Morningstar DBRS Confirms Canpotex Limited's Credit Ratings at A (low); Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and the Senior Unsecured Debt credit ratings of Canpotex Limited (Canpotex or the Company) at A (low). All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit rating actions reflect Morningstar DBRS' view that Canpotex's credit ratings will remain stable over the medium term owing to the Company's strong business risk profile, which is expected to remain supported by the Company's exclusive right to export potash produced in Canada by its shareholders/producers (or their respective applicable affiliates) that is destined for markets outside of Canada and the United States; cost pass-through rights, which cover the Company's debt interest and principal repayments; implied credit support from its shareholders; and the Company's strong position within the potash markets to which it sells.

Canpotex's earnings experienced continued normalization in 2024 as strong global demand was more than offset by lower implied average selling price of potash (IASP), primarily resulting from the normalization in global supply following the drop-off of exports from Russia and Belarus in 2022, because of the war in Ukraine and trade sanctions. Canpotex revenue declined to $4.1 billion in 2024, from $5.3 billion in 2023 and $9.8 billion in 2022 as the decline in IASP of approximately 30% in 2024 more than offset growth in potash sales volumes, which increased to 14.3 million tonnes in 2024 from 12.7 million tonnes in 2023. Canpotex distribution expenses increased by 14% in 2024, increasing to $1.4 billion from $1.2 billion in 2023 primarily driven by increased freight costs related to higher sales volumes, while freight costs on a per tonne basis remained relatively flat year-over-year in 2024. As a result, while key credit metrics remained very strong and supportive of the A (low) credit ratings, the revenue-to-total expense ratio (as defined by Morningstar DBRS) declined to 2.7 times (x) in 2024 from 4.0x in 2023. Furthermore, Morningstar DBRS expects any changes to the Company's credit ratings to be driven by changes in the business risk profile which continues to benefit from shareholder support, contractual commitments, and strong logistics infrastructure.

CREDIT RATING DRIVERS
Morningstar DBRS notes that incremental expansion projects could strengthen Canpotex's business risk profile, but currently believes that such progressions would be insufficient to precipitate a positive credit rating action in the near-term. Conversely, though highly remote, any adverse credit rating action could be triggered by a weakening of the Company's operating structure such as any explicit or implicit weakening of the shareholders' support or contractual commitments.

EARNINGS OUTLOOK
Morningstar DBRS expects Canpotex's sales to increase in the mid-to-high single digits in 2025 from 2024 driven by a higher expected IASP than for 2024, coupled with expected low-single digit volume growth driven primarily by growing demand for potash in Canpotex markets, particularly in developing markets. Morningstar DBRS forecasts Canpotex's costs to decline moderately in 2025 from 2024 as a result of some normalization in freight expenses, partially offset by increased operating expenses. As a result, key credit metrics are expected to remain strong for the current credit ratings, and the overall revenue-to-total expense ratio (as defined by Morningstar DBRS) is expected to return to more than 3.0x in 2025, compared with 2.7x in 2024.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): Canpotex's CBRA of BBB (high) reflects the Company's contractual commitments from its shareholders Mosaic Canada Crop Nutrition, LP (Mosaic LP), a wholly owned subsidiary of The Mosaic Company (Mosaic Co.), and Potash Corporation of Saskatchewan Inc. (PCS), a wholly owned subsidiary of Nutrien Ltd. (Nutrien), and its producers (Mosaic LP, PCS, and Nutrien subsidiary Nutrien (Canada) Holdings ULC (formerly, Agrium Inc.)), continuing implied support of its shareholders'/producers' respective investment-grade ultimate parent companies (Mosaic Co. and Nutrien), Canpotex's cost pass-through rights, which also include debt interest and principal repayments, and a solid and growing logistical infrastructure footprint. The CBRA also takes into consideration the Company's limited product diversification and supplier diversification, revenue volatility due to the commodity nature of the business, and potential for government/regulatory interference.

Comprehensive Financial Risk Assessment (CFRA): Canpotex's CFRA of AAA reflects Morningstar DBRS' view that the Company will continue to be supported and benefit from the relationship with its owners and contracts that are supportive of the Company's operations. Morningstar DBRS anticipates Canpotex will maintain credit metrics considered strong for the current credit rating category. Furthermore, while not part of the CFRA credit metrics, Canpotex's revenue-to-total expense ratio (as defined by Morningstar DBRS) is expected to be more than 3.0x in 2025 versus 2.7x in 2024.

Intrinsic Assessment (IA): Canpotex's IA of A (low) is based on the Company's CBRA and CFRA, taking into consideration peer comparisons among other factors. Morningstar DBRS places the IA in the lower end of the IA range limiting the credit rating uplift from the Company's exceptionally strong CFRA, while also taking into consideration the volatile pricing nature of the potash industry.

Additional Considerations: None

Morningstar DBRS notes that in this review the applicable credit rating methodology and industry supplement for Canpotex were the "Global Methodology for Rating Companies in Services Industries," and Industry Supplement 5 - Commodity Merchant Trading and Processing Industry. The "General Corporate Methodology," which was used in prior annual reviews, was not used. There were no changes to the credit rating.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196.

Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/455343.

Notes:
All figures are in US dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in Services Industries (February 3, 2025), https://dbrs.morningstar.com/research/447184.

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186) which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info- DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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