Egypt shelves deal with Canadian fertilizer company Agrium

Agrium Inc. (TSX: AGU.TO) is trying to hammer out a new arrangement with the Egyptian government, which said Tuesday it will scrap a US$1.4-billion fertilizer plant it was jointly building with the Calgary-based farm-inputs company.

Egypt's cabinet cancelled its deal with Agrium due to "civic opposition" from the local community in the Nile Delta over possible environmental and health hazards.

The Egyptian People's Assembly recommended in June that the EAgrium project, which is already under construction, either be moved to another site or have its interests bought out by the government.

At that point Agrium said it may have to write off the US$280 million it has already committed to the project, in which it would have held a 60 per cent stake.

"The negotiations are ongoing with Egypt and it's still unclear whether we'll have to take a writedown in Egypt or not," said Agrium spokesman Richard Downey.

Agrium reports its second-quarter results on Wednesday.

In the meantime, Agrium is in discussions with the Egyptian government about what to do next.

One option is for the government to compensate Agrium for the investment it has already made. Another is for the company to acquire an ownership stake in an existing nitrogen facility that is currently being commissioned near the EAgrium site.

"We've been in Egypt for many years doing all the pre-work for this and so hopefully we can come to an arrangement that is mutually acceptable to both parties," Downey said.

"There is a possibility that we will be in Egypt longer term if we can come up to an arrangement with them."

Agrium has said starting from scratch at a new site would not be a viable option, since construction was already 42 per cent complete.

It would also have required all-new permitting and financing as well as engineering, procurement and construction contracts.

Terry Ortslan, an analyst with TSO and Associates, called the situation "unfortunate," but said there was not much Agrium could have done differently.

"The situation shows how many different stakeholders it takes to get any project going. So as a result, Agrium, like everybody else, has to compromise," he said.

"It's too bad, because it was bound to be a good project for the area."

Salman Partners analyst Raymond Goldie said even if Agrium has to take a writedown on its Egypt project, its shares will still be valued at around C$135.

That would be significantly higher than Tuesday's close of C$82.78, down about eight per cent, or $6.99, on the TSX.

Goldie said he does not expect Agrium to rush into any new acquisitions in the Middle East.

"I don't think you'll see them desperately doing a deal because they want to replace this. I think they will consider any alternatives in the usual patient matter," he said.

The Egyptian government ordered a construction halt to the plant in April, after local residents voiced their opposition to the fertilizer plant because of its potential health, safety and environmental risks. They also said the plant, at the port of Damietta, would pollute the area a few kilometres from a popular Nile Delta beach resort.

But a few days before legislators recommended moving or buying out the project, an assembly committee determined EAgrium met all health and environmental standards.

Agrium does not have any other expansion plans for the Middle East region, but there are still plenty of other opportunities for Agrium to grow its business, Downey said.

"We've got other expansion plans in potash and we've just expanded our retail pretty considerably," he said.

Earlier this year, Agrium closed its US$2.65-billion takeover of UAP Holdings Inc., making it the largest distributor of seeds, fertilizer and other farm inputs in North America.