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POTASH CORP OF SASKATCHEWAN INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

July 29, 2014

The following discussion and analysis is the responsibility of management and is as of July 29, 2014. The Board of Directors carries out its responsibility for review of this disclosure principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews and, prior to its publication, approves this disclosure, pursuant to the authority delegated to it by the Board of Directors. The term "PCS" refers to Potash Corporation of Saskatchewan Inc. and the terms "we," "us," "our," "PotashCorp" and "the company" refer to PCS and, as applicable, PCS and its direct and indirect subsidiaries as a group. Additional information relating to PotashCorp, including our Annual Report on Form 10-K for the year ended December 31, 2013 (Form 10-K), can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The company is a foreign private issuer under the rules and regulations of the US Securities and Exchange Commission (the SEC); however, it currently files voluntarily on the SEC's domestic forms.



PotashCorp and Our Business Environment

PotashCorp is an integrated producer of fertilizer, industrial and animal feed products. We are the world's largest fertilizer company by capacity, producing the three primary crop nutrients: potash (K), nitrogen (N) and phosphate (P). As the world's largest potash producer by capacity, we are responsible for nearly one-fifth of global capacity through our Canadian operations. To enhance our global footprint, we have investments in four potash-related businesses in South America, the Middle East and Asia. We complement our potash assets with focused positions in nitrogen and phosphate.



A detailed description of our market and customers can be found on pages 54 and 55 (potash), 65 (nitrogen) and 73 (phosphate) in our 2013 Annual Integrated Report.

PotashCorp Strategy Our business strategy is detailed on pages 20 to 23 in our 2013 Annual Integrated Report. Key strategies, risks and mitigation are outlined for each of our nutrients on pages 52 (potash), 63 (nitrogen) and 71 (phosphate) in our 2013 Annual Integrated Report.



Key Performance Drivers - Performance Compared to Targets

Through our integrated value model, we set, evaluate and refine our goals and priorities to drive improvements that benefit all those impacted by our business. We demonstrate our accountability by tracking and reporting our progress against targets related to each goal. Our long-term goals and 2014 targets are set out on pages 40 to 50 of our 2013 Annual Integrated Report. A summary of our progress against selected goals and representative annual targets is set out below. Representative Performance Goal 2014 Annual Target to June 30, 2014 Create superior Exceed total shareholder return PotashCorp's total shareholder return long-term performance for our sector and the was 17 percent in the first six months shareholder DAXglobal Agribusiness Index. of 2014 compared to our sector's value. weighted



average return (based on market

capitalization) of 5 percent and the

DAXglobal Agribusiness Index weighted average return (based on market capitalization) of 5 percent. Be the supplier Reduce domestic potash net rail cycle The domestic potash net rail cycle time of choice to time through the Chicago corridor by through the Chicago corridor during the the markets we 10 percent in 2014, compared to 2011 second quarter of 2014 showed serve. levels. improvement



over a very difficult 2014

first



quarter performance. Persistent

congestion created from an increase in North American rail volumes and a backlog of shipments due to severe winter



conditions resulted in net rail

cycle times higher in the 2014 second quarter than each of the previous three second quarter periods. Our second quarter net rail cycle time was 35 percent



above the benchmark 2011 second

quarter and 25 percent above the average of the prior three second quarters. For the first six months of 2014 our performance was 50 percent above our targeted net rail cycle time through the Chicago corridor. With continued rail congestion and resource shortages in the North



American rail network we do not

anticipate reaching our corporate goal of reducing the cycle time by 10 percent below the 2011 benchmark number. We continue to work with our carriers to prioritize our shipments. Attract and Fill 75 percent of senior staff openings The percentage of senior staff positions retain talented, with qualified internal candidates. filled internally in the first six motivated and months of 2014 was 89 percent. productive employees who are committed to our long-term goals. Achieve no harm Achieve zero life-altering injuries at Tragically, we had a fatality at our to people. our sites. Cory potash facility during the first quarter of 2014. Reduce total site recordable injury rate During the



first six months of 2014,

to total site



recordable injury rate

0.95 (per 200,000 hours worked) or lower. was 1.16. Achieve no Reduce total reportable incidents Annualized total reportable incidents damage to the (releases, permit excursions and spills) were up 29 percent during the first six environment. by 15 percent from 2013 levels. months of



2014 compared to 2013 annual

levels.



Compared to the first six months

of 2013,



total reportable incidents were

up 10 percent.

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 16



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Share Repurchase Program

In the second quarter of 2014, the company completed a share repurchase program as described in Note 5 to the financial statements in this Form 10-Q. During the program a total of 43,345,992 common shares were repurchased for cancellation at a cost of $1,476 million and an average price per share of $34.05.



Performance Overview

This discussion and analysis are based on the company's unaudited interim condensed consolidated financial statements included in

Item 1 of this Quarterly Report on Form 10-Q (financial statements in this Form 10-Q) based on International Financial Reporting Standards, as issued by the International Accounting Standards Board (IFRS), unless otherwise stated. All references to per-share amounts pertain to diluted net income per share.



For an understanding of trends, events, uncertainties and the effect of critical accounting estimates on our results and financial condition, this Form 10-Q should be read carefully, together with our 2013 Annual Integrated Report.

Earnings Guidance - Second Quarter 2014

Company Guidance Actual Results Earnings per share $ 0.40 -$ 0.45 $ 0.56 Overview of Actual Results Three Months Ended June 30 Six Months Ended June 30 Dollars (millions) - except per-share amounts 2014 2013 Change %



Change 2014 2013 Change % Change Sales

$ 1,892$ 2,144$ (252 )



(12 ) $ 3,572$ 4,244$ (672 ) (16 ) Gross margin

747 979 (232 )



(24 ) 1,312 1,846 (534 ) (29 ) Operating income

686 927 (241 )



(26 ) 1,217 1,744 (527 ) (30 ) Net income

472 643 (171 )



(27 ) 812 1,199 (387 ) (32 ) Net income per share - diluted 0.56 0.73 (0.17 )

(23 ) 0.95 1.37 (0.42 ) (31 ) Other comprehensive (loss) income (6 ) (500 ) 494 (99 ) 51 (303 ) 354 n/m n/m = not meaningful [[Image Removed: LOGO]] [[Image Removed: LOGO]] Earnings and gross margin in the second quarter and first half of 2014 were lower than the same periods in 2013 due mostly to lower potash prices. Lower sales prices in nitrogen were more than offset by higher sales volumes quarter over quarter. Year over year, lower sales prices in nitrogen were nearly offset by higher sales volumes and cost savings from lower natural gas costs and certain costs in 2013 that did not repeat in 2014. Phosphate was impacted by both lower prices and sales volumes quarter over quarter and year over year. With all key potash markets engaged, global shipments accelerated through the second quarter. In North America, demand at the farm level was very strong through the spring planting season. Second-quarter shipments from domestic producers exceeded those of the prior year by 28 percent, with shipments for the first six months of 2014 approaching record totals. Shipments by North American producers to offshore markets increased from the first quarter as rail constraints began to improve and customers in all key markets actively secured 17 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q

-------------------------------------------------------------------------------- supply. Totals for both the quarter and year were relatively in line with prior period levels. Improving fundamentals - most notably for granular product - resulted in positive spot market pricing trends relative to the first quarter, although potash prices remained well below those of the comparative period in 2013. In nitrogen, prices reflected typical seasonal patterns and moved lower as the quarter progressed. While offshore prices for ammonia and urea softened during the quarter relative to the same period last year, key North American benchmarks remained comparatively strong due to healthy demand and reduced imports. After phosphate markets rebounded early in 2014, demand and pricing remained relatively stable through the second quarter. Continuing slow demand in India during first-half 2014 was largely offset by the strength of demand in other regions, in particular Brazil and North America. Increased availability of product from offshore competitors limited exports for US producers, but was offset by healthy domestic demand and lower output due to reported production challenges. Other significant factors that affected earnings quarter over quarter were lower income taxes (due to decreased ordinary earnings before taxes and discrete tax adjustments) and lower dividends received from Israel Chemicals Ltd. (ICL). Year over year, earnings were impacted by lower income taxes (due to decreased ordinary earnings before taxes and discrete tax adjustments), a reduced share of earnings of equity-accounted investees, a special dividend received from ICL (none in the first half of 2013) and a non-tax deductible charge related to the impairment of our investment in Sinofert Holdings Limited (Sinofert) in the first half of 2014 (none in 2013). Other comprehensive loss for the second quarter of 2014 mainly resulted from a decrease in the fair value of our investment in ICL. For the first half of 2014 other comprehensive income mainly resulted from an increase in the fair value of our investment in ICL. Other comprehensive loss for the second quarter and first half of 2013 was mainly the result of a decrease in the fair value of our investments in ICL and Sinofert, partially offset by a net actuarial gain resulting from a remeasurement of our defined benefit plans.



Statement of Financial Position

[[Image Removed: LOGO]] PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 18



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The most significant contributors to the changes in our statements of financial position were as follows (direction of arrows refers to increase or decrease):

Assets Liabilities



i Cash and cash equivalents held in i Short-term debt and current portion

certain foreign subsidiaries were of long-term debt declined due to the

$24 million at June 30, 2014, down from repayment of $500 million in senior

$480 million at December 31, 2013 as a notes in the second quarter of 2014.

result of a repatriation of funds in

the first quarter of 2014. There are no i Payables and accrued charges were

current plans to repatriate the funds lower largely due to reduced capital

at June 30, 2014 in a taxable manner. spending and timing of share

repurchases outstanding at December 31, 2013. h Long-term debt was higher as a result of the issuance of $750 million in senior notes in the first quarter of 2014. Equity



i Equity was mainly impacted by net income (discussed in more detail above),

dividends declared and common shares repurchased for cancellation (see Note 5

to the financial statements in this Form 10-Q) during the first six months of

2014.

Operating Segment Review We report our results (including gross margin) in three business segments: potash, nitrogen and phosphate as described in Note 6 to the financial statements in this Form 10-Q. Our reporting structure reflects how we manage our business and how we classify our operations for planning and measuring performance. We include net sales in segment disclosures in the financial statements in this Form 10-Q pursuant to IFRS, which require segmentation based upon our internal organization and reporting of revenue and profit measures. As a component of gross margin, net sales (and the related per-tonne amounts) are the primary revenue measures we use and review in making decisions about operating matters on a business segment basis. These decisions include assessments about potash, nitrogen and phosphate performance and the resources to be allocated to these segments. We also use net sales (and the related per-tonne amounts) for business planning and monthly forecasting. Net sales are calculated as sales revenues less freight, transportation and distribution expenses. Realized prices refer to net sales prices. Certain of the prior years' figures within the nitrogen segment have been reclassified to conform with the current year's presentation as disclosed in Note 13 to the financial statements in this Form 10-Q. Our discussion of segment operating performance is set out below and includes nutrient product and/or market performance results, where applicable, to give further insight into these results. [[Image Removed: LOGO]] 19 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q



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Potash Potash Financial Performance Three Months Ended June 30 Dollars (millions) Tonnes (thousands) Average per Tonne (1)



2014 2013 % Change 2014 2013 % Change

2014 2013 % Change Manufactured product Net sales North America $ 303$ 352 (14 ) 943 834 13 $ 321$ 421 (24 ) Offshore 362 554 (35 ) 1,582 1,711 (8 ) $ 229$ 324 (29 ) 665 906 (27 ) 2,525 2,545 (1 ) $ 263$ 356 (26 ) Cost of goods sold (261 ) (290 ) (10 ) $ (102 )$ (114 ) (11 ) Gross margin 404 616 (34 ) $ 161$ 242 (33 ) Other miscellaneous and purchased product gross margin (2) (9 ) (3 ) 200 Gross Margin $ 395$ 613 (36 ) $ 156$ 241 (35 )



(1) Rounding differences may occur due to the use of whole dollars in per-tonne

calculations.

(2) Comprised of net sales of $3 million (2013 - $1 million) less cost of goods

sold of $12 million (2013 - $4 million). Six Months Ended June 30 Dollars (millions) Tonnes (thousands) Average per Tonne (1)



2014 2013 % Change 2014 2013 % Change

2014 2013 % Change Manufactured product Net sales North America $ 594$ 683 (13 ) 1,931 1,628 19 $ 307$ 419 (27 ) Offshore 649 1,031 (37 ) 2,905 3,143 (8 ) $ 223$ 328 (32 ) 1,243 1,714 (27 ) 4,836 4,771 1 $ 257$ 359 (28 ) Cost of goods sold (535 ) (594 ) (10 ) $ (111 )$ (124 ) (10 ) Gross margin 708 1,120 (37 ) $ 146$ 235 (38 ) Other miscellaneous and purchased product gross margin (2) (13 ) (3 ) 333 Gross Margin $ 695$ 1,117 (38 ) $ 144$ 234 (38 )



(1) Rounding differences may occur due to the use of whole dollars in per-tonne

calculations.

(2) Comprised of net sales of $10 million (2013 - $7 million) less cost of goods

sold of $23 million (2013 - $10 million).

Potash gross margin variance attributable to:

Three Months Ended June 30 Six Months Ended June 30 2014 vs. 2013 2014 vs. 2013 Change in Change in Prices/Costs Prices/Costs Change in Net Cost of Change in Net Cost of Dollars (millions) Sales Volumes Sales Goods Sold Total Sales Volumes Sales Goods Sold Total Manufactured product North America $ 37 $ (95 ) $ (2 ) $ (60 ) $ 101 $ (216 ) $ 9 $ (106 ) Offshore (30 ) (152 ) 30 (152 ) (57 ) (304 ) 55 (306 ) Change in market mix (14 ) 13 1 - (27 ) 25 2 - Total manufactured product $ (7 ) $ (234 ) $ 29 (212 ) $ 17 $ (495 ) $ 66 (412 ) Other miscellaneous and purchased product (6 ) (10 ) Total $ (218 )$ (422 )

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 20 -------------------------------------------------------------------------------- [[Image Removed: LOGO]] [[Image Removed: LOGO]] Offshore sales to major markets, by percentage of sales volumes, were as follows: Three Months Ended June 30 Six Months Ended June 30 By Canpotex (1) From New Brunswick By Canpotex (1) From New Brunswick 2014 2013 % Change 2014 2013 % Change 2014 2013 % Change 2014 2013 % Change Other Asian countries (2) 42 44 (5 ) - - - 44 42 5 - - - Latin America 29 26 12 100 100 - 28 26 8 100 100 - China 13 15 (13 ) - - - 14 19 (26 ) - - - India 10 12 (17 ) - - - 7 8 (13 ) - - - Oceania, Europe and Other 6 3 100 - - - 7 5 40 - - - 100 100 100 100 100 100 100 100



(1) Canpotex Limited (Canpotex).

(2) All Asian countries except China and India.

The most significant contributors to the change in total gross margin quarter over quarter were as follows (direction of arrows refers to impact on gross margin): Net Sales Prices Sales Volumes Cost of Goods Sold i Our average realized h Strong customer h Costs were lower due potash price was down engagement in all key to our workforce significantly due to price potash markets and reduction and



erosion during the second improving rail logistics operational changes half of 2013. Improving supported increased

announced in



December

market fundamentals through shipments from earlier in 2013 along with our the first half - most the year.

decision to



optimize

notably in granular markets production at our lowest in North America and Brazil h Continued strength in cost facilities. - resulted in our average North America led to sales realized price increasing volumes significantly h The Canadian dollar relative to first-quarter exceeding those of the weakened relative to the 2014. comparative period in US dollar, reducing cost 2013. of goods sold. i Although rail h More product from our challenges began to abate, lower-cost mines was offshore sales volumes for sold to offshore the quarter were impacted customers resulting in a by backlogs and trailed positive cost of goods 2013 comparative totals. sold variance. i Costs were incurred due to a review of potash mining practices.

21 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q



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The most significant contributors to the change in total gross margin year over year were as follows (direction of arrows refers to impact on gross margin): Net Sales Prices Sales Volumes Cost of Goods Sold i Potash prices were lower h North American totals h 5 shutdown weeks were as the sharp decline during were up due to low taken in 2014 mainly the second half of 2013 distributor inventories at as a result of a weighed on realizations, the start of the year and fatality at Cory and though prices rose compared higher acreage and logistical constraints to the trailing quarter due application rates. at Patience Lake while to tighter granular 20 shutdown weeks were supplies and logistical i Our offshore sales taken in 2013 mainly as constraints. volumes fell as rail a result of our strategy constraints limited to match production with shipments. demand and weather-related pond issues at our Patience Lake facility. h The Canadian dollar weakened relative to the US dollar, reducing cost of goods sold. h More product from our lower-cost mines was sold to offshore customers resulting in a The change in market mix produced an unfavorable higher cost of



goods

variance of $27 million related to sales volumes and a sold variance. favorable variance of $25 million in sales prices, due primarily to more higher-priced granular product being sold in North America in 2014.

Potash Non-Financial Performance

Three Months Ended June 30 Six Months Ended June 30 2014 2013 % Change 2014 2013 % Change Production KCl tonnes produced (thousands) 2,321 2,677 (13 ) 4,716 4,702 - Safety Total site recordable injury rate 2.09 1.18 77 1.71 1.30 32 Life-altering injuries - - - 1 - n/m Employee Percentage of senior staff positions filled internally 100% 100% - 100% 100% - Environmental Waste (000's tonnes) 4,860 5,790 (16 ) 9,360 10,295 (9 ) Environmental incidents 5 2 150 9 8 13 n/m = not meaningful Production



During the first half of 2014, we successfully completed a safe Canpotex entitlement run at Allan, which increased our proportion of Canpotex sales to offshore markets from approximately 49 percent to approximately 54 percent commencing July 1, 2014.

Potash production fell quarter over quarter due to our operational changes announced in December 2013. Year over year, the impact of our operational changes was offset by a reduction in shutdown weeks as discussed above.

Safety

Tragically, we had a fatality at our Cory potash facility during the first quarter of 2014. Total site recordable injury rate increased among non-nested contractors, largely on the New Brunswick and Rocanville expansion projects as there were fewer recordable injuries on both projects, but there were fewer hours worked during the second quarter and first half of 2014.



Employee

During the second quarter of 2014, we rescinded previously announced layoff notices at our Penobsquis, New Brunswick facility (impacting 56 employees) and began a recall process at our Lanigan facility to reinstate 47 permanent employees due to ongoing tightness in the granular potash market.

Environmental

Waste is comprised of byproducts including coarse and fine tailings and salt as brine to injection wells. Waste decreased quarter over quarter and year over year due to lower mining waste per tonne (higher recovery and/or ore quality) combined with decreased mining activity at certain sites.



Of the five reportable environmental incidents in potash in the second quarter of 2014, three were due to brine and slurry pipe failures.

PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 22



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Nitrogen

Nitrogen Financial Performance

Three Months Ended June 30 Dollars (millions) Tonnes (thousands) Average per Tonne (1) 2014 2013 % Change 2014 2013 % Change 2014 2013 % Change Manufactured product (2) Net sales Ammonia $ 360$ 318 13 665 549 21 $ 542$ 578 (6 ) Urea 114 120 (5 ) 258 277 (7 ) $ 441$ 432 2 Solutions, Nitric acid, Ammonium nitrate 180 170 6 740 656 13 $ 243$ 259 (6 ) 654 608 8 1,663 1,482 12 $ 393$ 410 (4 ) Cost of goods sold (355 ) (335 ) 6 $ (213 )$ (227 ) (6 ) Gross margin 299 273 10 $ 180$ 183 (2 ) Other miscellaneous and purchased product gross margin (3) 5 3 67 Gross Margin $ 304$ 276 10 $ 183$ 186 (2 )



(1) Rounding differences may occur due to the use of whole dollars in per-tonne

calculations.

(2) Includes inter-segment ammonia sales, comprised of: net sales $31 million,

cost of goods sold $14 million and 52,000 sales tonnes (2013 - net sales $19

million, cost of goods sold $11 million and 33,000 sales tonnes). Inter-segment profits are eliminated on consolidation.



(3) Comprised of third-party and inter-segment sales, including: third-party net

sales $5 million less cost of goods sold $1 million (2013 - net sales $13

million less cost of goods sold $9 million) and inter-segment net sales $2

million less cost of goods sold $1 million (2013 - net sales $16 million

less cost of goods sold $17 million). Inter-segment profits are eliminated on consolidation. Six Months Ended June 30 Dollars (millions) Tonnes (thousands) Average per Tonne (1)



2014 2013 % Change 2014 2013 % Change

2014 2013 % Change Manufactured product (2) Net sales Ammonia $ 606$ 660 (8 ) 1,248 1,108 13 $ 486$ 596 (18 ) Urea 264 265 - 606 582 4 $ 436$ 455 (4 ) Solutions, Nitric acid, Ammonium nitrate 344 331 4 1,438 1,278 13 $ 239$ 259 (8 ) 1,214 1,256 (3 ) 3,292 2,968 11 $ 369$ 423 (13 ) Cost of goods sold (679 ) (715 ) (5 ) $ (206 )$ (241 ) (15 ) Gross margin 535 541 (1 ) $ 163$ 182 (10 ) Other miscellaneous and purchased product gross margin (3) 8 6 33 Gross Margin $ 543$ 547 (1 ) $ 165$ 184 (10 )



(1) Rounding differences may occur due to the use of whole dollars in per-tonne

calculations.

(2) Includes inter-segment ammonia sales, comprised of: net sales $56 million,

cost of goods sold $26 million and 100,000 sales tonnes (2013 - net sales

$50 million, cost of goods sold $25 million and 79,000 sales tonnes). Inter-segment profits are eliminated on consolidation.



(3) Comprised of third-party and inter-segment sales, including: third-party net

sales $20 million less cost of goods sold $12 million (2013 - net sales $30

million less cost of goods sold $24 million) and inter-segment net sales $2

million less cost of goods sold $2 million (2013 - net sales $30 million

less cost of goods sold $30 million). Inter-segment profits are eliminated

on consolidation. 23 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q



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Nitrogen gross margin variance attributable to:

Three Months Ended June 30 Six Months Ended June 30 2014 vs. 2013 2014 vs. 2013 Change in Change in Prices/Costs Prices/Costs Change in Net Cost of Change in Net Cost of Dollars (millions) Sales Volumes Sales Goods Sold Total Sales Volumes Sales Goods Sold Total Manufactured product Ammonia $ 42 $ (27 ) $ 9 $ 24 $ 55 $ (138 ) $ 42 $ (41 ) Urea (6 ) 4 - (2 ) 6 (11 ) 4 (1 ) Solutions, NA, AN 15 (13 ) 2 4 15 (30 ) 44 29 Hedge - - - - - - 7 7 Change in product mix (7 ) 7 - - - - - - Total manufactured product $ 44 $ (29 ) $ 11 26 $ 76 $ (179 ) $ 97 (6 ) Other miscellaneous and purchased product 2 2 Total $ 28$ (4 ) [[Image Removed: LOGO]] [[Image Removed: LOGO]] Three Months Ended June 30 Six Months Ended June 30 Sales Tonnes Sales Tonnes (thousands) Price per Tonne (thousands) Price per Tonne 2014 2013 2014 2013 2014 2013 2014 2013 Fertilizer 551 488 $ 424$ 463 1,128 898 $ 396$ 458 Industrial and Feed 1,112 994 $ 379$ 384 2,164 2,070 $ 355$ 408 1,663 1,482 $ 393$ 410 3,292 2,968 $ 369$ 423 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 24



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The most significant contributors to the change in total gross margin quarter over quarter were as follows (direction of arrows refers to impact on gross margin): Net Sales Prices Sales Volumes Cost of Goods Sold i Our average realized h Improved production h Cost of goods sold price declined primarily levels across all of our variance was impacted by due to slightly weaker facilities increased lower costs at Trinidad benchmark prices nitrogen sales volumes. associated with fewer contributing to lower gas interruptions in realizations for our 2014 and costs at ammonia fertilizer Augusta in 2013 that did products. not repeat in 2014. i Average costs, including our hedge position, for natural gas used as feedstock in production increased 4 percent. Costs for natural gas used as feedstock in Trinidad production rose 1 percent (contract price indexed, in part, to Tampa ammonia prices) while our US spot costs for natural gas increased 10 percent. Including losses on our hedge position, US gas prices rose 9 percent.



The most significant contributors to the change in total gross margin year over year were as follows (direction of arrows refers to impact on gross margin):

Net Sales Prices Sales Volumes Cost of Goods Sold i Ammonia prices fell from h Ammonia volumes were up h Average costs, higher levels in the first due to the availability of including our hedge half of 2013 as strong production at Geismar and position, for natural demand and supply Augusta in 2014 (both gas used as feedstock in challenges in key projects began producing production decreased producing regions were more part-way through the first 4 percent. Costs for prevalent in 2013 than half of 2013) and fewer natural gas used as 2014. gas interruptions in feedstock in Trinidad Trinidad compared to the production same period in 2013, all fell 15 percent of which also led to an (contract price indexed, increase in saleable in part, to Tampa downstream products. ammonia prices) while our US spot costs for natural gas increased 24 percent. Including losses on our hedge position, US gas prices rose 15 percent. h The cost of goods sold variance for ammonia mainly reflected decreased costs for natural gas used as feedstock in Trinidad production exceeding increased US natural gas costs, but to a greater extent in ammonia than in urea. h The cost of goods sold variance was better for solutions, nitric acid and ammonium nitrate due mainly to the impact of costs associated with Geismar in 2013 that did not repeat in 2014.

25 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q



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Nitrogen Non-Financial Performance

Three Months Ended June 30 Six Months Ended June 30 2014 2013 % Change 2014 2013 % Change Production N tonnes produced (thousands) 830 726 14 1,663 1,449 15 Safety Total site recordable injury rate 0.28 0.63 (56 ) 0.38 0.56 (32 ) Employee Percentage of senior staff positions filled internally 100% 100% - 100% 100% -



Environmental Greenhouse gas emissions (CO2

equivalent tonnes/tonne of product) 2.2 2.5 (12 ) 2.2 2.3 (4 ) Environmental incidents - - - 1 1 - Production



The increase in production was mainly due to the availability of production at Geismar and Augusta as discussed above.

Safety

The total site recordable injury rate was affected by two recordable injuries among employees in the second quarter and first half of 2014 compared to four in the second quarter of 2013 and five in the first half of 2013.



Phosphate

Phosphate Financial Performance

Three Months Ended June 30 Dollars (millions) Tonnes (thousands) Average per Tonne (1) 2014 2013 % Change 2014 2013 % Change 2014 2013 % Change Manufactured product Net sales Fertilizer $ 245$ 288 (15 ) 539 635 (15 ) $ 455$ 454 - Feed and Industrial 187 193 (3 ) 310 295 5 $ 603$ 654 (8 ) 432 481 (10 ) 849 930 (9 ) $ 509$ 517 (2 ) Cost of goods sold (387 ) (395 ) (2 ) $ (457 )$ (422 ) 8 Gross margin 45 86 (48 ) $ 52$ 95 (45 ) Other miscellaneous and purchased product gross margin (2) 3 4 (25 ) Gross Margin $ 48$ 90 (47 ) $ 57$ 97 (41 )



(1) Rounding differences may occur due to the use of whole dollars in per-tonne

calculations.

(2) Comprised of net sales of $6 million (2013 - $7 million) less cost of goods

sold of $3 million (2013 - $3 million). Six Months Ended June 30 Dollars (millions) Tonnes (thousands) Average per Tonne (1) 2014 2013 % Change 2014 2013 % Change

2014 2013 % Change Manufactured product Net sales Fertilizer $ 455$ 585 (22 ) 1,041 1,225 (15 ) $ 437$ 478 (9 ) Feed and Industrial 352 392 (10 ) 582 608 (4 ) $ 605$ 644 (6 ) 807 977 (17 ) 1,623 1,833 (11 ) $ 497$ 533 (7 ) Cost of goods sold (738 ) (802 ) (8 ) $ (455 )$ (437 ) 4 Gross margin 69 175 (61 ) $ 42$ 96 (56 ) Other miscellaneous and purchased product gross margin (2) 5 7 (29 ) Gross Margin $ 74$ 182 (59 ) $ 46$ 99 (54 )



(1) Rounding differences may occur due to the use of whole dollars in per-tonne

calculations. (2) Comprised of net sales of $10 million (2013 - $14 million) less cost of goods sold of $5 million (2013 - $7 million). PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 26



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Phosphate gross margin variance attributable to:

Three Months Ended June 30 Six Months Ended June 30 2014 vs. 2013 2014 vs. 2013 Change in Change in Prices/Costs Prices/Costs Change in Net Cost of Change in Net Cost of Dollars (millions) Sales Volumes Sales Goods Sold Total Sales Volumes Sales Goods Sold Total Manufactured product Fertilizer $ (25 ) $ 2$ (12 )$ (35 ) $ (50 ) $ (42 ) $ 11 $ (81 ) Feed and Industrial 8 (14 ) - (6 ) (10 ) (22 ) 7 (25 ) Change in product mix (4 ) 4 - - (6 ) 6 - - Total manufactured product $ (21 ) $ (8 )$ (12 ) (41 ) $ (66 ) $ (58 ) $ 18 (106 ) Other miscellaneous and purchased product (1 ) (2 ) Total $ (42 )$ (108 ) [[Image Removed: LOGO]] [[Image Removed: LOGO]] The most significant contributors to the change in total gross margin quarter over quarter were as follows (direction of arrows refers to impact on gross margin): Net Sales Prices Sales Volumes Cost of Goods Sold i Although market i Sales volumes were down i Depreciation was higher fundamentals remained due to reduced due to accelerated largely unchanged, the production caused by depreciation as a decline in prices was short-term issues result of operational mainly related to relating to weather, changes announced in industrial contracts, mining conditions and the fourth quarter of which tend to lag mechanical challenges 2013. current market which created conditions. difficulties in sustaining the supply of ore feed to our h Sulfur costs were facilities. down 20 percent, reducing our cost of goods sold. The most significant contributors to the change in total gross margin year over year were as follows (direction of arrows refers to impact on gross margin): Net Sales Prices Sales Volumes Cost of Goods Sold i Weaker fertilizer i Volumes fell as h Sulfur costs were market conditions weather-related down 27 percent and through the second half production and



ammonia costs were down

of 2013 weighed on our logistical issues 18

percent, reducing first-half 2014 reduced operating rates our cost of goods sold. realizations. across all our facilities and constrained our sales. i Industrial prices were i



Depreciation was higher

down due to certain



due to accelerated

contracts being tied to depreciation as a input costs on a result of operational lagging basis. changes announced in the fourth quarter of 2013.

27 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q



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Phosphate Non-Financial Performance

Three Months Ended June 30 Six Months Ended June 30 2014 2013 % Change 2014 2013 % Change Production P2O5 tonnes produced (thousands) 459 521 (12 ) 828 1,020 (19 ) P2O5 operating rate percentage 77% 88% (13 ) 70% 86% (19 ) Safety Total site recordable injury rate 1.45 1.42 2 1.43 0.95 51 Employee Percentage of senior staff positions filled internally 80% 75% 7 91% 67% 36 Environmental Water usage (m3 per tonne of product) 26 29 (10 ) 28 30 (7 ) Recycled water used in operations (percentage) 95% 94% 1 94% 94% - Environmental incidents 1 1 - 1 1 - Production



Phosphate production fell quarter over quarter due to short-term issues discussed above. Phosphate production was limited year over year due to unusually cold weather at Aurora and White Springs during the first quarter of 2014.

Safety



Year over year the total site recordable injury rate increased due to 17 recordable injuries occurring in the first half of 2014 (compared to 16 in the same period in 2013) and fewer hours being worked in 2014.

Employee

In the first six months of 2014, 10 of 11 senior staff positions were filled internally while four out of six positions were filled internally in the same period in 2013. Other Expenses and Income Three Months Ended June 30 Six Months Ended June 30 Dollars (millions) 2014 2013 Change % Change 2014 2013 Change % Change Selling and administrative expenses $ (55 )$ (51 )$ (4 ) 8 $ (123 )$ (117 )$ (6 )



5

Provincial mining and other taxes (69 ) (81 ) 12 (15 ) (123 ) (144 ) 21 (15 ) Share of earnings of equity-accounted investees 32 37 (5 ) (14 ) 65 117 (52 ) (44 ) Dividend income 24 54 (30 ) (56 ) 93 54 39 72 Impairment of available-for-sale investment - - - n/m (38 ) - (38 ) n/m Other income (expenses) 7 (11 ) 18 n/m 31 (12 ) 43 n/m Finance costs (48 ) (39 ) (9 ) 23 (95 ) (74 ) (21 ) 28 Income taxes (166 ) (245 ) 79 (32 ) (310 ) (471 ) 161 (34 ) n/m = not meaningful



Share of earnings of equity-accounted investees pertains primarily to Sociedad Quimica y Minera de Chile S.A. (SQM) and Arab Potash Company (APC). Lower earnings year over year were mainly due to lower earnings for SQM over that period.

Quarter over quarter dividend income was down due to lower dividends from ICL. The company also received a special dividend of $69 million from ICL in the first half of 2014 (none in the first half of 2013).

As discussed in Note 3 to the financial statements in this Form 10-Q, a non-tax deductible impairment loss of $38 million was recorded in net income on our investment in Sinofert during the first quarter of 2014. No such losses were recognized in 2013.



Weighted average debt obligations outstanding and the associated interest rates were as follows:

[[Image Removed: LOGO]] PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 28

-------------------------------------------------------------------------------- For the second quarter and first six months of 2014, income taxes decreased due to lower ordinary earnings before taxes and discrete tax adjustments. Effective tax rates and discrete items were as follows: Three Months Ended Six Months Ended June 30 June 30 Dollars (millions), except percentage amounts 2014 2013 2014 2013 Actual effective tax rate on ordinary earnings 27% 25% 27% 26% Actual effective tax rate including discrete items 26% 28% 28% 28%



Discrete tax adjustments that impacted the rate $ 6$ (18 )$ 4$ (37 )

Significant items to note are described in Note 8 to the financial statements in this Form 10-Q.

For the first six months of 2014, 64 percent of the effective tax rate on the current year's ordinary earnings pertained to current income taxes (2013 - 49 percent) and 36 percent related to deferred income taxes (2013 - 51 percent). The increase in the current portion was largely due to lower tax depreciation partially offset by a drawdown of intercompany inventory.



Liquidity and Capital Resources

Cash Requirements

Contractual Obligations and Other Commitments

Our contractual obligations and other commitments detailed on pages 84 and 85 of our 2013 Annual Integrated Report summarize certain of our liquidity and capital resource requirements, excluding obligations that have original maturities of less than one year, planned (but not legally committed) capital expenditures or potential share repurchases. The issuance of 3.625 percent senior notes due March 15, 2024 during the first quarter of 2014 increased our long-term debt obligations by $750 million and estimated annual interest payments by $27 million in our contractual obligations and other commitments table referenced above. During the second quarter of 2014, the company completed the early redemption of all its outstanding $500 million of 5.250 percent senior notes due May 15, 2014. Capital Expenditures



Based on anticipated exchange rates, during 2014 we expect to incur capital expenditures, including capitalized interest, of approximately $545 million for opportunity capital and approximately $615 million to sustain operations at existing levels and for major repairs and maintenance (including plant turnarounds).

Page 62 of our 2013 Annual Integrated Report outlines key potash construction projects and their expected total cost, as well as the impact of these projects on capacity expansion/debottlenecking and any expected remaining spending on each project still in progress. The most significant of these potash projects(1) on which funds are expected to be spent in 2014, excluding capitalized interest, are outlined in the table below: Forecasted Expected Completion (3) Remaining Spending CDN Dollars (billions) 2014 Forecast Total Forecast (2) Started (Description) (after 2014) (2) New Brunswick $ 0.1 $ 2.2 2007 2014 (mine shaft and mill) $ 0.3 Rocanville, Saskatchewan $ 0.2 $ 2.8 2008 2015 (mine shaft and mill) $ -



(1) The expansion at each of these projects is discussed in the technical report

for such project filed on SEDAR in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects.



(2) Amounts are based on the most recent forecast amounts approved by the Board

of Directors, and are subject to change based on project timelines and costs.



(3) Excludes ramp-up time. We expect these projects will be fully ramped up by

the end of 2015, subject to market conditions.

In 2013, we began an expansion of ammonia production at our Lima, Ohio plant. We are investing approximately $190 million through the fourth quarter of 2015 ($100 million in 2014) to increase our capacity in ammonia (88,000 tons) and urea (80,000 tons).



We anticipate that all capital spending will be financed by internally generated cash flows supplemented, if and as necessary, by borrowing from existing financing sources.

29 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q



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Sources and Uses of Cash

Cash flows from operating, investing and financing activities, as reflected in the unaudited interim condensed consolidated statements of cash flow, are summarized in the following table:

Three Months Ended June 30 Six Months Ended June 30 Dollars (millions) 2014 2013 Change % Change 2014 2013 Change % Change Cash provided by operating activities $ 788$ 1,202$ (414 ) (34 ) $ 1,327$ 1,940$ (613 ) (32 ) Cash used in investing activities (207 ) (359 ) 152 (42 ) (433 ) (860 ) 427 (50 ) Cash used in financing activities (1,007 ) (798 ) (209 ) 26 (1,415 ) (1,012 ) (403 ) 40 (Decrease) increase in cash and cash equivalents $ (426 )$ 45$ (471 ) n/m $ (521 )$ 68$ (589 ) n/m n/m = not meaningful



The following graph presents summarized working capital information.

[[Image Removed: LOGO]]

Page 87 of our 2013 Annual Integrated Report explains liquidity needs that can be met through a variety of sources and the primary uses of funds.

Cash provided by operating activities was lower quarter over quarter due primarily to:

ÿ Lower quarterly net income in 2014; ÿ A lower non-cash provision for deferred income taxes;



ÿ Cash inflows from receivables in the second quarter of 2014 were lower than

the second quarter of 2013.

Cash provided by operating activities was lower year over year as a result of:

ÿ Lower net income in the first six months of 2014;

ÿ A lower non-cash provision for deferred income taxes;

ÿ Cash outflows from receivables in the first half of 2014 compared to cash

inflows in the first half of 2013.

Cash used in investing activities was primarily for additions to property, plant and equipment, of which approximately 51 percent in the second quarter of 2014 (2013 - 74 percent) and 54 percent in the first half of 2014 (2013 - 72 percent) related to the potash segment. Cash used in financing activities rose quarter over quarter and was mainly impacted by share repurchases (none in 2013), repayment of senior notes (none in 2013) and commercial paper issuances in 2014 as compared to repayments in 2013. Year over year cash used in financing activities increased due to share repurchases (none in 2013), increased dividend payments, lower commercial paper repayments and the issuance of $750 million in senior notes (none in 2013) and repayment of $500 million in senior notes in 2014 ($250 million in 2013). We believe that internally generated cash flow, supplemented if necessary by available borrowings under our existing financing sources, will be sufficient to meet our anticipated capital expenditures and other cash requirements for at least the next 12 months, exclusive of any possible acquisitions. At this time, we do not reasonably expect any presently known trend or uncertainty to affect our ability to access our historical sources of liquidity. Principal Debt Instruments [[Image Removed: LOGO]] [[Image Removed: LOGO]] (1) The authorized aggregate amount under the company's commercial paper



programs in Canada and the US is $2,500 million. The amounts available under

the commercial paper programs are limited to the availability of backup

funds under the credit facility. Included in the amount outstanding and committed was $430 million of commercial paper. PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 30

-------------------------------------------------------------------------------- We use a combination of short-term and long-term debt to finance our operations. We typically pay floating rates of interest on our short-term debt and credit facility, and fixed rates on our senior notes. During the second quarter of 2014, there were no significant changes to the nature of our outstanding commercial paper, including interest rates, short-term line of credit and uncommitted letter of credit facility described on Page 88 in our 2013 Annual Integrated Report. In July 2014, we extended the maturity on $3.4 billion of our syndicated credit facility to May 31, 2019 (original maturity May 31, 2018). The maturity on the remaining $100 million remains unchanged. The line of credit and credit facility have financial tests and covenants, including consequences of non-compliance, referenced on page 88 of our 2013 Annual Integrated Report with which we must comply at each quarter-end. We were in compliance with all covenants as at June 30, 2014 and at this time anticipate being in compliance with such covenants in 2014. The accompanying table summarizes the limits and results of certain covenants: Debt covenants Dollars (millions), except ratio June 30, amounts Limit 2014 Debt-to-capital ratio (1) 0.6 0.3 Long-term debt-to-EBITDA ratio (2) 3.5 1.2 Debt of subsidiaries $ 1,000$ 6 The following non-IFRS financial measures are requirements of our debt covenants and should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with IFRS: (1) Debt-to-capital ratio = debt (short-term debt and current portion of long-term debt + long-term debt) / (debt + shareholders' equity). (2) Long-term debt-to-EBITDA ratio = long-term debt / EBITDA. EBITDA is



calculated according to the definition in Note 9 to the 2013 audited annual

consolidated financial statements for the trailing 12 months. As compared to

net income according to IFRS, EBITDA is limited in that periodic costs of

certain capitalized tangible and intangible assets used in generating

revenues are excluded. Long-term debt to net income for the trailing 12

months was 2.7.

Our ability to access reasonably priced debt in the capital markets is dependent, in part, on the quality of our credit ratings. We continue to maintain investment-grade credit ratings for our long-term debt. A downgrade of the credit rating of our long-term debt would increase the interest rates applicable to borrowings under our credit facility and our line of credit.

Commercial paper markets are normally a source of same-day cash for the company. Our access to the Canadian and US commercial paper markets primarily depends on maintaining our current short-term credit ratings as well as general conditions in the money markets. Long-Term Debt Short-Term Debt June 30, Dec 31, June 30, Dec 31, Rating (outlook) 2014 2013 2014 2013

Moody's A3 (stable) A3 (stable) P-2



P-2

Standard & Poor's A-(negative) A-(negative) A-2 (1) A-2 (1) DBRS n/a n/a R-1 (low) R-1 (low)



(1) S&P assigned a global commercial paper rating of A-2, but rated our

commercial paper A-1 (low) on a Canadian scale. n/a = not applicable A security rating is not a recommendation to buy, sell or hold securities. Such rating may be subject to revision or withdrawal at any time by the respective credit rating agency and each rating should be evaluated independently of any other rating.



Our $3,750 million of outstanding senior notes were issued under US shelf registration statements.

For the first six months of 2014, our weighted average cost of capital was 9.5 percent (2013 - 9.5 percent), of which 88 percent represented the cost of equity (2013 - 90 percent). Outstanding Share Data June 30, December 31, 2014 2013 Common shares issued and outstanding 829,282,715



856,116,325

Options to purchase common shares outstanding 20,889,485 20,332,335

Number of stock option plans 10 9



Off-Balance Sheet Arrangements

Off-balance sheet arrangements are described on page 89 of our 2013 Annual Integrated Report. We do not reasonably expect any presently known trend or uncertainty to affect our ability to continue using these arrangements. Refer to Note 11 to the financial statements in this Form 10-Q for a contingency related to Canpotex. Refer to page 89 of our 2013 Annual Integrated Report for information pertaining to our guarantees and derivative instruments. See "Cash Requirements" above and our 2013 Annual Integrated Report for obligations related to operating leases and certain of our long-term raw materials agreements which contain fixed price and/or volume components. 31 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q



--------------------------------------------------------------------------------

Quarterly Financial Highlights

Dollars (millions), except June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, per-share amounts 2014 2014 2013 2013 2013 2013 2012 2012 Sales $ 1,892$ 1,680$ 1,541 $ 1,520 $ 2,144$ 2,100$ 1,642 $ 2,143 Gross margin 747 565 460 484 979 867 586 927 Net income 472 340 230 356 643 556 421 645 Net income per share - basic (1) 0.56 0.40 0.27 0.41 0.74 0.64 0.49 0.75 Net income per share - diluted (1) 0.56 0.40 0.26 0.41 0.73 0.63 0.48 0.74



(1) Net income per share for each quarter has been computed based on the

weighted average number of shares issued and outstanding during the

respective quarter, including the dilutive number of shares assumed for the

diluted earnings per share computation; therefore, as the number of shares

varies each period, quarterly amounts may not add to the annual total. Certain aspects of our business can be impacted by seasonal factors.



Fertilizers are sold primarily for spring and fall application in both Northern

and Southern Hemispheres. However, planting conditions and the timing of

customer purchases will vary each year and fertilizer sales can be expected to

shift from one quarter to another. Most feed and industrial sales are by contract and are more evenly distributed throughout the year. In the first quarter of 2014, earnings were impacted by $38 million of non-tax deductible impairment losses on our available-for-sale investment in Sinofert due to the significance by which fair value was below cost.



Related Party Transactions

Refer to Note 12 to the financial statements in this Form 10-Q for information pertaining to transactions with related parties.

Critical Accounting Estimates

There have been no material changes to our critical accounting estimate policies in the first six months of 2014.

We have discussed the development, selection and application of our key accounting policies, and the critical accounting estimates and assumptions they involve, with the audit committee of the Board of Directors, and the committee reviewed the disclosures described in this Form 10-Q.



Recent Accounting Changes

Refer to Note 1 to the financial statements in this Form 10-Q for information pertaining to accounting changes effective in 2014 and for information on issued accounting pronouncements that will be effective in future periods.



Risk Management

Execution of our corporate strategy requires an effective program to manage the associated risks.

The company's Risk Management Process of identification, management and reporting of risk is continuous and dynamic. Changes to corporate risk that result from changing internal and external factors are evaluated on a quarterly basis and significant changes in risks and corresponding mitigation activities are reported regularly to the Board of Directors through the committees, which focus on risks within their areas of oversight. Detailed discussion of the PotashCorp "Global Risk Perspective" can be found on pages 24 - 28 of our 2013 Annual Integrated Report as well as in our Form 10-K. Risk management discussions specific to potash, nitrogen and phosphate operations can be found on pages 52, 63, and 71 respectively of the 2013 Annual Integrated Report. The greatest potential risks to potash reported in the 2013 Annual Integrated Report include market supply imbalances which may result from fluctuations in global demand for product, global potash demand insufficient to consume PotashCorp capacity, physical risks particular to underground mines (such as unexpected underground rock falls and water inflow from underground water-bearing strata) and safety related risks. We mitigate the potash market imbalance and insufficient demand risks by managing production to meet market demand. Underground mine risk mitigation activities include the use of advanced geophysical surveys, microseismic monitoring, rock mechanics modeling, ground penetrating radar, training and procedures and protective structures. We mitigate the risk of unsafe actions or conditions by enhancing safety systems at all sites. Similar risks of cyclicality and market imbalance exist in phosphate and nitrogen, largely due to competitive costs, availability of supply and government involvement. The company mitigates these risks by focusing on less cyclical markets, maintaining a diversified sulfur supply portfolio and employing natural gas price risk hedging strategies where appropriate.



Governance

The competitive selection process for the company's external audit services (as discussed on page 93 in our Annual Integrated Report) is now expected to be from 2015 forward on a periodic basis. PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q 32



--------------------------------------------------------------------------------

Outlook Market Outlook



We move into the second half of 2014 with an improved outlook for the balance of the year.

In potash, we have raised our 2014 global shipment expectations to 56.5-58 million tonnes on the strength of record first-half demand and an improved second-half outlook. We begin the second half with a strong domestic order book and Canpotex fully committed in offshore markets through the third quarter. Producer inventories in North America ended the first half at their lowest level since 2011, and are projected to remain tight as scheduled maintenance downtime is expected to limit production for most producers in a period of relatively robust demand. In North America, a successful summer-fill program has given us better visibility on demand through the remainder of the year. Shipments are expected to be strong during the third quarter as dealers work to position product in advance of what is anticipated to be an active fall application season. For full-year 2014, we now expect potash shipments to this market could exceed 10 million tonnes. Potash demand in Latin America is expected to remain strong ahead of its key planting season. We anticipate shipments to this market will remain elevated through the third quarter although total deliveries could slow relative to those of the comparative period last year. We maintain our view that Latin American demand could reach record levels in 2014 of approximately 10.5 million tonnes. In China, we now expect potash demand to approximate 12 million tonnes, exceeding our earlier estimates. With first-half contract deliveries complete, increased seaborne import needs through the second half are expected to be met through the execution of optional tonnage arrangements. For the full year, Canpotex will ship approximately 1.2 million tonnes under terms contained in the January 2014 contract with Sinofert. Shipments against contracts signed with India early in April began to move during the second quarter and are expected to accelerate through the balance of 2014. Although weaker-than-normal monsoon rains and a continued imbalance in fertilizer subsidies will remain headwinds for significant near-term potash demand growth, total annual shipments to India are expected to exceed 2013 and reach 3.5-4 million tonnes. In Other Asian countries (outside of China and India), potash demand and imports continue to outpace the previous year although increased competitive pressure in this region has weighed on the near-term pricing momentum. We expect shipments to Other Asian countries to remain relatively strong through the balance of the year, and maintain our full-year forecast for this region of approximately 8.2 million tonnes. Financial Outlook With an improved global demand environment, we have increased our estimate for potash gross margin to approximately $1.2-$1.4 billion and annual potash sales volumes to 8.9-9.2 million tonnes. Stronger demand, particularly for granular product, has resulted in the decision to continue operating our Penobsquis mine in New Brunswick and to increase our production at Lanigan. Included in our estimates is the impact of a successful Canpotex run at our Allan facility increasing our allocation to approximately 54 percent effective July 1, 2014. We remain on track to achieve our 2014 target of reducing per-tonne cash costs by $15-$20 (from 2013's levels), although the third quarter will reflect its normal seasonal increase as we complete our required maintenance downtime. In nitrogen, we have increased our expectation for gross margin through the balance of 2014 and now see the potential for our full-year results to approach record levels. Sales volumes are expected to outpace previous-year levels and act as a continued tailwind through the second half. While gas supply restrictions at our facility in Trinidad are anticipated to reduce our production in the third quarter, these curtailments are expected to remain below previous year levels. We see phosphate markets staying relatively firm through the second half, assuming the emergence of more robust Indian import demand. The expected closure at Suwannee River in the third quarter is likely to keep our sales volumes at lower levels through the balance of the year, although reduced accelerated depreciation charges are expected to result in improved per-tonne cost of goods sold and enhanced margins.



We have revised our annual estimate of selling and administrative expenses and finance costs to a range of $235-$245 million and $175-$185 million, respectively.

33 PotashCorp 2014 Second Quarter Quarterly Report on Form 10-Q



--------------------------------------------------------------------------------

Based on these factors, we expect our third-quarter net income to be in the range of $0.35-$0.45 per share and have increased our annual range to $1.70-$1.90 per share.

[[Image Removed: LOGO]] [[Image Removed: LOGO]] Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q, including those in the "Outlook" section of Management's Discussion and Analysis of Financial Condition and Results of Operations, contain forward-looking statements or forward-looking information ("forward-looking statements"). These statements can be identified by expressions of belief, expectation or intention, as well as those statements that are not historical fact. These statements often contain words such as "should," "could," "expect," "may," "anticipate," "believe," "intend," "estimates," "plans" and similar expressions. These statements are based on certain factors and assumptions as set forth in this Form 10-Q, including with respect to: foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities and effective tax rates. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking statements are subject to risks and uncertainties that are difficult to predict. The results or events set forth in forward-looking statements may differ materially from actual results or events. Several factors could cause actual results or events to differ materially from those expressed in forward-looking statements including, but not limited to the following: variations from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance, business prospects and opportunities, and effective tax rates; risks and uncertainties related to operating and workforce changes made in response to our industry and the markets we serve; changes in competitive pressures, including pricing pressures; risks and uncertainties related to our international operations and assets; fluctuations in supply and demand in the fertilizer, sulfur, transportation and petrochemical markets; costs and availability of transportation and distribution for our raw materials and products, including railcars and ocean freight; adverse or uncertain economic conditions and changes in credit and financial markets; the results of sales contract negotiations within major markets; unexpected geological or environmental conditions, including water inflows; economic and political uncertainty around the world; risks associated with natural gas and other hedging activities; changes in capital markets; unexpected or adverse weather conditions; changes in currency and exchange rates; imprecision in reserve estimates; adverse developments in new and pending legal proceedings or government investigations; acquisitions we may undertake; increases in the price or reduced availability of the raw materials that we use; strikes or other forms of work stoppage or slowdowns; timing and impact of capital expenditures; rates of return on, and the risks associated with, our investments and capital expenditures; changes in, and the effects of, government policies and regulations; security risks related to our information technology systems; risks related to reputational loss; and earnings, and the decisions of taxing authorities, 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, 2013 under the captions "Forward-Looking Statements" and "Item 1A - Risk Factors" and in our filings with the US Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this report, and the company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


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