Mosaic Profit Argues for Higher Royalties

Today’s Mosaic quarterly report provides further evidence that the Government of Saskatchewan should improve its royalty and tax structure to collect a better return on the province’s non-renewable resources like potash.

Quarterly Comparison

Despite higher potash prices, Mosaic paid lower royalties and resource taxes to Saskatchewan last quarter than in the same quarter of last year. In the three months ended May 31, 2012, Mosaic paid $100 million in provincial resource charges from over a billion dollars ($1,037 million) of potash sales.

By comparison, in the three months ended May 31, 2011, the company paid $108 million from only $982 million of potash sales. In other words, Mosaic’s royalty and resource tax payments to Saskatchewan declined even as the value of potash sales increased.

Reductions in provincial royalties and taxes were supposed to provide incentives for increased production. However, Mosaic actually mined less potash last quarter than a year ago (1.9 million vs. 2.2 million tonnes). The increase in sales values simply reflected higher prices ($455 vs. $404 per tonne).

Annual Comparison

The annual figures confirm that provincial royalties and resource taxes amount to only one-tenth the value of potash sold. In the year ended May 31, 2012, Mosaic paid $328 million to Saskatchewan from $3.3 billion of potash sales. In the year ended May 31, 2011, it paid $294 million from $3.1 billion of potash sales.

The amount of potash mined changed little from one year to the next (7.4 million vs. 7.3 million tonnes). The higher sales value instead reflected stronger potash prices ($448 vs. $359 per tonne). Windfall gains from higher commodity prices should accrue to the people who own the resource rather than to the companies that extract it.

Explanatory Note

Mosaic reports “Canadian royalties” and “Canadian resource taxes.” Since its Canadian potash mines are in Saskatchewan, these amounts represent the provincial Crown royalty and Saskatchewan’s resource surcharge plus potash production tax. There is an interesting breakdown on the second-last slide of Mosaic’s PowerPoint presentation.