Acquisition rumours buoy Potash Corp. of Saskatchewan

Dismal third quarter earnings failed to dampen Potash Corporation of Saskatchewan‘s (POT-T) share price — which has been propped up in recent weeks by rumours of a possible takeover by BHP Billiton (BHP-N).

Slower potash movement due to the continuing caution of fertilizer buyers around the world, lower realized prices and higher per-tonne cost of goods all added up to third quarter earnings of US$248.8 million or US82¢ per share — down 80% from the US$1.2 billion or US$3.93 per share it posted in the same quarter a year ago.

“The uncertainty among fertilizer buyers has lasted far longer than we anticipated, but cannot continue indefinitely,” Potash Corp.’s president and chief executive Bill Doyle, said in a statement. “Our focus is on preparing for the demand rebound that we believe will inevitably follow.”

While potash producer shipments improved over the second quarter, Doyle noted, third-quarter volumes were still more than 50% below the same quarter in 2008 and year-to-date totals were nearly 70% lower than in the first nine months of last year.

The decline in sales volumes in the third quarter from 1.9 million tonnes in 2008 to 1 million tonnes this year meant that gross margin fell to US$251.4 million from US$909.7 million in the same period last year.

Despite the poor earnings, Potash Corporation of Saskatchewan closed up 78¢ at $108.08 per share on 1.44 million shares traded. Just a week ago the company was trading at $97.26 per share on Oct. 15. (The stock has a 52-week trading range of $61.81-$135 per share.)

“At roughly 30 times this year’s earnings, Potash Corp. of Saskatchewan’s shares aren’t going up because they’re cheap,” wrote Fabrice Taylor, a chartered financial analyst in The Globe and Mail. “They’re rising — 15 points in the past 10 days — because investors are pricing in the possibility of a takeover, most likely by an international resource giant such as BHP Billiton, Rio Tinto, or some such.”