CHS cancels Spiritwood plant, buys some of CF instead

CHS announced today that it was canceling its plans to build a $3+ billion greenfield fertilizer plant in Spiritwood, ND – and separately announced that it was buying $2.8 billion worth of CF Industries and entering into a long-term supply agreement.

Specifically, CHS is taking a stake in a CF Industries subsidiary called CF Industries Nitrogen LLC, which owns and operates three plants at Donaldsonville, LA, Port Neal, IA, and Yazoo City, MS – but will probably also own Woodward, OK, by the time the CHS transaction closes.

So, left out of this transaction are any new assets from the OCI merger, as well as CF’s two Canadian plants and its Terra plant in Verdigris, OK.

Apparently, this deal “creates access to more immediate benefits to CHS owners and customers than a four-year plant construction window.”

So, that’s the end of the line for Spiritwood – although, I should point out, nixing a project for “immediate benefits” because of a mere four-year window seems at odds with CHS CEO Carl Casale’s statement last year that “this plant will be around for 70 years, so taking a little more time to get it right seems wise.” I imagine that other, longer-term factors were in play: perhaps concerns about natural gas prices, but certainly concerns about the water supply in Jamestown.

On the one hand, the CHS-CF supply agreement allows CHS to purchase “up to 1.1 million tons of granular urea and 580,000 tons of UAN, at market prices. The 1.7 million tons available under the supply agreement have an average gross margin that reflects the average gross margin across the entire CF system.”

But on the other hand, with its new equity stake, CHS will reap “semi-annual profit distributions from CF Nitrogen … based generally on the volume of granular urea and UAN purchased by CHS.”

The announcement doesn’t explicitly say the size of the minority stake that CHS is taking, only that for these 1.7 million tons of product, CHS “is making a $2.8 billion investment for approximately 8.9 percent of CF’s total system capacity.”

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