive income (loss), end of year $ 96.8 $ 31.2 $ (13.6)
(1) Previously reported figures for 2002 have been adjusted for the US GAAP accounting for long-term investments as described on Page 80
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS I in millions of US dollars except share and per-share amounts
36. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)
SUPPLEMENTAL SCHEDULE OF CONSOLIDATED CASH FLOW
For the Years Ended December 31
2004 2003 2002
Operating Activities
Net income (loss) $ 306.4 $ (79.8) $ 60.6
Items not affecting cash
Depreciation and amortization 231.6 218.9 208.1
Stock-based compensation 11.1 1.0 -
(Gain) loss on disposal of property, plant and equipment (0.7) 1.0 1.0
Gain on sale of long-term investments (34.4) - -
Provision for plant shutdowns - 105.6 -
Provision for PCS Yumbes S.C.M. 3.6 14.5 -
Writedown of inventories - 62.9 -
Foreign exchange on deferred income tax 17.2 35.9 1.0
Provision for deferred income tax 30.6 3.0 10.0
Share of earnings of equity investees (30.9) (12.4) (5.3)
Provision for post-retirement/post-employment benefits 1.1 9.7 18.2
Accrued environmental costs and asset retirement obligations (3.4) 4.6 (3.0)
Other non-current liabilities and deferred credits - 1.6 (1.4)
Changes in non-cash operating working capital
Accounts receivable (51.9) (39.5) (11.1)
Inventories (10.5) 14.5 (14.2)
Prepaid expenses and other current assets (8.9) 9.4 (3.9)
Accounts payable and accrued charges 102.2 48.9 33.0
Current income taxes 86.5 (18.3) 23.4
Cash provided by operating activities 649.6 381.5 316.4
Investing Activities
Additions to property, plant and equipment (220.5) (150.7) (212.2)
Proceeds from disposal of property, plant and equipment 2.5 - -
Investment in Sociedad Quimica y Minera de Chile S.A. (97.2) - (23.2)
Investment in Arab Potash Company (8.3) (178.3) -
Proceeds from sale of long-term investments 66.3 - -
Proceeds from sale of shares of PCS Yumbes S.C.M. 34.5 - -
Dividends received from equity investees 8.7 4.0 -
Other assets and intangibles (2.8) (32.7) (36.0)
Cash used in investing activities (216.8) (357.7) (271.4)
Financing Activities
Proceeds from long-term debt obligations - 250.0 11.2
Repayment of long-term debt obligations (1.0) (3.4) (1.3)
Repayment of short-term debt obligations (82.7) (296.8) (28.1)
Dividends (56.1) (52.3) (52.0)
Issuance of shares 161.2 58.9 4.4
Cash provided by (used in) financing activities 21.4 (43.6) (65.8)
Increase (Decrease) in Cash and Cash Equivalents 454.2 (19.8) (20.8)
Cash and Cash Equivalents, Beginning of Period 4.7 24.5 45.3
Cash and Cash Equivalents, End of Period $ 458.9 $ 4.7 $ 24.5
37. SUBSEQUENT EVENT
On January 25, 2005, the Board of Directors of PCS authorized a share repurchase program of up to 5.5 million common shares (approximately
5 percent of the company's issued and outstanding common shares) through a normal course issuer bid. If considered advisable, shares may be
repurchased from time to time on the open market through February 14, 2006 at prevailing market prices. The timing and amount of purchases,
if any, under the program will be dependent upon the availability and alternative uses of capital, market conditions and other factors.
07
POTASHCORP 2004 ANNUAL REPORT I BOARD OF DIRECTORS

Board of Directors
Committees:
(1) Executive committee
(2) Corporate governance and nominating committee
(3) Compensation committee
(4) Safety, health and environment committee
(5) Audit committee
Frederick J. Blesi, of Glenview, Illinois,
is a retired Chairman and CEO of the Phosphate
Chemicals Export Association Inc. (PhosChem),
principal exporter of US phosphate chemicals.
Before joining PhosChem, he was Vice
President, International with international
Minerals and Chemical Corporation. He is a
director of the Evans Scholars Foundation and
The Western Golf Association. He joined the
PCS Inc. Board in 2001. (2,5)
William J. Doyle, of Saskatoon,
Saskatchewan, is President and CEO of Potash
Corporation of Saskatchewan Inc. He became
President of PCS Sales in 1987, after a career
with International Minerals and Chemical
Corporation. He is Chairman of the Potash
& Phosphate Institute and the International
Fertilizer Industry Association's Production
and International Trade Committee, and
Vice-Chairman of Canpotex Limited and The
Fertilizer Institute. Mr. Doyle is on the College
Board of Advisors at Georgetown University.
He joined the PCS Inc. Board in 1989. (1)
John W. Estey, of Glenview, Illinois, is
President and CEO of S&C Electric Company. He
is a director of the Institute of Electrical and
Electronics Engineers and a member of the
Board of Governors of the National Electrical
Manufacturers Association. A director of the
Executives' Club of Chicago, he is also a
member of the Dean's Advisory Board at
the Kellogg School of Management at
Northwestern University. He joined the
PCS Inc. Board in 2003. (3,4)
Wade Fetzer III, of Glencoe, Illinois,
is Retired Partner with the investment
banking firm Goldman Sachs. He sits on the
boards of Serologicals Corporation, Sphere
Communications, Northern Star Broadcasting,
University of Wisconsin Foundation and Rush-
Presbyterian St. Luke's Medical Center. He is
also on the Kellogg Alumni Advisory Board.
He joined the PCS Inc. Board in 2002. (2,3)
Dallas J. Howe, of Calgary, Alberta, serves
in a management role with GE Medical
Systems Information Technology, which now
includes the company he formerly owned,
BDM Information Systems. He is owner and
CEO of DSTC Ltd., a technology investment
company, and a director of Advanced Data
Systems Ltd., as well as Chair of the University
of Saskatchewan Board of Governors. A
director of the PCS Crown corporation from
1982 to 1989, he joined the PCS Inc. Board
in 1991 and was elected Chair in 2003. (1,2)
Alice D. Laberge, of Vancouver, British
Columbia, is President and CEO of Fincentric
Corporation, a global provider of software
solutions to financial institutions. She was
formerly Senior Vice President and Chief
Financial Officer of MacMillan Bloedel Limited,
and is a director of BC Hydro, the United Way
of the Lower Mainland and St. Paul's Hospital
Foundation. She joined the PCS Inc. Board in
2003. (4,5)
Jeffrey J. McCaig, of Houston,
Texas, is Chairman, CEO and a director
ofTrimac Holdings, a bulk trucking and
third-party logistics company. He is also
a director of Orbus Pharma Inc. and
The Standard Life Assurance Company
of Canada. He joined the PCS Inc.
Board in 2001. (3,5)
Mary Mogford, of Newcastle,
Ontario, a Corporate Director, is a former
Ontario Deputy Finance Minister and
Deputy Minister of Natural Resources.
She is a director of Falconbridge Ltd.,
MDS Inc., Sears Canada Inc. and Sears
Canada Bank, and a member of the
Altamira Advisory Council. A Fellow
of the Institute of Corporate Directors
(ICD), in 2004 she was accredited
through the ICD/Rotman School of
Business Directors' Training Program.
She joined the PCS Inc. Board in 2001.
(2,5)
Paul J. Schoenhals, of Calgary,
Alberta, is President of Petroleum
Industry Training Service. He is a former
Member of the Legislative Assembly and
Cabinet Minister in Saskatchewan and
was Chairman of Potash Corporation of
Saskatchewan, the Crown corporation,
from 1987 to 1989. He joined the
PCS Inc. Board in 1992. (3,4)
E. Robert Stromberg, QC, of
Saskatoon, Saskatchewan, is associated
with the Saskatchewan law firm
Robertson Stromberg Pedersen. He is a
director of NorSask Forest Products Inc.
and Hitachi Canadian Industries Ltd.
and Chairman of the Saskatoon Airport
Authority. He joined the PCS Inc. Board
in 1991. (1,2,4)
Jack G. Vicq, of Saskatoon,
Saskatchewan, is Professor Emeritus of
Accounting, University of Saskatchewan.
He is a past Associate Dean of
Commerce at the university and
was responsible for the Centre for
International Business Studies.
Formerly holder of the A.W. Johnson
Distinguished Chair in Public Policy
in the Saskatchewan Department of
Finance, he is currently Chairman of the
Provincial Court Commission. He joined
the PCS Inc. Board in 1989. (1,5)
Elena Viyella de Paliza, of the
Dominican Republic, is President of
Inter-Quimica, S.A., a chemicals
importer and distributor, Monte Rio
Power Corp and Indescorp, S.A. She is
president of the Dominican Business
Council, a member of the board of
the Inter-American Dialogue and past
president of the Dominican Stock
Exchange, Dominican Manufacturers
Association and the National
Agribusiness Board. She joined the
PCS Inc. Board in 2003. (1,4)
88
POTASHCORP 2004 ANNUAL REPORT CORPORATE INFORMATION
Corporate Officers and Key Management
William J. Doyle
Garth W. Moore
William J. Doyle
President and Chief Executive Officer
He joined the company in 1987 as President of PCS
Sales, and has more than 30 years in the fertilizer
industry. He was named CEO in 1999.
James F. Dietz
Executive Vice President and Chief Operating Officer
A chemical engineer with more than 30 years in the
fertilizer industry, he joined the company in 1997 and
became COO in 2000.
Wayne R. Brownlee
Senior Vice President, Treasurer
and Chief Financial Officer
An MBA with responsibility for corporate business
development, he joined the company in 1988 and
was appointed CFO in 1999.
Betty-Ann L. Heggie
Senior Vice President, Corporate Relations
An educator with a marketing background, she joined
the company in 1981 and rose to her current post in
1995, with responsibility for PotashCorp's reputation.
Barbara Jane Irwin
Senior Vice President, Administration
A lawyer by training with more than 20 years
in human resources, she joined the company in
2000 with responsibility for recruitment, benefits
and compensation.
POT Stock Price - NYSE Composite
SUS
90
80
70
60
50
40
30
20
10
Robert A. Jaspar
Senior Vice President, Information Technology
A chartered accountant, he came to PotashCorp in
1997 as an internal auditor and moved to his current
position in 2003, managing the systems that meet
company information needs.
G. David Delaney
President, PCS Sales
With a BSc in Agriculture, he has worked in the
fertilizer industry since 1983 and joined PotashCorp
in 1997, rising to his current position in 2000.
Garth W. Moore
President, PCS Potash
A mining engineer, he has spent more than 30 years
in the potash industry and joined PotashCorp in
1982, rising to his current position in 1997.
Thomas J. Regan, Jr.
President, PCS Phosphate
A chemical engineer and MBA, he has spent 30 years in
industrial operations, joining PotashCorp in 1995 and
becoming president of its phosphate division in 1999.
Daphne J. Arnason
Vice President, Internal Audit
A chartered accountant, she joined the company in
1988 and rose to her current position in 2003, with
responsibility for auditing policies and programs.
Karen G.Chasez
Vice President, Procurement
A social worker with 19 years in fertilizer industry
publishing and administration, she has overseen
company purchasing, inventory and supplier
negotiations since joining PotashCorp in 2000.
John R. Hunt
Vice President, Safety, Health and Environment
After studying agricultural business, he has spent
24 years in the fertilizer industry, joining PotashCorp
in 1997 and moving to his present position in 2005.
Joseph A. Podwika
Vice President, General Counsel and Secretary
A lawyer, he joined PotashCorp in 1997 and took
on his current post in 2005, with responsibility for
the delivery of legal services and oversight of
corporate governance.
Denis A. Sirois
Vice President and Corporate Controller
A certified management accountant, he joined
the company in 1978 and has held his current
position since 1997, with wide responsibilities in
financial reporting.
POT Share Ownership - Geographic Distribution
Percent
100
84.00 80
60
40
.13 27.48
20
0

Source: Citigate As at December 31, 2004
¦ US ¦Canada ¦ Europe
Source: Citigate
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04
POTASHCORP 2004 ANNUAL REPORT SHAREHOLDER INFORMATION
Shareholder Information
The Annual Shareholders meeting will be held at 10:30 a.m.
Central Standard Time May 5, 2005 in the Adam Ballroom,
Delta Bessborough Hotel, 601 Spadina Crescent East,
Saskatoon, Saskatchewan.
It will be carried live on the company's website, www.potashcorp.com.
Holders of common shares as of March 17, 2005 are entitled to vote at
the meeting and are encouraged to participate.
Dividend amounts paid to shareholders resident in Canada are adjusted
by the exchange rate applicable on the dividend record date. Dividends are
normally paid in February, May, August and November, with record dates
normally set approximately three weeks earlier. Future cash dividends will
be paid out of, and are conditioned upon, the company's available earnings.
Shareholders who wish to have their dividends deposited directly in their
bank accounts should contact the transfer agent and registrar, CIBC Mellon
Trust Company.
Registered shareholders can have dividends reinvested in newly issued
common shares of PotashCorp at prevailing market rates.
Dividends paid to residents in countries with which Canada has bilateral
tax treaties are generally subject to the 15-percent Canadian non-resident
withholding tax. There is no Canadian tax on gains from the sale of shares
(assuming ownership of less than 25 percent) or debt instruments of the
company owned by non-residents not carrying on business in Canada. No
government in Canada levies estate taxes or succession duties.
On February 28, 2005, there were 1,901 holders of record of the company's
common shares.
Toronto Stock Exchange
New York Stock Exchange
Ticker Symbol: POT
In Canada: In the United States:
CIBC Mellon Trust Company Mellon Investor Services, L.L.C.
Suite 750 - One Lombard Place 85 Challenger Road, Overpeck Center
Winnipeg, Manitoba R313 0X3 Ridgefield Park, New Jersey 07660
Phone: [phone] Phone: [phone]
[phone]
Website: www.cibcmellon.com Website: www.melloninvestor.com
Shareholders with address changes or those with inquiries concerning their
Potash Corporation of Saskatchewan Inc. stock are invited to contact:
CIBC Mellon Trust (address above), or
Joseph A. Podwika, Corporate Secretary
PotashCorp
Suite 500, 122 - 1st Avenue South
Saskatoon, Saskatchewan S7K 7G3
Betty-Ann Heggie, Senior Vice President, Corporate Relations
Canada: [phone] US: [phone]
e-mail: [e-mail]
Visit us at www.potashcorp.com
Non-registered shareholders who wish to receive quarterly reports should
contact the Corporate Relations department. News releases are available via
fax and e-mail.
Copies of the company's most recent Form 10-K are available upon request
and on our website. n
Disclosure contemplated by 303A.11 of the NYSE's listed company manual
is available on our website at www.potashcorp.com. The company has filed
appropriate certifications pursuant to the NYSE listing standards. The
certifications required by Section 302 of the Sarbanes-Oxley Act of 2002
are filed as exhibits to our 2004 Annual Report on Form 10-K.
Corporate Offices Canada: Suite 500, 122 - 1st Avenue South, Saskatoon, SK S7K 7G3 Phone: [phone]
s US: Suite 400, 1101 Skokie Boulevard, Northbrook, IL 60062 Phone: [phone]
Common Share Prices and Volumes
The adjacent table sets forth the high and
low prices, as well as the volumes, for the j 2004
company's common shares as traded on the First Quarter
Toronto Stock Exchange and the New York
Second Quarter
Stock Exchange (composite transactions) Third Quarter
on a quarterly basis. Potash Corporation Fourth Quarter
of Saskatchewan Inc. is on the S&P/TSX 60 Year 2004
and the S&P/TSX Composite indices. 2003
(Note: Data are adjusted for stock split First Quarter
effective August 9, 2004 on the TSX and Second Quarter
August 16, 2004 on the NYSE.) Third Quarter
Trading prices are in Cdn$
Fourth Quarter
Year 2003
Toronto Stock Exchange' New York Stock Exchange
High Low Volume High Low Volume
i
57.93 50.96 12,670,142 44.75 38.13 15,905,400
i
64.87 54.58 12,009,046 48.50 39.46 23,604,000
81.00 60.75 13,237,872 64.25 45.78 30,366,000
104.06 76.05 16,211,631 84.00 60.65 29,245,700 r
104.06 50.96 54,128,691 84.00 38.13 99,121,100
s
51.40 41.28 15,018,768 33.18 27.48 25,139,800
47.21 40.75 12,704,274 32.75 29.82 21,213,000 3
50.52 42.40 8,477,440 36.78 30.95 14,140,200
57.75 46.88 14,428,736 43.63 35.24 24,381,780
57.75 40.75 50,629,218 43.63 27.48 84,874,780
Three Pillars
Excellence in economic, social and environmental performance is
of S u c c e s s important to PotashCorp's success - today and in the future. We set
targets for continuous improvement in each of these three pillars of
sustainability to ensure our company stands tall over the long term.
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PotashCorp
Helping Nature Provide
Suite 500, 122 - 1st Avenue South
Saskatoon, SK Canada S7K 7G3
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To: File 200110096
PCS Phosphate mine continuation
Distribution List
Through: Ken Jolly
Chief, Regulatory Division
Wilmington District, USACE
Brooke Lamson
Office of Counsel
Wilmington District, USACE
From: Tom Walker
Project Manager
US Army Corps of Engineers
Date: April 22, 2005
AP
R 2 5 ?005
DENIj _ yy? I t r?
rLAIVDSqIypSr0'7 WA1Eli@RqNpH
Subject: Identification of alternatives to be included in the Draft Environmental Impact Statement
PCS Phosphate's current application is for the disturbance of 2,394 acres of jurisdictional
waters and wetlands in association with the advance of their present mining activities into
a 3,422 acre area (the NCPC portion of the Applicant preferred boundary). All
alternatives under consideration are alternatives to this mine plan.
Alternatives, by definition, must satisfy the Purpose and Need. The established purpose
and need is "To continue mining it's (PCS'§) phosphate reserves in an economically
viable fashion. More specifically, this is defined as a long-term, systematic and cost
effective mine advance within the project area for the ongoing PCS phosphate mine
operation near Aurora, North Carolina." The Corps and the applicant, with agency input,
agreed to drop the "20 year" reference in the original purpose and need statement.
However, due to logistic and planning concerns, we have established that to be
sufficiently "long-term" a mine plan must include a minimum of approximately 20 years
of mining.
The "Project Area" has been defined as the combination of the NCPC Tract, the
Bonnerton Tract and the South 33 Tract as identified in the Base Maps provided with this
memo. Removing the direct temporal reference from the Purpose and Need allows us to
consider alternatives that may include all future mining activities within the project area
(a holistic mining plan).
To date, we have considered and discussed many alternatives. We have identified certain
key boundaries that provide a frame for the applicant's actual mine planning. The project
area is comprised of three geographically distinct areas; therefore, most mine plans will
include relocation of mining operations from one geographic area to another. Since these
moves can be anticipated, we have identified various Sequences in which these moves
may occur. Alternatives, in general, will be comprised of a specific sequence within a
specific boundary.
The following is a list of Boundaries, Sequences and Alternatives that will be addressed
in the Draft EIS. PCS and CZR can develop basic information/rough estimates regarding
wetland impacts, ore recovered and mineable area. Detailed mine plans are developed
for PCS by an independent consulting firm (Marston). These include actual mineable
areas based on economic and operational considerations, economic/cost information etc.
This list can be expanded during preparation of the Draft if other reasonable alternatives
worthy of consideration come to light.
Boundaries (numerical order does not imply preference)
Applicant Preferred Boundary
a. Initially, the applicant applied for an approximately 20 year mining plan
on the NCPC tract. After modifying the purpose and need, examination of
alternatives which included the remainder of mining activities within the
project area (holistic plans) became necessary. Accordingly, the applicant
provided their preferred boundary on all blocks.
2. No Action Boundary
a. NEPA requires we explore a "no action" alternative
b. In this scenario, the "action" is the corps permit so no action means no
permit required, it does not necessarily mean no mining.
c. In order for an alternative to be reasonable in this scenario, it must provide
for mining
d. A "no action alternative" must include mining in upland areas only. The
only contiguous upland area sufficient to provide a reasonable (logistically
feasible given production and operational constraints) mining plan is
found in the South 33 block. There is no reasonable area in the NCPC or
Bonnerton blocks that could be mined without impacting wetlands.
e. If the no action alternative is practicable taking into account cost, logistics
and available technology, and meets the purpose and need, we generally
cannot issue a permit.
f. At this time, the applicant has expressed that, in actuality, this alternative
would only provide for a short time of mining., We have asked for more
detail before we make a decision on whether to request a detailed mine
plan.
3. S3320 Boundary
a. If a no action alternative is not practicable, we need to consider the least
environmentally damaging plan that provides approximately 20 years of
mining.
4. SCR Boundary
a. Developed through group input to identify those areas believed to be most
necessary to avoid in order to avoid significant degradation to the aquatic
resources and/or for which it is most difficult to provide compensatory
mitigation.
b. Does not necessarily imply agency or applicant endorsement
5. SJA Boundary
a. Developed as a boundary that avoids DCM, and DWQ stream and buffer
jurisdictions entirely.
6. DL1 Boundary
a. Alternative boundary designed to demonstrate the minimum area on
NCPC necessary for a reasonable mining operation (i.e. Limited to a
single, 1 dragline, minimum.safety operational width).
b. Any alternative based on this boundary would necessarily include mining
in the S33 and Bonnerton blocks within the SCR boundary.
Sequences (numerical order does not imply preference)
1. Sequence A (Applicant Preferred Sequence)
a. NCPC - Bonnerton - S33
2. Sequence B
a. NCPC - S33 - Bonnerton
3. Sequence C
a. S33 -NCPC - Bonnerton
4. Sequence D
a. S33 - Bonnerton - NCPC
Alternatives (numerical order does not imply preference)
1. Applicant Preferred (Applicant Preferred Boundary, NCPC only).
- This is the alternative for which the applicant has applied
- Have a detailed mine plan for this alternative
2. No Action (The No Action Boundary only)
- Have requested additional information from the applicant but no detailed mine
plan at this point
3. S33AP (Applicant Preferred Boundary S33 only)
- Have detailed mine plan for this alternative
4. S3320 (The S3320 Boundary only)
- Detailed mine plan requested.
5. DL1B (Sequence B within DL1 boundary)
- Detailed mine plan requested.
6. EAPA (Sequence A within the Expanded Applicant Preferred Boundary)
- The applicant has advanced this as their preferred holistic plan alternative
- Have a detailed mine plan for this alternative
7. EAPB (Sequence B within the Expanded Applicant Preferred Boundary)
- Have a detailed mine plan for this alternative
8. SCRA (Sequence A within the SCR Boundary)
- Detailed mine plan requested
9. SCRB (Sequence B within the SCR Boundary)
- Detailed mine plan requested
10. SJAA (Sequence A within the SJA Boundary)
- Detailed mine plan requested
11. SJAB (Sequence B within the SJA Boundary)
- Detailed mine plan requested
We have also identified Boundaries and/or Sequences which can potentially be
eliminated from detailed study. They are as follows:
1. Sequences beginning in Bonnerton.
There is a distinct difference in environmental impact when comparing the
various boundaries within NCPC or Bonnerton to the respective boundary
within South 33. There is no such clear distinction when comparing the
various boundaries between NCPC and Bonnerton. Therefore, moving
operations from NCPC to Bonnerton is not likely to result in any distinct
reduction in potential impact. Given the fact that the present mining operation
is immediately adjacent the NCPC tract, it is not likely that any alternative
involving a move from the end of the currently permitted area directly to the
Bonnerton Tract could be identified as more economically or logistically
feasible than alternatives that allow mining to continue on NCPC.
2. Sequences beginning in S33.
At this point, the applicant has supplied us with a detailed mine plan and cost
analysis on mining the applicant preferred boundary beginning in the S33
block (S33AP Alternative). They have indicated that they believe this
alternative to be economically impracticable thereby failing to meet the
404(b)(1) practicability test. We have requested the applicant provide
additional supporting information for this determination.

If the Corps concurs with the applicant's practicability determination, it will
not be necessary to explore other alternatives which involve an immediate
move to S33 at the end of the current permit. The rationale for this decision
would be that if the applicant preferred mining boundary does not provide
adequate minable resource to allow the applicant to continue it's operations, it
is highly unlikely that any more restrictive boundary would.
If the Corps does not concur with the applicant's practicability determination,
other alternatives which involve an immediate move to S33 at the end of the
current permit (Sequences C & D) will likely be added to the EIS.
3. Boundary based on avoidance of NCDCM jurisdiction
Both SCR and SJA avoid all NCDCM jurisdictional area. According to DCM
staff, a boundary based solely on avoidance of DCM jurisdiction need not be
advanced provided SCR and/or SJA are. If at any point, both SCR and SJA
are dropped from consideration, DCM may request such an alternative.

Tom Walker
Project Manager
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Summary of Impacts for PCS Avoidance Boundaries
Linear Feet of Streams and Biotic Community Acreages Shown for
Base, Applicant Preferred, SCR, No Action, S3320, DL1, and SJA
Base Study Area Boundary (ac) (Ift) Applicant Preferred Boundary SCR Boundary No Action Boundary S3320 Boundary DL1 Boundary SJA Boundary
Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (ift) Impacts (ac) (Ift)
Biotic Community Type Map ID NCPC' BT 2 533 3 Total NCPC 4 BT 5 S336 Total
impacts Total
avoided NCPC r BT 3 S339 Total
impacts Total
avoided S3310 Total
impacts Total
avoided S331t Total
impacts Total
avoided NCPC 12 Total
impacts Total
avoided NCPC 73 BT 14 S3315 Total
impacts Total
avoided
Public Trust Waters 1A 44 0 4 48 5 0 4 9 39 0 0 0 0 48 0 0 4 0 0 4 0 0 44 0 0 0 0 48
Linear Feet 1A 31502 1876 9660 43038 14564 1876 9660 26100 16938 0 0 0 0 43038 0 0 9660 0 0 " 9660 127 127 31375 0 0 0 0 43038
Perennial Stream 16 3 2 5 10 3 2 4 9 1 0 0 1 1 9 0 0 5 0 0 5 0 0 3 0 0 0 0 10
Linear Feet 1B 7008 7419 28137 42564 7008 7419 20534 34961 7603 0 0 4145 4145 38419 0 0 28137 0 0 28137 652 652 6356 0 0 0 0 42564
Intermittent Stream 1C 3 4 1 8 3 4 0 7 1 1 0 0 1 7 0 0 1 0 0 1 1 1 2 0 0 0 0 8
Linear Feet 1C 17267 5202 5429 27898 17267 5202 4079 26548 1350 6593 1911 55 8559 19339 0 0 5429 0 0 5429 5361 5361 11906 0 0 0 0 27898
Wetland Brackish Marsh Complex 2 87 0 0 87 38 0 0 38 49 0 0 0 0 87 0 0 0 0 0 0 0 0 87 0 0 0 0 87
Wetland Bottomland Hardwood Forest 3 103 72 27 202 102 72 7 181 21 18 2 0 20 182 0 0 27 0 ' 0 27 9 9 94 40 44 0 84 118
Wetland Herbaceous Assemblage 4 256 48 281 585 253 48 191 492 93 218 39 71 328 257 0 0 281 116 116 165 76 76 180 245 48 236 529 56
Wetland Shrub-Scrub Assemblage 5 213 277 86 576 202 277 31 510 66 154 183 31 368 208 0 0 86 29 29 57 54 54 159 175 273 29 477 99
Wetland Pine Plantation 6 529 206 127 862 514 206 111 831 31 466 205 110 781 81 0 0 127 70 70 57 0 0 529 498 202 99 799 63
Wetland Hardwood Forest 7 516 525 694 1735 509 525 612 1646 89 423 314 - 154 892 843 0 0 694 77 77 617 171 171 345 477 512 533 1522 213
Wetland Mixed Pine/Hardwood Forest 8 579 498 249 1326 564 498 126 1188 138 379 400 59 838 488 0 0 249 31 31 218 44 44 535 475 472 98 1045 281
Wetland Pine Forest 9 197 211 170 578 195 211 44 450 128 129 191 45 365 213 0 0 170 4 4 166 6 6 191 188 208 4 400 178
Wetland Pocosin - Bay Forest 10 0 264 45 309 0 264 0 264 45 0 120 0 120 189 0 0 45 0 0 45 0 0 0 0 264 0 264 45
Wetland Sand Ridge Forest 11 0 22 11 33 0 22 0 22 11 0 19 0 19 14 0 0 11 0 0 11 0 0 0 0 22 0 22 11
Pond 12 20 0 1 21 19 0 0 19 2 11 0 0 11 10 0 0 1 0 0 1 2 2 18 17 D 0 17 4
Wetland Maintained Area 13 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Upland Herbaceous Assemblage 14 242 5 238 485 234 5 230 469 16 188 3 225 416 69 224 224 14 229 229 9 76 76 166 226 6 229 461 24
Upland Shrub-Scrub Assemblage 15 265 83 68 416 262 83 66 411 5 165 10 62 237 179 61 61 7 61 61 7 61 61 204 234 76 61 371 45
Upland Pine Plantation 16 61 67 622 750 55 67 608 730 20 38 45 540 623 127 554 554 68 575 575 47 0 0 61 47 65 584 696 54
Upland Hardwood Forest 17 79 43 325 447 67 43 319 429 18 18 28 154 200 147 242 242 83 243 243 82 23 23 56 54 35 284 373 74
Upland Mixed Pine/Hardwood Forest 18 155 120 491 766 140 120 422 682 84 86 72 324 482 284 380 380 111 391 391 100 11 11 144 111 94 397 602 164
Upland Pine Forest 19 48 16 301 365 38 16 174 228 137 17 10 121 148 217 139 139 161 172 172 129 3 3 45 34 14 171 219 146
Upland Sand Ridge Forest 20 0 42 113 155 0 42 4 46 109 0 26 4 31 124 0 0 113 5 5 108 0 0 0 0 42 5 47 108
Upland Agricultural Land 21 117 247 4609 4973 117 247 4592 4956 17 109 240 4477 4826 147 4436 4436 173 4531 4531 78 0 0 117 100 239 4548 4887 86
Upland Non-vegetated/Maintained Area 22 94, • 52, 217 363 92 , 52 203 , 347 16 74 33 183 289 74 189 , 189 28 190, 190 27 , 22 22 72 83 41 , 192 316 , 47
TOTAL (wetlands, waters, uplands) 3611 2804 8686 15100 3412 2804 7750 13964 1136 2494 1 19421 6561 10997 4103 6224 6224 2462 6725 6725 1961 559 559 3051 3004 ' 2657 7470 13131 1969

Total linear feet of streams (Ift) 55777 14497 43226 113500 38839 14497 34273 87609 25891 6593 1911 4200 12704 100796 0 0 43226 0 0 43226 6140 6140 49637 0 0 0 0 113500
Total wetlands/waters(ac) 2550 2129 1701 6380 2407 2129 1131 5666 714 1799 1474 471 3744 2636 0 0 1701 327 327 1374 363 363 2187 2115 2045 999 5159 1221
Total uplands (ac) 1061 675 6985 8721 1005 675 6619 8298 423 695 468 6089 7252 1469 6224 6224 761 6398 6398 587 196 196 865 889 612 6471 7972 749
Total recovered concentrate (million tons) N/A N/A N/A N/A 77 46 135 258 WA 39 25 108 171 N/A 78 78 NA 105 105 NA 12 12 N/A 50 38 117 205 N/A
Date of figure/drawing
1 04/13/05 3 04/13105
2 04/13/05 4 04/13/05
NOTE: Total recovered concentrate information provided by PCS Phosphate.
Linear feet of streams provided by CZR graphics 18 October and 28 November 2004.
5 04/13/05 7 04/18/05 9 04/13105 11 04/13/05 73 04/13/05 15 04/13/04
6 04/13/05 3 04/13/05 t0 04/13/05 12 04/13/04 14 04/13/04
I1ReceptionlshareddocslMy Filesljobs1174511745-621091TEAM MEETINGSIMinutes PREPSIcorps memo pkg 21 APR 05\impact-summary-apr05
4/21/2005
DRAFT
C
ZR
INCORPORATED
4709 COLLEGE ACRES DRIVE
SUITE 2
WILMINGTON, NORTH CAROLINA 28403-1725
ENVIRONMENTAL CONSULTANTS
MEMORANDUM
1
TO: See D;Xdbution
FROM: Samuel Cooper, Julia Berg
TEL [phone]
FAX [phone]
[e-mail]
DATE: 21 April 2005
RE: Summary Minutes of the 14 December 2004 meeting for the PCS Phosphate
Mine Continuation permit application review
1 The 17th meeting for the review of PCS Phosphate's Mine Continuation permit application
2 was held from 10:30 to 3:00 at the NCDENR offices in Washington NC on 14 December 2004.
3 The following people attended:
4
5 Tom Walker ?USACE
6 Mary Alsentzer - PTRF
7 Heather Jacobs - PTRF
8 Richard Atwood - PCS Phosphate
9 Bill Schimming - Potash Corporation
10 Ross Smith - PCS Phosphate
11 Jeff Furness - PCS Phosphate
12 Jerry Waters - PCS Phosphate
13 David Moye - NCDCM
14 John Dorney - NCDWQ
24
15 Kelly Spivey - NCDCM
16 Kyle Barnes - NCDWQ
17 Jimmie Overton - NCDWQ
18 Tom Steffens - NCDWQ
19 Maria Tripp - NCWRC
20 Mike Wicker - USFWS
21 Samuel Cooper - CZR
22 Julia Berger - CZR
23 Jim Hudgens - CZR
25 Next Team meetings:
26 18th -10:30 am Wednesday 20 January 2005 at the Washington DENR office
27 19th -10:30 am Tuesday 8 February 2005 at the Washington DENR office
28
1
1061 EAST INDIANTOWN ROAD • SUITE 100 • JUPITER, FLORIDA 33477-5143
TEL [phone] • FAX [phone] • [e-mail] • www,CZRINC.com
29 The meeting began at 10:40 am with Tom Walker presiding and followed the rough agenda
30 shown in Attachment 1. Due to schedule changes, the time and duration of the meeting had
31 been changed from 8:00 to noon to 10:30 through the afternoon.
32
33 ITEMS DISCUSSED AND/OR DECIDED BY TEAM
34
35 Mr. Walker suggested that after all comments were received on the SC boundaries that
36 a public notice could go out to bring the public up to date with the EIS Team process and
37 status. He also reminded the group that during economic analysis and sequencing
38 considerations, some costs might not change despite different scenarios.
39
40 • Mr. Smith informed the Team about a recent invitation that he accepted to meet with
41 members of the Environmental Review Commission on 28 November 2004. ERC
42 members had questions about the recent plant expansion announcement, Castle Hayne
43 depressurization water reuse, and the status of the mine continuation permit. Related to
44 the mine continuation permit, Mr. Smith explained that the permitting schedule is
45 extremely tight and that the company needed a permit decision by the end of 2006. Mr.
46 Smith also stated that all of the regulatory agencies are engaged in the process, and
47 none of the agencies have put up any "road-blocks" in the process. Mr. Smith also
48 described a recent invitation (7 December 2004) to brief Senator Marc Basnight and
49 other officials. The plant expansion announcement and the tight schedule for the mine
50 continuation permitting process were topics of discussion during this briefing. During a
51 follow-up meeting (9 December 2004) with Senator Basnight's Chief of Staff (Rolf
52 Blizzard), Mr. Smith reiterated that all regulatory agencies were engaged in the
53 permitting process. Specifically, DCM has remained engaged in the process while
54 litigation relating to public trust/property ownership issues is being resolved. Mr. Smith
55 also told the Team that they would receive copies of the corporation's sustainability
56 report by mail.
57
58 Mr. Smith prefaced his presentation with the announcement that for the first time, PCS
59 was sharing all costs in their model and the group was asked to please respect the spirit
60 of confidentiality in which this information was given. Mr. Waters said that the cost
61 model is the same one PCS is currently using for all its strategic planning and for its
62 2005 Mine budget preparations.
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• Mr. Smith presented a Powerpoint presentation of cost model information. Discussion of
the cost model presentation clarified the following points:
1) Mine years 1-6 are the last years of Alternative E and show no change from slide
to slide.
2) The cost model has been used on the Applicant Preferred Boundary and the
applicant preferred sequence (NCPC, Bonnerton, S33).
3) Beneficiation is the ore recovery optimization process by which the ore is
concentrated through separation and screening. Because the ore is bonded to
coarser material in S33, a new beneficiation process must be adopted to
maximize ore recovery when the draglines move to this area.
4) The capital cost of this new beneficiation process is spread out over the S33
segment only because the capital won't be spent until they get to that block.
5) Costs are shown in constant 2003 dollars and the model is based on the
production of an average of 5 million tons/year.
6) The company conducted an optimization study for the area South of Hwy 33.
The results of this study showed that relocation of beneficiation equipment was
not justified due to the capital requirement and the resulting materials handling
requirements.
7) The spike in NCPC operating costs reflects excavation of the more deeply buried
ore in the northeast. Lower costs in Bonnerton reflect the fact that there are
fewer utilities to move. The spike in operating costs for S33 reflects very poor ore
quality just south of the middle of the block.
• Mr. Smith summarized by reminding the group that there is an economic component to
practicability. Mr. Walker stated the purpose of the Team is to provide input to the Corps
and the applicant, on all phases of the process to ensure that the final decision was
environmentally sound and in the public interest.
• Discussion of the Sequencing portion of the PCS presentation clarified the following
points:
1) Although arrows are not shown for the areas on NCPC between the creeks, one
dragline would likely operate in those peninsulas.
2) The transition areas from block to block and sequence to sequence are where
the differences are on the cost graphs. It is not just a cut and paste exercise as
the sequence changes.
3 4/21/2005
99 3) Just as documented in the last EIS process, the costs of moving mining
100 equipment from the end of Alternative E to the next mining area have not been
101 included.
102 4) Escalation and discount factors used in calculating the Net Present Value data
103 are based on previously established accounting principles within the company.
104 In the wake of Enron and Worldcom, the 2002 Sarbane-Oxley Act governs
105 accounting guidelines and requires that money for all future obligations must be
106 set aside. PCS used a 2.5 percent escalation per year and a 6.75 percent
107 discount rate to get back to net present value. The discount rate, "opportunity
108 cost", is also based on the strength of the corporation.
109 5) Mr. Overton inquired as to why in some scenarios S33 was to be mined in one
110 southbound trip with a major equipment move at the end rather than a trip south
111 and a return. PCS responded that this was the best way to mine the area and
112 that the cost of moving the equipment was relatively inconsequential.
113
114 When asked by Mr. Moye if PCS could be mining S33 now at today's prices, PCS stated
115 that they cannot incur the additional $35M annual cost of going to S33 now as their
116 gross margin has been less than $35M for the last several years. Mr. Waters said that
117 because so many other countries are coming on line with fertilizer plants, PCS recently
118 committed to spending millions of dollars in improvements to increase their capacity for
119 food-grade and industrial-grade phosphoric products and widen their competition arena.
120 Mr. Walker asked if the profit figures quoted by Mr. Smith for 2001 and 2002 (that period
121 when mining operations were closest to S33) were after discounting capital outlays for
122 plant upgrades which occurred during that same time frame. Mr. Smith indicated that
123 they were.
124
125 • Mr. Walker hoped that the Corps accountant could have attended this meeting, but since
126 the Corps is also experiencing a financial downturn, the accountant had responsibilities
127 at another office.
128
129 • The next Team meeting will concentrate on the periodic conditions for a longer permit. If
130 the Team can get comfortable with those conditions, then a permit for the life of the mine
131 will likely be issued. Mr. Walker stated that regardless of the length of the permit,
132 cumulative impacts must be addressed in the document anyway.
133
4 4/21/2005
134 Mr. Waters requested clarification from Mr. Walker about how many sequences for
135 selected alternatives PCS might expect, since detailed analyses take a lot of time and
136 work. Mr. Walker said that with present scenarios, it may not be necessary to study a
137 sequence starting in NCPC and a sequence starting in Bonnerton provided impacts are
138 substantially similar. It is most important that a sequence starting in S33 and a
139 sequence which puts S33 in the middle is examined. For this reason, he requested that
140 the team consider over lunch whether Sequence 3 (S33, NCPC, Bonnerton) or
141 Sequence 4 (S33, Bonnerton, NCPC) in the PCS presentation could be dropped.
142
143 • Mr. Walker asked if DWQ was suggesting development of a mine plan for the DWQ
144 intermittent stream avoidance boundary or if DWQ was suggesting that the SC boundary
145 should exclude all intermittent streams. Mr. Dorney responded that he would need to
146 consider this further before responding.
147
148 Group broke for lunch at 12:15 and reconvened at 1:30 pm.
149
150 • No objections were voiced about dropping either Sequence 3 or 4. Mr. Moye requested
151 that the document clearly describe the similarity of impacts between the sequences in
152 order to justify the Team's decision to remove one of these sequences from future
153 analyses.
154
155 Mr. Steffens inquired about rumors of a new methanol plant and was told by Mr. Smith
156 that an ethanol production facility is considering locating on adjacent property outside of
157 the holistic boundary and that it is not a PCS project.
158
159 DWQ does not think that the SC boundary can replace the DWQ intermittent and DWQ
160 perennial avoidance boundaries although the detail to which they are analyzed might
161 differ. Mr. Steffens indicated that additional information would be needed to determine
162 the practicability of alternatives based on buffer avoidance.
163
164 Mr. Moye said that DCM needed no other boundary as long as the SC boundary avoids
165 all CAMA areas. He requested that if the SC boundary goes forward that a note be
166 added to the figures stating that the SC boundary includes the DCM CAMA avoidance
167 boundary.
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5 4/21/2005
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• Mr. Schimming announced that he would not be able to attend the next two meetings but
wanted to stress to the group the importance of PCS' internal timetable. Millions of
dollars depend on the timing of EIS process and PCS needs to know in advance where
they are going at the end of Alternative E before they commit the dollars. He asked if
Mr. Smith could share the PCS schedule at the next meeting.
• Mr. Furness gave a Powerpoint presentation on PCS's mitigation approach. Discussion
of the presentation clarified the following points:
1) Restoration of hydrology on forested tracts equals restoration of the habitat.
2) DWQ and FWS expressed reservations about the potential use of EEP.
3) An isolated area to be preserved will require a higher mitigation ratio than a
preserved site that is contiguous with a restored area. In the latter circumstance,
the adjacent preserved area would increase wetland functions and have a lower
mitigation ratio than the former.
4) FWS does not endorse the concept of headwaters extension where streams are
created above former streams or headwaters.
5) A detailed mitigation plan for each alternative will not be required. However, the
EIS will require documentation of how much mitigation is needed, of what kind,
and where it is located. By the DEIS, there should be enough certainty for PCS
to be specific about identification of mitigation sites.
6) If agencies can figure out how to fit credit into the plan, PCS is willing to consider
inclusion of reclamation of the mine at the end of its life into the mitigation plan.
7) Mr. Smith asked for agencies to provide feedback on priority areas for inclusion
in the mitigation plan.
• CZR notified the group that figures showing ratings and sites evaluated for DWQ ratings
and WRAP were available as handouts. Corps, DWQ, DCM, and PTRF were provided
copies.
ACTION ITEMS (Team)
• All comments on SC boundary are due by 10 January 2005 with the exception of DWQ
comments which are due by 20 January 2005. Mr. Walker requested the group to point
out other areas to avoid because of their significance or difficulty to mitigate.
g 4/21/2005
204 Consider life of mine permit conditions.
205
206 ACTION ITEMS (Corps)
207 • None specifically identified.
208
209 ACTION ITEMS (PCS)
210 None specifically identified.
211
212 ACTION ITEMS (CZR)
213
214 • Mr. Moye requested a note be added to all figures indicating that the 75' offset was used
215 as a buffer from CAMA areas.
216
217 Ms. Alsentzer requested acreage of the Parker Farm by drainage/river basin.
218
219 Mr. Steffens requested impacts to buffers be enumerated on the summary impacts table.
220
221 Meeting adjourned at 3:00 pm.
222
223 Attachment 1- Meeting Agenda
224 Please refer to pre-meeting package dated 3 December 2004 for:
225 PCS Mine Continuation Cost Model Update (Powerpoint-26 pgs)
226 PCS Mine Continuation-Mitigation Approach (Powerpoint-20 pgs)
227 SC Boundary Biotic Communities and Impacts Figures for NCPC, Bonnerton, and S33
228 (three color 11" x 17" figures)
229 Impact Summary Table (one 11" x 17")
DISTRIBUTION:
Ms. Mary Alsentzer
Pamlico Tar River Foundation
Post Office Box 1854
Washington, North Carolina 27889
Ms. Becky Fox
Environmental Protection Agency
1349 Firefly Road
Whittier, NC 28789
Mr. Kyle Barnes
North Carolina Division of Water Quality
943 Washington Square Mall
Washington, NC 27889
Mr. Jeffrey C. Furness
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
4/21/2005
Mr. James M. Hudgens
CZR Incorporated
1061 East Indiantown Road, Suite100
Jupiter, Florida 33477-5143
Mr. Scott Jones
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
Mr. David M. Lekson
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
Mr. Sean McKenna
Division of Marine Fisheries
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Dr. David McNaught
Environmental Defense
2500 Blue Ridge Road, Suite 330
Raleigh, North Carolina 27607
Mr. Terry Moore
Division of Coastal Management
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. David Moye
Division of Coastal Management
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Jimmie Overton
NC Division of Water Quality
Environmental Sciences Section
4401 Reedy Creek Road
Raleigh, North Carolina 27607
Mr. Jerry Waters
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Richard Peed
Division of Land Resources
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. William A. Schimming
Potash Corp.
Post Office Box 3320
Northbrook, Illinois 60062
Mr. Ron Sechler
National Marine Fisheries Service
101 Pivers Island Road
Beaufort, North Carolina 28516
Mr. Ross Smith
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Tom Steffens
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Ms. Maria Tripp
North Carolina Wildlife Resources
Commission
Habitat Conservation Section
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Tom Walker
U.S. Army Corps of Engineers
Regulatory Division
P.O. Box 1890
Wilmington, North Carolina 28402
Mr. Mike Wicker
U.S. Fish and Wildlife Service
Post Office Box 33726
Raleigh, North Carolina 27636-3726
Mr. Bob Zarzecki
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Mr. George House
Brooks, Pierce, McLendon, Humphrey &
Leonard
P.O. Box 26000
Greensboro, NC 27420
Mr. John Dorney
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
Wetlands/401 Wetlands Unit
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Mr. Ted Tyndall
North Carolina Division Coastal
Management
Morehead City District Office
151-B Hwy. 24 Hestron Plaza I I
Morehead City, NC 28557
ATTACHMENT 1
MEETING AGENDA FOR 17TH PCS EIS TEAM MEETING
14 DECEMBER 2004
AGENDA ITEMS FOR PCS EIS TEAM MEETING
14 December 2004
10:30 -12:00 am
Cost Model Update and Sequences - PCS
Holistic SC Alternative Boundary - PCS
12:00 noon -1:00 pm LUNCH
1:00 - 3:00 pm
Mitigation Template - PCS
3:00 pm ADJOURN
Draft 15 October 2004

CZR
INCORPORATED
4709 COLLEGE ACRES DRIVE
SUITE 2
WILMINGTON, NORTH CAROLINA 28403-1725
TEL [phone]
FAX [phone]
czrwilm@aol,com
MEMORANDUM
TO: See Di tribution
b
FROM: Samu I Cooper, Julia Berg
DATE: 22 April 2005
RE: Summary Minutes of the 8-9 February 2005 meeting for the PCS Phosphate
Mine Continuation permit application review
1 The 18th meeting for the review of PCS Phosphate's Mine Continuation permit application
2 was held at the PCS Phosphate Employee Recreation Area on 8 (Day 1) and 9 (Day 2)
3 February 2005. The following people attended:
4
5 Tom Walker- USACE (Days 1&2)
6 Dave Lekson - USACE (Days 1 &2)
7 Scott Jones - USACE (Days 1 &2)
8 Mary Alsentzer - PTRF (Days 1 &2)
9 Richard Atwood - PCS Phosphate (Day 1
10 morning)
11 Ross Smith - PCS Phosphate (Days 1 &2)
12 Jeff Furness - PCS Phosphate (Days
13 1&2)
14 Jerry Waters - PCS Phosphate (Day 1)
15 Richard Peed - Land Quality (Day 1)
16 David Moye - NCDCM (Day 1)
17 Becky Fox - EPA (Day 2)
18 Cyndi Karoly - NCDWQ (Day 1)
19 Sam Aghimien - NCDWQ (Day 1)
20 Jimmie Overton - NCDWQ (Days 1 &2)
21 Tom Steffens - NCDWQ (Days 1 &2)
22 Maria Tripp - NCWRC (Days 1&2)
23 Mike Wicker - USFWS (Days 1 &2)
24 Ron Sechler - NOAA Fisheries (Day 1)
25 Samuel Cooper - CZR (Days 1 &2)
26 Julia Berger - CZR (Days 1 &2)
27 Jim Hudgens - CZR (Days 1 &2)
28
29 DATES ESTABLISHED FOR NEXT MEETINGS:
30 Corps meetings with applicant:
31 15 February and 1 March 2005
32
1
1061 EAST INDIANTOWN ROAD • SUITE 100 • JUPITER, FLORIDA 33477-5143
TEL [phone] • FAX [phone] • czrjup@aol,com • www.CZRINC,com
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Agency only meeting:
2 March 2005
Next Team meeting:
24 March 2005,10:30 am NCDENR office Washington, NC
DAY 1 - 8 February 2005
PCS Handouts: DWQ Riparian Avoidance Boundary figures on NCPC, Bonnerton, and
S33 (Attachment 1)
CZR Handouts: SC Boundary plotted on 1998 aerial photobase (also distributed at
previous meeting)
ITEMS DISCUSSED AND/OR DECIDED BY TEAM:
• Summary of boundaries examined to date and presentation of the new DWQ Riparian
Avoidance Boundary drawn in response to the SC Boundary provided by PCS for
agency comment.
• Holistic approach, or life-of-mine concept, still under consideration but not tied to any
particular timeframe or any particular area.
• Neither mine closure nor importation of ore meets the Purpose and Need which is to
continue mining its phosphate reserve in an economically viable fashion. More
specifically, this is defined as long-term systematic and cost-effective mine advance
within the project area for the ongoing PCS mine operation at Aurora, North Carolina.
• Need for PCS to examine a "no action alternative" which would involve moving to S33 at
the end of the current permit. In order for the Corps to consider permitting impacts, the
applicant must sufficiently demonstrate that the "no action" alternative is not practicable.
Any reasonable mine plan involving mining in Bonnerton or NCPC blocks, would involve
impacts to jurisdictional waters and/or wetlands.
• Need to keep compensatory mitigation separate from the avoidance and minimization
process.
• DWQ concerns about impacts to contiguous wetlands outside the highlighted lines on
the DWQ Riparian Avoidance Boundary and how impacts to those areas could affect
wetlands proposed for avoidance.
• In order to be permitted, the proposed mine plan must not only be the least
environmentally damaging alternative but also must not result in a significantly
degradation to jurisdictional waters of the United States.
4/22/2005
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• Although it is not to be used as an evaluation tool in this process, WRAP might be used
as a component of the avoidance tool kit.
• Development of SC Boundary (using Wetland Areas of Special Concern [WASC]
philosophy) was operationally challenging for PCS.
• Only Applicant Preferred Boundary has had a detailed mine plan completed by PCS.
The DWQ Riparian Avoidance Boundaries contain areas which are narrower than the
minimum pit width identified by Marston. PCS has estimated ore recovery for the SC
and the DWQ Riparian Avoidance Boundaries in each of the three areas as follows:
Ore Recovery by Avoidance Boundary (M tons)
Mine Area Applicant Preferred SC DWQ Riparian
NCPC
Bonnerton
S33 77
46
135 59
39
125 25-30
33
116
Total (M tons) 258 223 170-180
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estimated
• Difficulty of mining in constricted areas because of need to keep bucketwheel excavator
(BWE) optimally advanced in front of dragline, problems getting pre-strip material back in
when BWE has moved past, depressurization limitations, and consideration of waste
streams. Straight lines and regular shapes equal best scenario from mining standpoint.
• Double-handling by doing pre-strip way in advance of dragline is possible only on a
small scale and all pre-strip must be placed behind dragline.
Agency only lunch discussion from 12:30 to 1:30.
Team discussion resumed at 1:30.
• Additional periodic conditions for life of mine permit. Items listed in past include:
revisitation of economics to avoid selected sensitive areas deemed impracticable to
avoid at time of permit and some type of periodic public summary/update documents.
• Would not likely include condition that would periodically reassess compensatory
mitigation requirements and/or adjust ratios especially if compensatory mitigation was
implemented and deemed successful.
• All must take risks regarding new rules (examples: Corps' position re: streams and
isolated wetlands and DWQ's position on buffers). Any major CAMA permit
4/22/2005
98 modification or 401 modifications would likely subject the applicant to new rules. Items
99 may be open to reevaluation if the applicant requests a modification to the Corps
100 permit.
101 • Group departed for field to see selected "trouble spots" and those areas of interest
102 which fall on each side of the SC and DWQ Riparian Avoidance Boundaries.
103
104 DAY 1 FIELD - 8 February 2005
105
106 The group went a short distance west of the Recreation Area onto Ogletree Road and walked
107 approximately 1,800 feet in Huddles Cut along the edge of the bottomland hardwood forest
108 (biotic community 3) on the small east prong and downstream on the main prong to the vicinity
109 of the CAMA marker. They also walked upstream on the same small prong to an area on the
110 east side of Ogletree Road of wet hardwood forest (biotic community 7) that had been timbered
111 since the baseline photograph. The group then continued to the end of Ogletree Road and
112 walked to the flow station which is located where the wetland biotic communities change from
113 bottomland hardwood forest to mixed pine hardwood (community 8) and shrub scrub
114 (community 5).
115
116 DAY 2 FIELD- 9 February 2005
117
118 NCPC: The group convened at the PCS Recreation Area at 9:15 am and proceeded to Huddy
119 Gut just west of the Recreation Area. They walked approximately 2,000 feet along the
120 community break between bottomland hardwood forest and pine plantation and examined two
121 small prongs of bottomland forest. These two prongs (and according to CZR the next prong
122 west as well) were more of a shrub community with an open canopy compared to what was
123 seen along Huddles Cut the day before. Following Huddy Gut, the group drove to two areas of
124 wetland hardwood forest in the headwaters of Tooley Creek, one off of Sandy Landing Road
125 about 1,000 feet from its intersection with Highway 306 and the second just off the road several
126 thousand feet south on Highway 306. The second site had a few more mature trees than the
127 first but the sites were similar in many other characteristics.
128
129 Bonnerton: The group visited the pocosin- bay forest (biotic community 10) along Creekmur
130 Road. They walked in about 400 feet from the road and while it was a much better bay forest
131 than what some had seen on the other side of the road on a previous visit, it was not
132 representative of what most people think of as pocosin. After this forest, the group continued
4/22/2005
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back west along Creekmur and walked in about 400 to 500 feet into the bottomland hardwood
forest that drains into Durham Creek.
NCPC: On the return to the PCS Recreation Area, the group stopped at the crossing of Jacks
Creek at Highway 306. They walked in a short distance downstream and had a discussion
about secondary hydrology impacts with drainage basin reduction effects. The potential
beneficial reuse of water in the outfall canal was emphasized again.
Lunch break from 1:15 to 2:10 pm.
Group reconvened briefly to set next meeting dates and adjourned at 2:30 pm.
ACTION ITEMS (Team):
• Provide input to Corps by end of month on boundaries
ACTION ITEMS (Corps):
• None specified
ACTION ITEMS (PCS):
• Examine a No Action Alternative
ACTION ITEMS (CZR):
• None specified
Attachment 1 - DWQ Riparian Avoidance Boundary (three 11 x 17 figures)
DISTRIBUTION:
Ms. Mary Alsentzer Mr. Jeffrey C. Furness
Pamlico Tar River Foundation PCS Phosphate Company, Inc.
Post Office Box 1854 Post Office Box 48
Washington, North Carolina 27889 Aurora, North Carolina 27806
Mr. Kyle Barnes
North Carolina Division of Water Quality
943 Washington Square Mall
Washington, NC 27889
Mr. James M. Hudgens
CZR Incorporated
1061 East Indiantown Road, Suite100
Jupiter, Florida 33477-5143
Ms. Becky Fox
Environmental Protection Agency
1349 Firefly Road
Whittier, NC 28789
Mr. Scott Jones
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
4/22/2005
Mr. David M. Lekson
U.S. Army Corps of Engineers
Washington Regulatory Field Office
Post Office Box 1000
Washington, North Carolina 27889
Mr. Sean McKenna
Division of Marine Fisheries
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Dr. David McNaught
Environmental Defense
2500 Blue Ridge Road, Suite 330
Raleigh, North Carolina 27607
Mr. Terry Moore
Division of Coastal Management
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. David Moye
Division of Coastal Management
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Jimmie Overton
NC Division of Water Quality
Environmental Sciences Section
4401 Reedy Creek Road
Raleigh, North Carolina 27607
Mr. Jerry Waters
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Ron Sechler
National Marine Fisheries Service
101 Pivers Island Road
Beaufort, North Carolina 28516
Mr. Richard Peed
Division of Land Resources
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Mr. William A. Schimming
Potash Corp.
Post Office Box 3320
Northbrook, Illinois 60062
Mr. Ron Sechler
National Marine Fisheries Service
101 Pivers Island Road
Beaufort, North Carolina 28516
Mr. Ross Smith
PCS Phosphate Company, Inc.
Post Office Box 48
Aurora, North Carolina 27806
Mr. Tom Steffens
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
943 Washington Square Mall
Washington, North Carolina 27889
Ms. Maria Tripp
North Carolina Wildlife Resources
Commission
Habitat Conservation Section
943 Washington Square Mall
Washington, North Carolina 27889
Mr. Tom Walker
U.S. Army Corps of Engineers
Regulatory Division
P.O. Box 1890
Wilmington, North Carolina 28402
Mr. Mike Wicker
U.S. Fish and Wildlife Service
Post Office Box 33726
Raleigh, North Carolina 27636-3726
Ms. Cyndi Karoly
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
Mr. Ted Tyndall
North Carolina Division Coastal
Management
Morehead City District Office
151-B Hwy. 24 Hestron Plaza I
Morehead City, NC 28557
4/22/2005
Mr. George House
Brooks, Pierce, McLendon, Humphrey &
Leonard
P.O. Box 26000
Greensboro, NC 27420
Mr. John Dorney
Division of Water Quality
North Carolina Department of Environment
and Natural Resources
Wetlands/401 Wetlands Unit
1650 Mail Service Center
Raleigh, North Carolina 27699-1650
4/22/2005
ATTACHMENT 1
DWQ RIPARIAN AVOIDANCE BOUNDARY
(PCS HANDOUT AT 8 FEBRUARY 2005 MEETING)
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PCS Team meeting
Subject: PCS Team meeting
From: "Walker, William T SAW" <[e-mail]>
Date: Mon, 11 Apr 2005 13:28:59 -0400
To: "Becky Fox" <[e-mail]>, "Cyndi Karoly" <[e-mail]>, "David Cox"
<[e-mail]>, "David M SAW Lekson \(E-mail\)"
<[e-mail]>, "David Moye" <[e-mail]>, "Jimmie
Overton" <[e-mail]>, "John Dorney" <[e-mail]>, "Kyle Barnes"
<[e-mail]>, "Maria Tripp" <[e-mail]>, "Mike Wicker"
<[e-mail]>, "Richard Peed" <[e-mail]>, "Scott SAW Jones \(E-main)"
<Scott. [e-mail]. army.mil>, "Sean McKenna" <[e-mail]>, "smtp-Sechler,
Ron" <[e-mail]>, "Ted Tyndall" <[e-mail]>, "Terry Moore"
<[e-mail]>, "Tom Steffens" <[e-mail]>
CC: "Bill Schimming" <[e-mail]>, "Jeff Furness"
<jf [e-mail]>, "Jerry Waters" <[e-mail]>, "Jim Hudgens"
<czr [e-mail]>, "Ross Smith" <[e-mail]>, "Sam Cooper" <[e-mail]>
All,
I have decided, after considering the potential topics, to cancel this weeks meeting. As we
discussed at the last meeting, the Corps has asked for detailed mine plans on some alternatives and
additional information on others. I believe we would be better served by postponing our meeting until we
have at least some of that information. I am putting together a summary list of the alternatives now under
consideration and will work with CZR to make sure that everyone has a copy of this list and the latest
maps by the close of this week. As usual, all lines of communication remain open. Please feel free to call
or e-mail if you have any questions or discussion points.
thank you
Tom Walker
1 of 1 4/11/2005 1:30 PM

INCORPORATED
4709 COLLEGE ACRES DRIVE
SUITE 2
WILMINGTON, NORTH CAROLINA 28403-1725
LTANTS TEL [phone]
FAX [phone]
LETTER OF TRANSMITTAL [e-mail]
TO: Ms. Mary Alsentzer (PTRF)
Ms. Cyndi Karoly (NCDWQ)
Ms. Becky Fox (USEPA)
Mr. Jeffrey C. Furness (PCS)
Mr. James M. Hudgens (CZR)
Mr. Scott Jones (USACE)
Mr. Tom Steffens (NCDWQ)
Mr., David M. Lekson (USACE)
Ms. Maria Tripp (NCWRC)
Mr. Terry Moore (NCDCM)
Mr. George House (PCS-Brooks Firm)
Mr. Kyle Barnes (NCDWQ)
FROM: Sam Cooper/Julia Berger
DATE: 5 April 2005
SUBJECT: See Below
WE ARE SENDING YOU:
Mr. David Moye (NCDCM)
Mr. Jimmie Overton (NCDWQ)
Mr. Richard Peed (NCDLR)
Mr. William A. Schimming (Potash)
Mr. Ron Sechler (NMFS)
Mr. Ross Smith (PCS)
Mr. Tom Walker (USACE)
Mr. Sean McKenna (NCDMF)
Mr, Mike Wicker (USFWS)
Dr. David McNaught (ED)
Mr. Ted Tyndal (NCDCM)
Mr. Jerry Waters (PCS)
® Attached via FedEx

Figures/Tables Date Description
3 2/3/05, 2/3/05, 3/15/05 Base Boundary (NCPC, Bonnerton, S33)
3 2/22/05,2/23/05,3/14/05 Applicant Preferred Boundary (NCPC, Bonnerton, S33)
3 3/28/05, 3/29/05,
3/28/05 SCR Boundary (NCPC, Bonnerton, S33)
3 3/25/05,3/25/05,
10/14/04 DWQ Intermittent Boundary (NCPC, Bonnerton, S33)
2 3/9/05, 3/23/05 No Action Boundary and 20 Year Boundary (S33 only)
2 3/18/05,3/18/05 1 and 3 Dragline Return Boundaries (NCPC only)
1 4/5/05 Impact Summary Table for Preferred, SCR, and DWQ
1 4/5/05 Impact Summary Table for No Action, 20 Year, and 1 and 3
Dra line
THESE ARE TRANSMITTED: ® For review ® For your information
REMARKS:
This is the pre-meeting package for the next PCS EIS Team meeting (19`h) scheduled fo Prfi,,
2005. Package includes 16-1107 DRAFT figures and 2 DRAFT impact summary tables.
Tom Walker will send out notification/confirmation of the meeting time and place.
Some of these figures have been seen before but may have been slightly modified as a result of
DWQ on-site riparian determinations, other minor improvemen s to ormat, and/or adjustments due
to rounding.
Signed:
1061 EAST INDIANTOWN ROAD • SUITE 100 • JUPITER, FLORIDA 33477-5143
TEL [phone] • FAX [phone] • czrjup@aol•com • www,CZRINC•com
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Summary of Impacts for PCS Avoidance Boundaries
Linear Feet of Streams and Biotic Community Acreages Shown for
Applicant Preferred, SCR, and DWQ Intermittent
Base Study Area (ac)(Ift) Applicant Preferred Boundary SCR Boundary DWQ Intermittent Stream Avoidance
Boundary
Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (/ft)

Biotic Community Type Map ID z s
NCPC BT S33 Total a s 0 Total
NCPC BT S33 impacts Total
avoided 7 BTe S33' Total
NCPC S33 impacts Total
avoided 10 BT 11 12 Total
NCPC S33 impacts Total
avoided
Public Trust Waters 1A 44 0 4 48 5 0 4 9 39 0 0 0 0 48 0 0 0 0 48
Linear Feet 1A 31502 1876 9660 43038 14564 1876 9660 26100 16938 0 0 0 0 43038 0 0 0 0 43038
Perennial Stream 1B 3 2 5 10 3 2 4 9 1 0 0 1 1 9 0 0 0 0 10
Linear Feet IB 7008 7419 28137 42564 7008 7419 20534 34961 76,03 0 0 4145 4145 38419 0 0 0 0 42564
Intermittent Stream 11C 3 4 1 8 3 4 0 7 1 1 0 0 1 7 0 0 0 0 8
Linear Feet 1C 17267 5202 5429 27898 17267 5202 4079 26548 1350 6593 1911 55 6559 19339 0 0 0 0 27898
Wetland Brackish Marsh Complex 2 87 0 0 87 38 0 0 38 49 0 0 0 0 87 0 0 0 0 87
Wetland Bottomiand Hardwood Forest 3 103 72 27 202 102 72 7 181 21 18 2 0 20 182 40 44 0 84 118
Wetland Herbaceous Assemblage 4 256 48 281 585 253 48 191 492 93 218 39 71 328 257 245 48 236 529 56
Welland Shrub-Scrub Assemblage 5 213 277 86 576 202 277 31 510 66 138 183 31 353 223 175 273 29 477 99
Wetland Pine Plantation 6 529 206 127 862 514 206 111 831 31 457 205 110 772 90 498 202 99 799 63
Wetland Hardwood Forest 7 516 525 694 1735 509 525 612 1646 89 422 314 154 891 844 477 512 533 1522 213
Wetland Mixed Pine/Hardwood Forest 8 579 498 249 1326 564 498 126 1188 138 362 400 59 821 505 475 472 98 1045 281
Wetland Pine Forest 9 197 211 170 578 195 211 44 450 128 128 191 45 365 213 188 208 4 400 178
Wetland Pocosin - Bay Forest 10 0 264 45 309 0 264 0 264 45 0 120 0 120 189 0 264 0 264 45
Wetland Sand Ridge Forest 11 0 22 11 33 0 22 0 22 11 0 19 0 19 14 0 22 0 22 11
Pond 12 20 0 1 21 19 0 0 19 2 11 0 0 11 10 17 0 0 17 4
Wetland Maintained Area 13 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Upland Herbaceous Assemblage 14 242 5 238 485 234 5 230 469 16 188 3 225 416 69 226 6 229 461 24
Upland Shrub-Scrub Assemblage 15 265 83 68 416 262 83 66 411 5 156 10 62 228 188 234 76 61 371 45
Upland Pine Plantation 16 61 67 622 750 55 67 608 730 19 35 45 540 620 130 47 65 584 696 54
Upland Hardwood Forest 17 79 43 325 447 67 43 319 429 18 18 28 154 200 247 54 35 284 373 74
Upland Mixed Pine/Hardwood Forest 18 155 120 491 766 140 120 422 682 84 85 72 324 481 285 111 94 397 602 164
Upland Pine Forest 19 48 16 301 365 38 16 174 228 137 17 10 121 148 217 34 14 171 219 146
Upland Sand Ridge Forest 20 0 42 113 155 0 42 4 46 109 0 26 4 31 124 0 42 5 47 108
Upland Agricultural Land 21 117 247 4609 4973 117 247 4592 4956 18 94 240 4477 4811 162 100 239 4548 4887 86
Upland Non-vegetated/Maintained Area 22, 94 52 217 363 92 52 203 347 16 70 33 183 285 78 83 41 192 316 47
TOTAL wetlands, waters, uplands) 1 3611 2804 8686 15100 3412 2804 7750 13964 1136 2421 1942 6561 10924 4176 3004 2657 7470 13131 1969

Total linear feet ofstreams (lff) 55777 14497 43226 113500 38839 14497 34273 87609 25891 6593 1911 4200 12704 100796 0 0 0 0 113500
Total wetlandstwaters(ac) 2550' 2121 1701 6380 2407 2129 11311 56661 714 1757 1474'1 471 37021 2678 2115 2045 9991 5159 1221
Total uplands (ac) 1061 675 6985 8721 100,51 675 6619 8298 423 _ 663 468 6089 7220 1501 889 612 6471 7972 749
Total recovered concentrate (million tons) N/A N/A N/All N/A 771 461 1351 2581 N/A 391 251 1081 1711 N/A 50, 38 117 205 N/A
Date of figureldrawing
1 02/03/05 3 03/15/05 5 02/23105
202/03/05 4 02122/05 5 03/14105
NOTE: Total recovered concentrate information provided by PCS Phosphate.
Linear feet of streams provided by CZR graphics 18 October and 28 November 2004.

03128/05 9 03128/05 11 03/25/05
0 03/29/05 10 03/25/05 12 10/14/04
11ReceptionlshareddocslMy Filesljobs11745\1745-621091TEAM MEETINGSIMinutes PREPS112-13 APR 051impact-summary-apr05
4/5/2005
DRAFT
Summary of Impacts for Preliminary PCS Avoidance Boundaries
Linear Feet of Streams and Biotic Community Acreages Shown for
No Action and 20 Years of Mining for South 33 and 1 Dragline Return and 3 Dragline Return for NCPC
Base Study Area (ac) (/ft) South 33 No Action South 33 20 Years Mining NCPC 1 DRAGLINE NCPC 3 DRAGLINE
Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (Ift) Impacts (ac) (Ift)

Biotic Community Type Map ID
NCPC I BT 2 S33 3 Total
S334 Total
impacts i
Total
avoided
S33 5 Total
impacts
Total
avoided
NCPC 6 Total
impacts
Total
avoided
NCPC 6 Total
impacts
Total
avoided
Public Trust Waters 1 A 44 0 4 48 0 0 48 0 0 48 0 0 48 12 12 36
Linear Feet 1A 31502 1876 9660 43038 0 0 43038 0 0 43038 127 127 42911 18729 18729 24309
Perennial Stream 1B 3 2 5 10 0 0 10 0 0 10 0 0 10 3 3 7
Linear Feet 18 7008 7419 28137 42564 0 0 41564 0 0 42564 652 652 41912 5800 5800 36764
Intermittent Stream 1C 3 4 1 8 0 0 8 0 0 8 1 1 7 3 3 5
Linear Feet 1C 17267 5202 5429 27898 0 0 27898 0 0 27898 5361 5361 22537 16961 16961 10937
Wetland Brackish Marsh Complex 2 87 0 0 87 0 0 87 0 0 87 0 0 87 54 54 33
Wetland Bottomland Hardwood Forest 3 103 72 27 202 0 0 202 0 0 202 g 9 193 88 88 114
Wetland Herbaceous Assemblage 4 256 48 281 585 0 0 585 116 116 469 76 76 509 202 202 383
Wetland Shrub-Saab Assemblage 5 213 277 86 576 0 0 576 29 29 547 54 54 522 187 187 1 389
Wetland Pine Plantation 6 529 206 127 862 0 0 862 70 70 792 0 0 862 187 187 675
Wetland Hardwood Forest 7 516 525 694 1735 0 0 1735 77 77 1658 171 171 , 1564 492 492 1243
Wetland Mixed Pine/Hardwood Forest 8 579 498 249 1326 0 0 1326 31 31 1295 44 44 1282 510 510 816
Wetland Pine Forest 9 197 211 170 578 0 0 578 4 4 574 6 6 572 144 144 434
Wetland Pocosin - Bay Forest 10 0 264 45 309 0 0 309 0 0 309 0 0 309 0 0 309
Wetland Sand Ridge Forest 11 0 22 11 33 0 0 33 0 0 33 0 0 33 0 0 33
Pond 12 20 0 1 21 0 0 21 0 0 21 2 2 19 9 9 12
Wetland Maintained Area 13 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Upland Herbaceous Assemblage 14 242 5 238 485 224 224 261 229 229 256 76 76 409 158 158 327
Upland Shrub-Scrub Assemblage 15 265 83 68 416 61 61 355 61 61 355 61 61, 355 194 194 222
Upland Pine Plantation 16 61 67 622 750 554 554 196 575 575 175 0 0 750 27 27 723
Upland Hardwood Forest 17 79 43 325 447 242 242 205 243 243 204 23 23 424 65 65 382
Upland Mixed Pine/Hardwood Forest 18 155 120 491 766 380 380 386 391 391 375 11 11 755 100 100 666
Upland Pine Forest 19 48 16 301 365, 139 139 226 172 172 193 3 3 362 54 54 311
Upland Sand Ridge Forest 20, 0 42 113 155 0 0 155 5 5 150 0 0 155 0 0 155
Upland Agricultural Land 21 117 247 4609 4973 4436 4436 537 4531 4531 442 0 0 4973 83 83 4890
Upland Non-vegetated/Maintained Area 22 94 52 217 363 189 189 174 1901 190 173 22 22 341 78 78 285
TOTAL (wetlands, waters, uplands) 3611 2804 8686 15100 6224 6225 8875 6725 6725
- 8375 559 559 14541 2649 2649 12451

Total linear feet of streams (Ift) 55777 14497 43226 113500 0 0 113500 0 0 113500 6140 6140 107360 41490 41490 72010
Total wetlands/waters (ac) 2550 21291 1701, 6380 0 01 6380 327 327 6053 363 363 6017 1890 1890 4490
Total uplands (ac) 1061 675 6984 8720 6224 6224 2496 6398 6398 2322 196 196 8524 759 759 1737
Total recovered concentrate (million tons) N/A N/A N/A NIA 78 78 NA 105 105 NA 12 12 N/A 61 61 NIA
Date of figure/drawing
' 02/03/05
2 02/03/05
3 03/15/05 5 03/23/05
03/09/05 6 03/18/05
NOTE: Total recovered concentrate information provided by PCS Phosphate. 11ReceptionlshareddocslMy Filesljobs1174511745-621091TEAM MEETINGS1Minutes PREPS112-13 APR 051prelim bound impact-summary-apr05
Linear feet of streams provided by CZR graphics 18 October and 28 November 2004. 4/5/2005
DRAFT
Re: PCS team meetings
Subject: Re: PCS team meetings
From: [e-mail]
Date: Wed, 06 Apr 2005 12:46:55 -0400
To: "Walker, William T SAW" <[e-mail]>
CC: "Cyndi Karoly (E-mail)" <[e-mail]>, Jim Hudgens <[e-mail]>, Sam
Cooper <[e-mail]>, David Cox <[e-mail]>, David Moye
<[e-mail]>, "David M SAW Lekson (E-mail)"
<[e-mail]>, David McNaught
<[e-mail]>, George House <[e-mail]>, Mary
Alsentzer <[e-mail]>, Jeff Furness <[e-mail]>, Jimmie Overton
<[e-mail]>, John Dorney <[e-mail]>, Jerry Waters
<[e-mail]>, Kyle Barnes <[e-mail]>, "Maria Tripp (E-mail)"
<[e-mail]>, Mike Wicker <[e-mail]>, Richard Peed
<[e-mail]>, Heather Jacobs <[e-mail]>, "smtp-Sechler, Ron"
<ron. sechler@noaa. gov>
As Tom discussed in his message, a part of the next meeting will be
dedicated to discussing the
"significant degradation of waters of the US" issue as it may relate to
the PCS project. As an introduction to our discussions next week, Tom
and I thought it might be useful for me to prepare a brief summary on
this topic. See attachment to this message. Keep in mind this is the
condensed version. More detailed information can be found in the 404
(b)(1) Guidelines (see citations in summary). See everyone next week.
bf
(See attached file: significant degradation summary 2b.doc)
Becky Fox
Wetland Regulatory Section
USEPA
Phone: [phone]
Email: fox.rebecca@epa_gov
"Walker, William
T SAW"
<William.T.Walke
[e-mail]
my.mil>
03/21/2005 08:08
AM
To
Rebecca Fox/R4/USEPA/US@EPA, Bill
Schimming
<[e-mail]>,
"Cyndi Karoly (E-mail)"
<Cyndi.Karoly@ncmail _net>, David
Cox <[e-mail]>,
"David M SAW Lekson (E-mail)"
<[e-mail].
mil>, David McNaught
<dmcnaught@environmentaldefense.o
rg>, David Moye
<d_avid.moy_e_@n_cmail.n_et>, George
House <[e-mail]>,
Heather Jacobs
<[e-mail]>, Jeff
Furness
<[e-mail]>,
Jerry Waters
<[e-mail]>, Jim
Hudgens <[e-mail]>, Jimmie
Overton
1 of 3 4/7/2005 12:03 PM
Re: PCS team meetings
<[e-mail]>, John
Dorney <[e-mail]>,
Kyle Barnes
<[e-mail]>, "Maria
Tripp (E-mail)"
<[e-mail]>,
Mary Alsentzer <[e-mail]>,
Mike wicker
<mike [e-mail]>, Richard
Peed <[e-mail]>,
Ross Smith
<[e-mail]>, Sam
Cooper <[e-mail]>, "Scott
SAW Jones (E-mail)"
<[e-mail]
>, Sean McKenna
<[e-mail]>,
"smtp-Sechler, Ron"
<[e-mail]>, Ted
Tyndall <[e-mail]>,
Terry Moore
<[e-mail]>, Tom
Steffens
<[e-mail]>
cc
PCS team meetings
All,
Subject
The March 24, team meeting has been canceled. There will not
likely be enough new information to warrant bringing everyone together.
For the last month or two we have talked about the 404 (b)(1)
guidelines, alternative analysis and "significant degradation". At the
agency meeting in Raleigh, there was much discussion regarding what
constitutes "a significant degradation to waters of the US". We decided
to dedicate our next meeting to a review of available research data for
South Creek and the surrounding area and a discussion of the factual
determinations found in the guidelines. We set the next meeting date as
April 12 and 13. This should give the applicant time to prepare
information on the alternatives we have asked them to explore and also
give us time to accumulate biological and ecological information. I
will be contacting many of you in the next week or so to help pull this
info. together. If you know of particular research you believe will be
of interest to the group in this discussion, please feel free to
distribute it or send it to me.
For clarification, we have asked the applicant to explore the following
mine advance options.
Detailed study (detailed mine plan with econ analysis)
1. Applicant Preferred
2 of 3 4/7/2005 12:03 PM
Re: PCS team meetings
2. S33 minimal impact (approx 20 yr. plan)
3. Revised SC boundary (submitted by Corps after agency
input)
Preliminary study (impact info and estimated ore recovery)
1. No action (S33)
2. 1 dragline minimum operational width on NCPC
a. with 2 draglines in Bonnerton Revised SC
b. with 2 draglines in S33 Revised SC
3. 3 dragline return on NCPC at maximum efficient operating
width
4. NCDWQ intermittent stream avoidance boundary including
buffers.
The idea is to address all of these scenarios in the Draft EIS. The
difference will be the level of study. Those in the "detailed study"
group will need detailed mine plans with all appropriate economic
information. We will take a hard look at those in the "Preliminary"
group and decide if a detailed mine plan is necessary. Scenarios can be
added or removed from either group as deemed appropriate.
Thank You
Tom Walker
Content-Type: application/msword
significant degradation summary 2b.doc
Content-Encoding: base64
3 of 3 4/7/2005 12:03 PM
Significant Degradation -- Section 404 (b)(1) Guidelines (40 CFR 230.10(c))
(a brief summary)
"...no discharge of dredged or fill material shall be permitted which will cause or
contribute to significant degradation of the waters of the United States. Findings of
significant degradation related to the proposed discharge shall be based upon appropriate
factual determinations, evaluations, and tests..." (40 CFR 230.10(c))
Significant degradation (SD) may include individual or cumulative effects to:
1. human health (includes municipal water supplies, plankton, fish, shellfish,
wildlife and special aquatic sites)
2. life stages of aquatic life and other wildlife dependent on aquatic ecosystems
3. aquatic ecosystem diversity, productivity and stability (includes loss of fish and
wildlife habitat or loss of the capacity of a wetland to assimilate nutrients, purify
water or reduce wave energy)
4. recreational, aesthetic and economic values. (230.10(c))
Factual Determinations (230.11)
Findings of SD shall be based on appropriate factual determinations, evaluations and tests
considering the effects described in Subparts C through F (see below) with a special
emphasis on the persistence and permanence of those effects. Factual determinations
shall be made in writing of the potential short and long term effects of the proposed
discharge on physical, chemical and biological components of the aquatic environment
and shall include the following:
a) physical substrate determination (includes consideration of similarity in particle
size, shape, degree of compaction of discharge material and substrate at disposal
site, potential changes in substrate elevation and bottom contours)
b) water circulation, fluctuation and salinity (includes effect discharge will have on
water, current patterns, circulation (including downstream flows), water
chemistry, salinity, clarity, color, odor, taste dissolved gas levels, temperature,
nutrients, eutrophication, etc.)
c) suspended particulate/turbidity determinations
d) contaminant determinations (degree discharge will introduce, relocate or increase
contaminants)
e) aquatic ecosystems and organism determinations (effect discharge will have on
the structure and function of the aquatic ecosystem and organisms)
f) disposal site determinations
g) cumulative effects on the aquatic ecosystem
h) determination of secondary effects on the aquatic ecosystem (effects associated
with the discharge but do not result from the actual placement)
The effects described in Subparts C through F of the Guidelines (summarized below)
should be considered in making the factual determinations and in making the findings of
compliance or non-compliance. (See the Guidelines for a more thorough discussion of
what to consider under each heading)
Subpart C - Potential Impacts on Physical and Chemical Characteristics of the Aquatic
Ecosystem (230.20 - 230.25)
1. substrate
2. suspended particulates/turbidity
3. water column
4. current patterns and water circulation
5. normal water fluctuations
6. salinity gradients
Subpart D - Potential Impacts on Biological Characteristics of the Aquatic Ecosystem
(230.30 - 230.32)
1. threatened and endangered species
2. fish, crustaceans, mollusks and other aquatic organisms in the food web
3. other wildlife
Subpart E -- Potential Impacts on Special Aquatic Sites (230.40 - 230.45)
1. Sanctuaries and refuges
2. Wetlands
3. Mud Flats
4. Vegetated shallows
5. Coral reefs
6. Riffle and pool complexes
Subpart F - Potential Effects on Human Use Characteristics (230.50 - 230.54)
1. Municipal and private water supplies
2. Recreational and commercial fisheries
3. Water-related recreation
4. Aesthetics
5. Parks, national and historical monuments, national seashores, wilderness areas,
research sites and similar preserves
Subpart G - Evaluation and Testing (230.60 - 230.61)
This section contains information as to how to provide information supporting the
factual determinations.
Relationship between Significant Degradation and Mitigation
Compensatory mitigation may be considered in reaching a SD determination. In a permit
decision there are four possible determinations that may be made with respect to SD:
A. The discharge will not cause of contribute to. SD
B. The discharge will cause or contribute to SD:
1. Unless the proposed mitigation measures are taken.
2. Even considering the proposed mitigation measures
C. There is insufficient information to determine whether the discharge will cause or
contribute to SD.
To evaluate whether proposed mitigation would adequately offset the adverse impacts of
the project so that the project no longer causes or contributes to SD the mitigation plan
must show the compensatory mitigation meets the following criteria:
• Compensates sufficiently for damaged functions. (must show how the mitigation
will offset the adverse impacts and loss of functions spelled out in the SD
determination)
• Have a reasonable assurance of success (if components necessary for offsetting
SD adverse impacts pose a substantial risk of failure then the permit should either
be denied or conditioned such that those aspects be in place and functioning prior
to project construction.)
• Contain appropriate monitoring and contingency provisions.
• Comply with the Mitigation MOA.
Other points
The Guidelines do not establish a specific "standard of review". The decision involves
subjective judgment based on objective factors.
Important evaluation factors to consider are:
¦ Size of impact
¦ Quality of resource
¦ Persistence of impact
¦ Indirect effects (adverse impacts beyond the footprint of the fill)
¦ Cumulative impacts
¦ Secondary impacts
¦ Mitigation
In general, large scale impacts to valuable aquatic resources, without miti ag tion will
usually be significant. Such projects often remain significant even after considering
compensatory mitigation.