When
most people think of the Saskatchewan economy, the first image that often
comes to mind is that of vast fields of prairie farmland with crops ripening
in the summer breeze. This image is very much in keeping with the
province’s reputation as Canada’s prairie breadbasket. Oil has played a
major role in the provincial economy as well, despite relatively modest
production compared to powerhouse Alberta just to the west. Probably less
well-known, is Saskatchewan’s role as an important producer of potash –
a mineralized form of water soluble potassium salts occurring mostly in the
form of potassium chloride (KCL) or potassium oxide (K2O) -
compounds that can be mined and processed into fertilizer and other
commercial products.
Potassium
is one of three essential elements, the others being phosphorus and
nitrogen, that are an absolute requirement in commercially produced
fertilizers that allow agricultural crops to grow. Fertilizers containing
potassium and other nutrients replenish soils depleted by the demands of
large-scale farming operations around the world and keep the plant-based
food production moving forward. In a hungry world with an ever-growing
population to feed, Saskatchewan’s potash industry plays an essential role
in meeting global demand for food.
Saskatchewan
is the beneficiary of a vast geological potash deposit laid down some 400
million years ago when an ancient Devonian sea that covered most of the
province at that time began to evaporate. As this sea dried up in stages
over an extended period of time, its accumulated solutes and organic matter,
including water-soluble potassium and sodium salts, were layered down in a
somewhat homogenous formation extending over much of present day
Saskatchewan and into North Dakota and Montana. Because of the flatness of
the local topography, today this deposit forms an almost pristine, uniform
layer occurring between roughly 1 and 1.6 kilometers below the surface –
half the depth of the American portion of the formation. Saskatchewan’s
leading role in world potash production results from the exceptional quality
of the potash recovered from this natural underground resource and the
relative ease with which conventional mining techniques can be used to bring
potash to the surface from depths of one kilometer.
The
deposit was originally discovered in the 1940’s by oil exploration
interests that unexpectedly turned up high grade potash in their drilling
samples. The first attempts to mine the newly discovered resource met with
mixed results as many of the early mines were beset with flooding problems
and forced to shut down. Finally, in the 1960’s, technological innovations
began to mitigate the danger of flooding. In 1962, following a 20 million
dollar capital investment by the province, the first K-1 mine at Esterhazy
began bringing Saskatchewan’s high grade potash to the world. A second
Esterhazy mineshaft adjoining the first, the K-2, was completed in 1967.
Today these mines, owned by Mosaic Co.,
produce 2.2 million tonnes of potash annually. By the early seventies there
were ten successful mines in operation throughout the province.
As stated by Janet
MacKenzie, these ten mines have evolved through various corporate
ownership structures over the years to allow the province of Saskatchewan to
lead the world in potash production and innovative mining technology.
There
are three main producers of potash within the province, The
Potash Corporation of Saskatchewan, Agrium
Inc., based in Calgary, and Mosaic Co.
The Financial Post reported that these three companies operate the
province’s ten mines collectively and have the capacity to produce 13 to
17 million tonnes of potash annually. The largest of the three producers,
The Potash Corporation of Saskatchewan (PCS) had a very good year in 2008
producing 22% of world supply on its own despite strikes at three of its
mines and slumping commodity markets in the year’s final quarter. Briefly,
PCS crested the TSX as Canada’s most valuable company last year generating
record profits and sales. The big Saskatchewan producers have collectively
joined forces along with the provincial government to create Canpotex,
a production and exporting company that gives the industry a unified front
with which to market their product to the world. Over 90 % of
Saskatchewan’s potash is exported outside of Canada with the United
States, China and India being the largest international purchasers.
Saskatchewan
is the world’s single largest producer of potash generating roughly a
third of global supply. As stated by the CIBC
World Markets, it is estimated that the province contains over half of
the world’s known potash reserves at 4.4 billion tons. The potash industry
is a major driver of Saskatchewan’s economy with revenues based on taxes
from international sales. The provincial government earned revenues of $1.5
billion in revenue in fiscal 2008/19 despite the economic downturn at years
end. The industry normally employs over 3000 Saskatchewanians and provides a
major source of revenue for Canada’s railroads and overseas shipping
networks.
Potash
demand has so far remained fairly stable in the face of the global economic
crisis.
As
recently as April, the Saskatchewan
Ministry of Finance was estimating that while crude oil and land sales
revenues would fall by over $900 million and $800 million respectively this
year, revenue from sales of potash was expected increase to 1.9 billion or
20% of the provinces total revenues for fiscal 2009/10. But
there are signs of trouble ahead as prices fall due to slumping demand. PCS
has laid off over 900 workers and cut its production to less than 10 million
tons and CEO Bill Doyle recently reported that further cutbacks may be
necessary in the short term to weather a stormy economic climate.
It
is hard to imagine an industry that financial analysts had deemed such a
success story in 2008 with record profits and growing demand could face such
turmoil less than a year later. But Saskatchewan’s potash industry is well
managed, well-organized and well placed to lead the province to further
prosperity when commodity markets recover. In the long-term, demand will
return. Agriculture cannot produce food crops without fertilizer and
Saskatchewan’s potash is an essential nutrient to feed a global population
that regularly face threat of food shortages.
