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By Rod Nickel and Rithika Krishna
WINNIPEG, Manitoba (Reuters) -Fertilizer producer Mosaic Co said on Friday it would immediately cut production at its biggest potash mine due to flood risks, and restart an idled mine to offset some of the reduction.
Mosaic's K1 and K2 mine shafts at Esterhazy, Saskatchewan have long been prone to flooding, forcing the company to continuously pump out salty water. The company is building a new shaft, K3, to eliminate the problem and its associated costs.
Mosaic decided to close the K1 and K2 shafts nine months early when the water inflow accelerated beyond the company's pumping capacity, said Chief Executive Joc O'Rourke.
"There would have been potential for safety issues, so we felt the right thing to do was to accelerate the shutdown," O'Rourke said in an interview.
No workers have been injured, he said.
Florida-based Mosaic accounts for 13% of global potash production, according to Scotiabank, and also produces phosphate fertilizer. The closure will cut Mosaic's potash production by 1 million tonnes until the company can fully ramp up production at K3 by March 2022.
O'Rourke said it was unclear how soon Mosaic could restart its idled Colonsay, Saskatchewan mine.
Mosaic's production cut comes as global potash prices climb, following soaring corn and soybean prices. Potash is a crop nutrient that farmers apply to increase yields.
"This will put more stress on the potash market," O'Rourke said, estimating Mosaic's cut represented a 2-3% global supply reduction.
The impact of the closure will be minimal for workers as Mosaic moves employees from the closed mine shafts to K3, O'Rourke said. Labor union Unifor Local 892 said it was meeting with Mosaic about the decision.
Once K3 reaches full capacity next year and Colonsay returns to service, Mosaic forecasts its annual potash production to increase by 2 million tonnes from 2020 levels.
For the second quarter this year, Mosaic expects to record $20 million to $25 million in brine management cash expenses and $80 million to $100 million related to writedowns for the remaining assets at K1 and K2.
(Reporting by Rod Nickel in Winnipeg and Rithika Krishna in Bengaluru; Editing by Devika Syamnath and Ros Russell)