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SASKATOON, SK, July 23 /PRNewswire-FirstCall/ - Potash Corporation of Saskatchewan Inc. (PotashCorp) today reported second- quarter earnings of $0.62 per share1 ($187.1 million) compared to $2.82 per share ($905.1 million) in the same quarter last year. Fertilizer buyers continued to be extremely cautious in the wake of the global economic downturn, creating an unprecedented decline in potash and phosphate sales volumes as well as phosphate and nitrogen prices. In this environment, second-quarter gross margin fell to $170.6 million - with approximately two-thirds of that generated by potash - compared to $1.4 billion in the same period last year. Earnings before interest, taxes, depreciation and amortization2 of $355.9 million and cash flow prior to working capital changes2 of $304.7 million were also down compared to the same quarter in 2008.

Offshore investments in Arab Potash Company Ltd. (APC) in Jordan, Sociedad Quimica y Minera de Chile S.A. (SQM) in Chile, Israel Chemicals Ltd. (ICL) in Israel and Sinofert Holdings Limited (Sinofert) in China contributed $70.2 million to second-quarter performance, 25 percent less than in the same period last year as these companies faced similar challenging conditions. The market value of our investments in these publicly traded companies was $6.6 billion as of market close on July 22, 2009, equating to approximately $22 per PotashCorp share.

"The breadth and depth of the global recession continued to be very difficult to predict, but our response was not," said PotashCorp President and Chief Executive Officer Bill Doyle. "We faced the most significant deferral of demand our industry has ever seen, yet remained steadfast in our commitment to operate with a long-term view. We have been and will continue to be a patient company, preparing for the strong demand that we expect will follow current conditions and protecting the value of our core assets for the future."

Market Conditions

Potash buyers continued to operate conservatively during the second quarter, carefully managing cash in a tough economy and waiting for price definition. With dealers and farmers globally continuing to work through inventories and reducing applications during the quarter, potash prices moved lower but avoided the significant declines seen in phosphate and nitrogen. While contract negotiations continued in India and China, customers in Brazil began purchasing towards the end of the quarter to replenish largely depleted inventories in advance of their key planting season. In North America, estimated potash applications for the fertilizer year (July 2008 to June 2009) declined by the largest amount on record, down approximately 40 percent on a year-over-year basis. Shipments from North American producers fell 73 percent compared to the same quarter last year and 53 percent for the fertilizer year, leaving US dealer inventories at very low levels heading into the fall application season.

In phosphate, US producer solid fertilizer sales to US customers declined 27 percent compared to the second quarter of 2008. For the fertilizer year, sales declined 38 percent and application rates were down approximately 30 percent. With strong demand from India and renewed interest in Brazil near the end of the quarter, offshore sales from US producers rose 30 percent compared to the same quarter last year.

In nitrogen, US sales volumes and prices declined as a result of weak industrial demand and liquidation of inventory by customers. Low natural gas costs made US producers more competitive with their global counterparts, resulting in reduced imports.

Potash

Potash generated gross margin of $106.2 million in the second quarter versus $886.4 million in the same period last year. This decline reflected an 86 percent drop in sales volumes, as shipments fell to 0.4 million tonnes from 2.7 million tonnes in the second quarter of 2008.

Despite limited product movement, our average realized potash price for the quarter was 15 percent higher than second-quarter 2008 levels, but 11 percent below the previous quarter. Offshore realized prices were below those of the trailing quarter as market pricing recalibrated to lower levels. Prices of most product shipped by PotashCorp to Canpotex Limited (the offshore marketing company for Saskatchewan potash producers) in the latter half of the quarter was adjusted to levels commensurate with those recently established in the offshore market. Offshore realized prices for the quarter were also affected by the allocation of transportation and distribution fixed costs over fewer sales tonnes. As in the first quarter of 2009, North American realized prices were affected by the above- normal proportion of industrial volumes relative to fertilizer.

In keeping with our long-held strategy of matching production to market demand, we took 50 shutdown weeks across our potash operations in the second quarter, compared with two weeks taken in the same period last year. As a result, total potash production of 0.6 million tonnes was 73 percent less than in second-quarter 2008. In the first half of the year, we took 89 shutdown weeks, reducing our 2009 production potential by nearly 5 million tonnes. Potash per- tonne cost of goods sold in the quarter was significantly higher quarter over quarter, primarily due to the allocation of fixed costs over greatly reduced volumes.

Phosphate

Second-quarter phosphate gross margin of $20.5 million was 94 percent lower than the $340.9 million generated in the same quarter last year, due mainly to considerably lower prices for fertilizer and feed products, plus weak volumes across all product categories. Strong margin performance from our industrial phosphate business - where we capitalize on product diversification made possible by high- quality, lower-cost phosphate rock from our Aurora mine - generated $41.0 million in gross margin and partially offset weakness in fertilizer and feed margins.

Realized prices for solid, liquid and feed phosphate products were below second-quarter 2008 levels by 69 percent, 64 percent and 32 percent, respectively. Our prices for premium industrial products, some of which are sold to customers under contracts containing cost-plus or market index provisions that lag current market conditions, rose 13 percent over the same quarter last year.

The per-tonne cost of goods sold in phosphate declined as prices for sulfur, used in the production of phosphoric acid, were significantly lower than in second-quarter 2008. The curtailment at our White Springs facility continued through the second quarter and was primarily responsible for a 26 percent decrease in total phosphate production.

Nitrogen

Lower realized prices across all nitrogen product categories resulted in second-quarter gross margin of $43.9 million, down 79 percent from the $210.0 million generated in the same period last year. Our Trinidad operation, which benefits from long-term, lower- cost natural gas contracts, generated $22.9 million in quarterly gross margin. Our US operations contributed the remaining $21.0 million.

Our average realized price for nitrogen products of $239 per tonne was 46 percent lower than in the same quarter last year. Lower gas prices along with depressed industrial demand resulted in ammonia and urea prices falling 50 percent and 48 percent, respectively, quarter over quarter. Nitrogen solutions prices were down 52 percent from the same quarter last year.

Total nitrogen sales volumes were 6 percent lower than in the second quarter of 2008 as our US operations ran at reduced rates, 80- 90 percent of capacity. Our total average natural gas cost included in production, including our hedge, was $3.77 per MMBtu, 51 percent lower than in the same quarter last year.

Financial

As provided in our previous guidance, second-quarter results reflect a $132.5 million cash settlement related to unauthorized investments made in certain auction-rate securities on our behalf, resulting in a $115.3 million gain from these previously impaired securities, recorded in other income.

In second-quarter 2009, we issued $500.0 million of senior notes bearing interest of 5.25 percent due May 15, 2014 and $500.0 million of senior notes bearing interest of 6.50 percent due May 15, 2019. The net proceeds of this offering were used to repay outstanding indebtedness under revolving credit facilities and for general corporate purposes.

Selling and administrative expenses were 33 percent below the same period last year as a result of lower incentive accruals. Provincial mining tax accruals made earlier in the year based on higher annual sales volume estimates were reduced during the second quarter in conjunction with lower tonnage forecasts. In the second quarter the strengthening Canadian dollar resulted in the recognition of a foreign-exchange loss of $37.9 million, more than half of which was a translation loss.

We continued to invest heavily in potash debottlenecking and expansion projects at five of our facilities, which made up the majority of the $399.6 million spent on additions to property, plant and equipment in the quarter. We believe the weak potash market environment of the past 10 months is unsustainable, and temporary in nature. With our focus on the long-term need for more potash and our unique ability to deliver that growth, our commitment to these projects has not changed.

Outlook

Given the essential role fertilizer plays in food production, demand for potash and phosphate cannot be deferred indefinitely, as removing essential crop nutrients from the soil today means more must be applied tomorrow. With rising populations, fundamental shifts in dietary practices to more meat protein and fruits and vegetables, along with increasingly limited land and water availability, we anticipate long-term pressure on the global food system. We believe that economic uncertainty has resulted in inadequate nutrient replacement to soils in all major agricultural regions, creating a void that must be filled. In some regions, nutrients resident in the soil and exceptional growing conditions can temporarily distract attention from this underlying issue, but unsustainable fertilizer practices cannot continue if the world's need for food is to be met.

The imminent need for improved soil fertility around the world is beginning to bring much-needed clarity to nutrient markets. Recently announced contracts between major potash suppliers and India's fertilizer buyers demonstrate customer understanding of the premium value and very different long-term supply/demand fundamentals for potash. In contrast to phosphate and nitrogen realized prices, which have reverted near 2006 levels, India's recent potash settlements equate to a level nearly triple our realized offshore prices of three years ago. While these prices are 26 percent below the record contract prices of last year, historical and relative context is important: this is one of the worst economic downturns we have ever seen, and we have just exited a fertilizer year in which global potash shipments were more than 30 percent lower than the previous year.

We believe a return to normal potash demand - and demand growth - will be driven not only by the need to replenish soil nutrients but also by renewed customer confidence in pricing. Fertilizer dealers make money by buying when they believe they can capture a positive margin, and many were shaken by the economic downturn and the rapid decline in phosphate and nitrogen pricing. We have seen India resume potash purchasing, which we expect will be followed by significant interest from the large Brazilian market, and we anticipate that customers worldwide will commit with confidence to new orders and initiate the lengthy process of refilling the potash pipeline.

We believe this situation could be similar to 2006, when extended contract negotiations pushed significant potash sales back to the latter half of the year and, more importantly, were the precursor to the strong demand rebound in 2007 and 2008. The current circumstances are even more dramatic because of the extent and duration of destocking that has occurred. With more than 14 million tonnes of global potash production curtailed so far this year, we expect a strong rebound in 2010 potash sales volumes to tighten supply/demand fundamentals.

We anticipate global potash demand in 2010 to be in the range of 55-60 million tonnes, depending on the pace of improvement in the world economy and related crop commodity prices. If economic recovery lags and consumers, including those buying grain and oilseeds, remain cautious, the need to replenish soil fertility could drive a rebound to the lower end of the range. If customer confidence and normal buying patterns return, grain markets could reflect both rising demand and global production shortfalls due to poor fertility practices during this recession. Higher crop prices could once again motivate farmers to maximize production and could drive potash sales volumes to the high end of that range next year. At this level we believe global producers would be near operational capacity.

We expect that the potash inventories built by producers during the downturn will supply immediate needs, but with low inventories in the broader supply chain, warehouses are expected to empty quickly as demand returns. We believe meeting longer-term demand growth will present a greater challenge. Building potash capacity requires considerable cost and a long time to execute, so sufficiently high potash margins are necessary to justify the investment. In our view, margins have not reached a level that justifies the cost of a greenfield mine. Recently settled contract prices have made this investment even more challenging.

We believe these issues further enhance the window of opportunity for our expansion projects in Saskatchewan and New Brunswick, which will be completed in a shorter time frame and at a significant discount to the estimated cost of a greenfield mine. These projects are expected to be completed on schedule, increasing our constructed capacity to 18 million tonnes by the end of 2012 with a steady ramp- up between now and the end of 2014.

We now expect 2009 potash sales volumes to be in the range of 4.5- 5.0 million tonnes. As we have for the past two decades, we will match our production to demand as it returns market-by-market through the second half of the year. With our current operational capacity of approximately 11.5 million tonnes, further production curtailments above the 4.7 million tonnes already announced this year will be required. We now anticipate potash gross margin for 2009 to be in the range of $1.2-$1.5 billion.

With lower forecast potash volumes, we now anticipate our 2009 annual effective tax rate will be in the range of 14-16 percent, with the remaining quarters at approximately 23-25 percent. Provincial mining and other taxes are now forecast within a range of 4-5 percent of total potash gross margin as a result of lower volumes increasing the impact that our deductible potash capital expenditures are expected to have on the profit tax component of these taxes. We now anticipate other income to be slightly above 2008 levels.

PotashCorp is expecting third-quarter net income per share to be in the range of $0.80-1.20. For the full year, we anticipate earnings to be in the range of $4.00-5.00 per share.

Conclusion

"We have often said that the demand for our life-giving nutrients does not grow in a straight line, but we believe the upward trend is undeniable," said Doyle. "After almost a year of unprecedented global destocking, we are now beginning to experience the re- emergence of demand in our key markets. As farmers around the world respond to their noble calling of feeding the world, we expect this will trigger a multi-year process of nutrient replenishment, particularly potash. We will be ready to supply their growing needs and, at the same time, reward our shareholders."

Notes

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1. All references to per-share amounts pertain to diluted net income per

share.

2. See reconciliation and description of non-GAAP measures in the

attached section titled "Selected Non-GAAP Financial Measures and

Reconciliations."

Potash Corporation of Saskatchewan Inc. is the world's largest fertilizer enterprise by capacity producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash and third largest in phosphate and nitrogen; animal nutrition, with the world's largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and the world's largest capacity for production of purified industrial phosphoric acid.

This release contains forward-looking statements. These statements are based on certain factors and assumptions including foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective income tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Several factors could cause actual results to differ materially from those in the forward- looking statements, including, but not limited to: fluctuations in supply and demand in fertilizer, sulfur, transportation and petrochemical markets; changes in competitive pressures, including pricing pressures; the current global financial crisis and conditions and changes in credit markets; the results of negotiations with China and India; timing and amount of capital expenditures; risks associated with natural gas and other hedging activities; changes in capital markets and corresponding effects on the company's investments; changes in currency and exchange rates; unexpected geological or environmental conditions, including water inflow; strikes and other forms of work stoppage or slowdowns; changes in and the effects of, government policy and regulations; and earnings, exchange rates and the decisions of taxing authorities, all of which could affect our effective tax rates. Additional risks and uncertainties can be found in our Form 10-K for the fiscal year ended December 31, 2008 under captions "Forward- Looking Statements" and "Item 1A - Risk Factors" and in our other filings with the US Securities and Exchange Commission and Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this release and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PotashCorp will host a conference call on Thursday, July 23, 2009 at

1:00 p.m. Eastern Time.

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Potash Corporation of Saskatchewan Inc.