Agrium Inc.
NYSE : AGU
TSX : AGU

Agrium Inc.

October 20, 2006 08:00 ET

Agrium Reduces Guidance for Second Half of 2006, Fundamentals Remain Strong for 2007

ALL AMOUNTS ARE STATED IN U.S.$

CALGARY, ALBERTA--(CCNMatthews - Oct. 20, 2006) - Agrium Inc. (TSX:AGU)(NYSE:AGU) announced today it has revised guidance for the second half of 2006 to $0.20 to $0.25 earnings per share, due to a number of issues, primarily in our Wholesale business.

The key reasons for this include:

- a longer than expected start up of our Vanscoy potash capacity expansion lowering production volumes in the third quarter and the month of October by about 215,000 tonnes relative to previous expectations, thereby temporarily almost doubling average production costs in the third quarter over last year's level. We expect to be at the new full operating rate by mid-November;

- production interruptions at a number of our facilities late in the third quarter and in the fourth quarter, including issues with equipment at the Fort Saskatchewan facility which resulted in an accelerated turnaround, as well as an expected accelerated turnaround at the Profertil facility, both previously scheduled in 2007. As a result, we now expect to be able to run these facilities without interruption in 2007;

- weaker than expected phosphate margins resulting from continued high iron content ore from our Kapuskasing phosphate rock mine and poor phosphate demand. We are focusing on new options to lower our Canadian phosphate costs by early 2007;

- lower than forecasted domestic North American nitrogen results due to higher cost carryover of ammonia inventory and lower than expected North American nitrogen prices and volumes. Lower gas costs in the fourth quarter are not expected to be reflected in our results until late in the fourth quarter and early 2007;

- the Kenai, nitrogen facility is expected to shut down October 23, 2006 due to lack of gas supply and will not likely restart until some time in early 2007, resulting in higher fixed cost charges in the fourth quarter;

- second half retail results are expected to be lower than previously forecast across all product lines;

- there are approximately $11-million in additional charges expected in the fourth quarter, of which $6-million relates to undiscounted accruals for environmental remediation provisions.

Gas hedging is not expected to adversely impact gas costs or earnings in the second half of 2006 or early 2007. We do not expect Profertil S.A. to be impacted by the Argentine Government's recent imposition of an export tax on Argentine natural gas exports from the southern province of Tierra del Fuego to Chile, as Profertil S.A. has long-term gas contracts directly with domestic Argentine gas producers.

Agrium believes that the fundamentals for our Wholesale and Retail businesses in 2007 are very positive, despite these short-term items. We remain confident that we will achieve the previously announced synergies from the Royster-Clark acquisition in 2007.

We will provide more information on our third quarter conference call scheduled for November 2, 2006.

Forward-Looking Statements

Certain statements in this press release constitute forward-looking statements. Such forward-looking statements involve known and unknown risks and uncertainties and various business sensitivities, including those referred to in the management discussion and analysis section of the Corporation's most recent Annual Report to shareholders as well as those risk factors described in the Corporation's most recent Annual Information Form, which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

The major assumptions in updating our second half guidance include, but are not limited to, the following:

- the Vanscoy potash mine is assumed to operate at the new expansion capacity rates by mid-November;

- Wholesale domestic nitrogen margins are expected to be below comparative margins from the second half of 2005;

- average NYMEX pricing over the second half will not exceed $7.00 per MMBtu and lower gas prices would not significantly benefit margins until late in 2006 or early 2007;

- nitrogen sales volumes in our key North American markets will be consistent with volumes experienced in the second half of 2005;

- Kenai nitrogen operations will experience a winter shutdown commencing October 23, 2006 and lasting for the remainder of the year;

- the timing of the turnaround at Profertil will be advanced from 2007 into the second half of 2006;

- fall season weather patterns across North America support a normal fertilizer application season;

- retail results will be slightly lower than 2005;

- domestic urea demand in the second half of 2006 in Argentina will be approximately ten percent higher than demand levels realized in 2005;

- the Canadian dollar will average $1.13 per U.S. dollar for the second half of 2006;

- no significant synergies from the Royster-Clark acquisition are expected until 2007.

Other factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, weather conditions, future prices of nitrogen, phosphate and potash, variability in and regional price differentials in various North American gas prices, the future gas prices and availability at Kenai, the exchange rates for U.S., Canadian and Argentine currencies, South American domestic fertilizer consumption and government policies, China's urea trade policies and volumes, future fertilizer inventory levels, future nitrogen, potassium and phosphate consumption and crop protection chemical application rates in North America, future crop prices, future levels of nitrogen imports into North America and future additional fertilizer capacity and operating rates, and the potential inability to integrate recent or new business acquisitions as planned or within the time predicted. Agrium disclaims any intention or obligation to update or revise any forward-looking information as a result of new information or future events.

About Agrium

Agrium Inc. is a leading global producer and marketer of agricultural nutrients, industrial products, and specialty fertilizers, and a major retail supplier of agricultural products and services in both North and South America. Agrium produces and markets three primary groups of nutrients: nitrogen, phosphate and potash as well as controlled release fertilizers and micronutrients. Agrium's strategy is to grow through incremental expansion of its existing operations and acquisitions as well as the development, commercialization and marketing of new products and international opportunities.

Contact Information

  • Agrium Inc.
    Richard Downey
    Director, Investor Relations
    (403) 225-7357
    or
    Agrium Inc.
    Christine Gillespie
    Investor Relations Manager
    (403) 225-7437
    Website: www.agrium.com