10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission file number 1-10351

Potash Corporation of Saskatchewan Inc.

(Exact name of the registrant as specified in its charter)

Canada
(State or other jurisdiction of
incorporation or organization) N/A
(I.R.S. employer
identification no.)

Suite 500, 122 – 1^st Avenue South

Saskatoon, Saskatchewan, Canada S7K 7G3

306-933-8500

(Address and telephone number of the registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of exchange on which registered
Common Shares, No Par Value	New York Stock Exchange

The Common Shares are also listed on the Toronto Stock Exchange in Canada

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

                              Yes þ          No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

                              Yes o          No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                              Yes þ          No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.          þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

                              Large accelerated filer þ          Accelerated filer o          Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

                              Yes o          No þ

At June 30, 2005, the aggregate market value of the 108,456,986 Common Shares held by non-affiliates of the registrant was approximately $10,366,318,783.05. At February 27, 2006, the registrant had 103,651,326 Common Shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Annual Report to Shareholders for the fiscal year ended December 31, 2005 (the “2005 Annual Report”), attached as Exhibit 13, are incorporated by reference into Part II.

Portions of the registrant’s Proxy Circular for its Annual and Special Meeting of Shareholders to be held on May 4, 2006 (the “2006 Proxy Circular”), attached as Exhibit 99, are incorporated by reference into Part III.

POTASH CORPORATION OF SASKATCHEWAN INC.

Form 10-K

Annual Report

For the Fiscal Year Ended December 31, 2005

Table of Contents

FORWARD-LOOKING STATEMENTS			1
PART I			2
	Item 1.	Business	2
	Item 1A.	Risk Factors	23
	Item 1B.	Unresolved Staff Comments	26
	Item 2.	Properties	26
	Item 3.	Legal Proceedings	26
	Item 4.	Submission of Matters to a Vote of Security Holders	26
PART II			27
	Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	27
	Item 6.	Selected Financial Data	27
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 8.	Financial Statements and Supplementary Data	28
	Item 9.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	28
	Item 9A.	Controls and Procedures	28
	Item 9B.	Other Information	28
PART III			29
	Item 10.	Directors and Executive Officers of the Registrant	29
	Item 11.	Executive Compensation	29
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	29
	Item 13.	Certain Relationships and Related Transactions	29
	Item 14.	Principal Accountant Fees and Services	29
PART IV			30
	Item 15.	Exhibits and Financial Statement Schedules	30
SIGNATURES			35
Medium Term Incentive Plan Effective January 2006
Statement re Computation of Per Share Earnings
Computation of Ratio of Earnings to Fixed Charges
2005 Annual Report
Subsidiaries of the registrant
Consent of Deloitte & Touche LLP
Certification pursuant to Section 302 of the Sarbanes-Oxley act of 2002
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
2006 Notice of Meeting, Proxy Circular and Form of Proxy

- - i -

Forward-Looking Statements

This document, including the documents incorporated by reference, contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that relate to future events or our future financial performance. Statements containing words such as “could,” “expect,” “may,” “anticipate,” “believe,” “intend,” “estimate,” “plan” and similar expressions constitute forward-looking statements. These statements are based on certain factors and assumptions as set forth in this document and the documents incorporated by reference herein, including foreign exchange rates, expected growth, results of operations, performance and business prospects and opportunities. We consider these factors and assumptions to be reasonable based on information currently available.

Forward-looking statements are subject to important risks and uncertainties that are difficult to predict. The results or events predicted in forward-looking statements may differ materially from actual results or events. Some of the factors that could cause actual results or events to differ from current expectations include the following:

• variances from our assumptions with respect to foreign exchange rates, expected growth, results of operations, performance and business prospects and opportunities;

• fluctuations in supply and demand for fertilizer, including fluctuations as a result of economic or political conditions in our markets, which, among other things, can cause volatility in the prices of our fertilizer products;

• changes in competitive pressures, including pricing pressure;

• unexpected or adverse weather conditions, which can impact demand for fertilizer and timing of fertilizer sales during the year;

• volatility in the price of natural gas, which is the primary raw material used for our nitrogen products, and risks associated with our continued ability to manage natural gas costs in the United States through hedging activities;

• fluctuations in the prices and availability of other raw materials, including sulfur, which is a primary input in our phosphate operations;

• fluctuations in the cost and availability of transportation and distribution for our raw materials and products, including ocean freight;

• unexpected geological conditions;

• imprecision in reserve estimates;

• changes in capital markets and in currency and exchange rates;

• the outcome of legal proceedings;

• changes in government regulations, including environmental regulations, which could increase our costs of compliance and otherwise affect our business; and

• acquisitions we may undertake in the future.

We sell to a diverse group of customers both by geography and by end product. Market conditions will vary on a year-over-year basis, and sales can be expected to shift from one period to another.

In addition to the factors mentioned above, see “Risk Factors” under Item 1A for a description of other factors affecting forward-looking statements. As a result of these and other factors, there is no assurance that any of the events, circumstances or results anticipated by forward-looking statements included or incorporated by reference into this document will occur or, if they do, of what impact they will have on our business or on our results of operations and financial condition.

Forward-looking statements are given only as at the date of this document or the document incorporated by reference herein, and we disclaim any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

FORM 10-K │ Forward-Looking Statements

Page 1

Part I

Item 1.      Business.

General

Potash Corporation of Saskatchewan Inc. is a corporation organized under the laws of Canada. As used in this document, the term “PCS” refers to Potash Corporation of Saskatchewan Inc. and the terms “we,” “us,” “our,” “PotashCorp” and the “Company” refer to PCS and its direct and indirect subsidiaries, individually or in any combination, as applicable.

We are one of the world’s largest integrated fertilizer and related industrial and feed products companies. We are the largest producer of potash worldwide by capacity. In 2005, our potash operations represented an estimated 17% of global production, 22% of global potash capacity and 75% of global potash excess capacity. We are the third largest producer of phosphates worldwide by capacity. In 2005, our phosphate operations represented an estimated 6% of world phosphoric acid production. We are the fourth largest producer of nitrogen products worldwide by capacity. In 2005, our nitrogen operations represented an estimated 2% of world ammonia production.

Our potash is produced from six mines in Saskatchewan and one mine in New Brunswick. Of these mines, we own and operate five in Saskatchewan and the one in New Brunswick.

Our phosphate operations include the manufacture and sale of solid and liquid phosphate fertilizers, animal feed supplements and industrial acid, which is used in food products and industrial processes. We believe that our North Carolina facility is the world’s largest integrated phosphate mine and processing plant. We also have a phosphate mine and two chemical plant complexes in northern Florida, six phosphate feed plants in the United States and one feed plant in Brazil. In addition, we produce a variety of phosphate products at our Geismar, Louisiana facility.

Our nitrogen operations involve the production of nitrogen fertilizers and nitrogen feed and industrial products, including ammonia, urea, nitrogen solutions, ammonium nitrate and nitric acid. We have nitrogen facilities in Georgia, Louisiana, Ohio, Tennessee and Trinidad.

Through Florida Favorite Fertilizer in Florida and Farmer’s Favorite Fertilizer in Georgia, we manufacture, process and distribute fertilizer and other agricultural supplies from plants located in Florida and Georgia.

We are organized under the laws of Canada. Our principal executive offices are located at 122 – 1^st Avenue South, Suite 500, Saskatoon, Saskatchewan, Canada S7K 7G3, and our telephone number is (306) 933-8500.

History

PCS is a corporation continued under the Canada Business Corporations Act and is the successor to a corporation without share capital established by the Province of Saskatchewan in 1975. Between 1976 and 1990, we acquired substantial interests in the Saskatchewan potash industry. We purchased the Cory mine in 1976, the Rocanville and Lanigan mines in 1977, and, by 1990, 100% of the Allan mine when we acquired all of the outstanding shares of Saskterra Fertilizers Ltd.

In 1989, the Province of Saskatchewan privatized PCS. While the Province initially retained an ownership interest in PCS, this interest had been reduced to zero by the end of 1993. Since 1993, we have made the following acquisitions of significance to the development of our Company:

• the New Brunswick potash mine and port facilities and our Patience Lake mine in Saskatchewan in 1993;

• PCS Phosphate Company, Inc. (formerly Texasgulf Inc.) and White Springs Agricultural Chemicals, Inc., phosphate fertilizer and feed producers, in 1995;

• Arcadian Corporation, a producer of nitrogen fertilizer, industrial and feed products, in 1997;

• PCS Cassidy Lake, a potash mill facility located at Clover Hill, New Brunswick, in 1998;

FORM 10-K │ Part I

Page 2

• approximately 9% of the outstanding shares of Israel Chemicals Ltd. (“ICL”) pursuant to a public offering by the State of Israel in 1998. In June 2005, we acquired twenty-one million additional shares in ICL, increasing our ownership interest to 10%;

• PCS Purified Phosphates (formerly a joint venture we had with Albright & Wilson Americas Inc.), a phosphoric acid joint venture, in 2000;

• 20% of the total outstanding equity of Sociedad Química y Minera de Chile S.A. (“SQM”), a Chilean specialty fertilizer, iodine and lithium company, in transactions in October 2001 and April and May of 2002. In 2004, we sold a portion of this investment and subsequently acquired ICL’s entire indirect interest in SQM, resulting in a current indirect holding of 24.99% of the outstanding equity of SQM;

• 26% of the shares of Arab Potash Company (“APC”) from Jordan Investment Corporation, an arm of the Jordanian government, in October of 2003. In June 2005, we acquired one million additional shares in APC, increasing our ownership interest to approximately 28%; and

• 9.99% of the shares of Sinochem Hong Kong Holdings Limited (“Sinofert”), a vertically-integrated fertilizer company and a subsidiary of Sinochem Corporation, in July 2005. In February 2006, we exercised an option to acquire an additional 10.01% of the shares of Sinofert, increasing our ownership interest to 20%.

Potash Operations

Our potash operations include the mining and production of potash, which is predominantly used as fertilizer.

Properties

All potash produced by the Company in Saskatchewan is in the southern half of the Province, where extensive potash deposits are found. The potash ore is contained in a predominantly rock salt formation known as the Prairie Evaporite, which lies about 1,000 metres below the surface. The evaporite deposits, which are bounded by limestone formations, contain the potash beds of approximately 2.4 to 5.1 metres thickness. Three potash deposits of economic importance occur in the Province, the Esterhazy, Belle Plaine and Patience Lake Members. The Patience Lake Member is mined at the Lanigan, Allan, Patience Lake and Cory mines, and the Esterhazy Member is mined at the Rocanville and Esterhazy mines.

Under a long-term mining and processing agreement effective through December 31, 2026, Mosaic Potash Esterhazy Limited Partnership (“Mosaic”) mines and processes our mineral rights at the Esterhazy mine. We have the option to terminate this agreement every five years. The next opportunity to terminate is December 31, 2006, for which notice must be given no later than June 30, 2006. Mosaic has the option to abandon the mine at any time after December 31, 2011, thus terminating the mining and processing agreement. In each year the maximum finished product we are permitted to take under the mining and processing agreement is 952,500 tonnes and the minimum required amount is 453,600 tonnes. For the year ending December 31, 2006, we have notified Mosaic that we require 952,500 tonnes of finished product. Water inflow at the Esterhazy mine has continued, to a greater or lesser degree, since December 1985. We share, on an annual basis, in such water inflow remediation costs.

Also, under the long-term mining and processing agreement with Mosaic, the Company has the right to acquire up to 25% participation in any expansion of the Esterhazy mine. In April, Mosaic announced plans to expand capacity at Esterhazy by 360,000 tonnes at a cost of $28 million. The Company will participate in this expansion, investing 25% of the cost for 25% of the additional tonnage, on top of our current maximum annual entitlement of 952,500 tonnes. These new tonnes are expected to be available commencing in the fourth quarter of 2006.

We also produce potash at our mine near Sussex, New Brunswick from the flank of an elongated salt structure. We produced granular product at our Cassidy Lake, New Brunswick facility using standard grade product from certain of our other mine sites until mid-October 2005, when the compaction facilities were shut down. We also hold an interest in certain oil and gas rights in the vicinity of the New Brunswick mine. Natural gas has been discovered and we, in conjunction with Corridor Resources Inc., now supply the New Brunswick facility with natural gas to meet its fuel needs. During exploration for natural gas in the vicinity of the Sussex division, potash was detected to the south and east of the existing mine operations. Exploration permits were obtained, and enough detailed 3D seismic and drilling has taken place to delineate a potash resource large enough to warrant mine design and capital cost estimate studies.

FORM 10-K │ Part I

Page 3

We control the right to mine 621,995 acres of land in Saskatchewan. Included in these holdings are mineral rights to 515,239 acres contained in blocks around the six mines in which we have an interest, of which acres approximately 36% we own, approximately 50% are under lease from the Province of Saskatchewan and approximately 14% are leased from other parties. Our remaining 106,756 acres are located elsewhere in Saskatchewan. Our leases with the Province of Saskatchewan are for 21 year terms, renewable at our option. Our significant leases with other parties are also for 21 year terms. Such leases are renewable at our option, providing generally that production is continuing and that there is continuation of the applicable Crown lease. In New Brunswick, we mine pursuant to a mining lease with the Province of New Brunswick. We control the right to mine 58,263 acres of land in New Brunswick. The lease is for a term of 21 years from 1978 with renewal provisions for three additional 21 year periods. This lease was renewed effective June 13, 1999.

The following map shows the location of our Canadian mining operations.

Production

We produce potash using both conventional and solution mining methods. In conventional operations, shafts are sunk to the ore body and mining machines cut out the ore, which is lifted to the surface for processing. In solution mining, the potash is dissolved in warm brine and pumped to the surface for processing. Approximately 7 grades of potash are produced to suit different preferences of the various markets.

In 2005, our conventional potash operations (excluding Esterhazy) mined 24.318 million tonnes of ore at an average grade of 23.17% potassium oxide (“K₂O”). In 2005, our potash production from all our operations (including Esterhazy) consisted of 8.816 million tonnes of potash (“KC1”) with an average grade of 61.05% K₂O, representing 47% of North American production.

Our present annual potash production capacity is approximately 12.89 million tonnes KC1, which includes maximum annual production under the mining and processing agreement with Mosaic of 952,500 tonnes at Esterhazy. This also includes a 749,000 tonne expansion at Rocanville which came on stream in 2005. In 2005, our production capacity represented an estimated 55% of the North American total capacity while our excess capacity was an estimated 90% of North American excess production capacity. We allocate production among our mines on the basis of various factors, including cost efficiency and the grades of product that can be produced. The Patience Lake mine, which was originally a conventional underground mine, now employs a solution mining method. The other Saskatchewan mines we own or in which we have an interest employ conventional underground mining methods.

The New Brunswick mine is a conventional cut and fill underground mining operation. In addition to potash production, this mine also produced 0.55 million tonnes of sodium chloride (salt) in 2005. We continue to incur costs at the New Brunswick division in relation to management of a brine inflow.

FORM 10-K │ Part I

Page 4

The following table sets forth, for each of the past three years, the production of ore, grade and finished product for each of our mines.

	Annual
	Capacity		2005 Production						2004 Production						2003 Production
	Finished						Finished						Finished						Finished
	Product		Ore				Product		Ore				Product		Ore				Product
	(Millions		(Millions		Grade		(Millions		(Millions		Grade		(Millions		(Millions		Grade		(Millions
	of tonnes)		of tonnes)		% K2O		of tonnes)		of tonnes)		% K2O		of tonnes)		of tonnes)		% K2O		of tonnes)
Lanigan		3.828		7.439		20.33		2.023		7.372		20.11		2.025		5.359		20.63		1.488
Rocanville(1)		3.044		7.519		24.70		2.573		5.334		24.25		1.833		5.999		23.50		1.989
Allan		1.885		4.323		24.19		1.431		3.862		25.22		1.344		2.790		24.78		0.934
Cory		1.361		2.753		24.90		0.826		2.531		24.95		0.738		2.459		25.03		0.730
Patience Lake(2)		1.033		–		–		0.251		–		–		0.239		–		–		0.251
Esterhazy(3)		0.953		–		–		0.953		–		–		0.953		–		–		0.953
New Brunswick		0.785		2.284		23.37		0.759		2.371		23.24		0.782		2.311		23.21		0.749
Totals		12.889		24.318				8.816		21.470				7.914		18.918				7.094

(1)	Includes an aggregate 749,000 tonne expansion at Rocanville which came on stream in 2005. 400,000 tonnes of this expansion were included in the annual capacity figures for 2004.
(2)	Solution mine.
(3)	Product tonnes received at Esterhazy are based on a mining/processing agreement with Mosaic.

The mining of potash is a capital-intensive business subject to the normal risks and capital expenditure requirements associated with mining operations. The processing of ore may be subject to delays and costs resulting from mechanical failures and such hazards as unusual or unexpected geological formations, subsidence, floods and other water inflows, and other conditions involved in mining ore.

Reserves

The Company’s estimates for its conventional mining operations in Saskatchewan are based on exploration drill hole data, seismic data and actual mining results during the past 35 to 40 years. In Saskatchewan reserves are estimated by identifying material in place that is delineated on at least two sides and material in place within one mile from an existing sampled mine entry or borehole. The Company’s estimates for its conventional mining operations in New Brunswick are based on exploration drill hole data, seismic data and actual mining results during the past 22 years. In New Brunswick reserves are estimated by identifying material in place delineated by drilling or mining with results projected conservatively from these intersections.

A historical extraction ratio from the 22 to 40 years of mining results is applied to estimate the mineable reserves. The Company’s estimated recoverable ore (reserve tonnage only) as of December 31, 2005 for each of our potash mines is as follows:

	Mineral Reserves		Average
	(Millions of tonnes		Grade		Years of Remaining
	recoverable ore)(1)(2)(3)		(K2O)		Mine Life(4)
Allan		288		25.9%		79
Cory		206		25.1%		80
Lanigan		423		22.0%		63
Rocanville		372		22.5%		59
Patience Lake(5)		–		–		–
Esterhazy(6)		24		24.5%		9
New Brunswick		73		25.6%		31

(1)	Mineral reserves include proven and probable reserves. There has been no third party review of reserve estimates within the last three years. Current estimates reflect refinements and adjustments to the analysis conducted during 2005 using methodology described in the body of this report.
(2)	The extraction ratio of recoverable ore to in-place material for each mine is as follows: Allan 0.32, Cory 0.26, Lanigan 0.30, Rocanville 0.33 and New Brunswick 0.46.
(3)	The concentration of recoverable ore tonnes to finished product (KC1) for each of the divisions is as follows (three-year running average): Allan 2.96, Cory 3.38, Lanigan 3.64, Rocanville 2.95 and New Brunswick 3.04.

FORM 10-K │ Part I

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(4)	Estimates are based upon proven and probable reserves and annual mining rates (million tonnes of ore hoisted per year) equal to the three-year running average for each of the divisions as follows: Allan 3.66, Cory 2.58, Lanigan 6.72, Rocanville 6.28 and New Brunswick 2.32. Mining rates are constrained by the equipment and manpower we utilize at each mine so that our production capacity at each mine depends, in part, on the ore concentration ratio encountered at each mine.
(5)	Given the characteristics of the solution mining method employed at the Patience Lake mine, it is not possible to estimate reliably the productive capacity of or the recoverable ore reserve from this operation. In solution mining, the potash is dissolved in warm brine and pumped to the surface for processing. Chemical compositions and volumes of brine pumped into and out of the underground mineralized zone are known, but the precise nature of the solution mining process is not. Estimates are made utilizing the surfaces available for dissolution in the abandoned mine workings, the concentration of the circulated brine recovered from the mine, annual crystallization rates in the ponds and the annual volume of KC1 recovered from the ponds. However, this inability to properly describe details of the mining process precludes reporting of an ore reserve for Patience Lake. The extent of the Patience Lake potash resource is given in the next table. The Patience Lake operation accounted for only 2.8% of the Company’s potash production in 2005.
(6)	At Esterhazy, mine operator Mosaic mines potash for which the Company holds mineral rights. Production is carried out under a mining and processing agreement with Mosaic. The Esterhazy mineral reserve tonnage presented here is the current estimate of mineable tonnes remaining in the Company’s lands after reconciliation of historic tonnes mined and product received from Mosaic. Lands agreed to be not mineable by both Mosaic and the Company have been removed. Since the tonnage to be received by the Company is based on an agreement with Mosaic, the entire tonnage available is placed in the “Mineral Reserves (Millions of tonnes recoverable ore)” category. The “Years of Remaining Mine Life” reported for Esterhazy assumes that the maximum amount of product possible under the agreement, exclusive of any participation in the proposed expansion of the Esterhazy mine discussed above, will be received by the Company.

Resource

Mineral resources, which are exclusive of reserves reported earlier, are contained within the lands for which a mining lease is held at each mine. Note that the resource is reported as mineralization in-place while the reserve was reported as recoverable ore.

In Saskatchewan, where geological correlations are straightforward, the mineral resource categories are interpreted by the Company as follows:

• areas with detailed exploration coverage (drilling, seismic, close to underground workings) are reported in the measured mineral resource category;

• areas with sparse exploration coverage (usually seismic coverage only) and far from underground workings are reported in the indicated mineral resource category;

• areas with limited exploration coverage, but still within the mining lease, are reported in the inferred mineral resource category.

In New Brunswick, where geology is complex, mineral resource categories are interpreted by the Company as follows:

• areas with many drillhole intersections within a seismically defined area and with consistent stratigraphy, mineralogy and potash quality are reported in the measured mineral resource category;

• areas with fewer drill intersections within a seismically defined area, or with structurally modified (folded) and less consistent mineralogy, but still exhibiting good quality potash intersections, are reported in the indicated mineral resource category;

• areas with sparse drilling, complex geology, partial seismic coverage and/or inconsistent potash quality in drill intersections are reported in the inferred mineral resource category.

FORM 10-K │ Part I

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The Company’s estimated mineral resource tonnage as of December 31, 2005 for each of our mines is as follows:

	Mineral Resource
	Measured Resource		Indicated Resource		Inferred Resource
	(Millions of tonnes		(Millions of tonnes		(Millions of tonnes
	in-place)		in-place)		in-place)
Allan		1,015		–		3,464
Cory		877		–		3,049
Lanigan		1,096		2,366		1,643
Rocanville		–		–		1,132
Patience Lake(1)		–		–		–
Esterhazy(2)		–		–		–
New Brunswick(3)		296		93		–

(1)	Given the characteristics of the solution mining method employed at the Patience Lake mine as described in footnote 5 in the “Mineral Reserve” table, it is not possible to estimate reliably the resource tonnage from this operation. The Patience Lake mining lease covers 299.7 km2.
(2)	Since mining at Esterhazy is carried out under an agreement with mine operator Mosaic, all potash tonnes anticipated from this operation are reported in the “Mineral Reserve” table. The Company holds no mineral resource tonnage over and above the reported reserve at Esterhazy.
(3)	In New Brunswick, the layer of mineralized material varies in thickness and geology is complex. The Company has identified an area of 25.1 km2 where this layer of mineralized material is likely to occur. Further exploration drilling is required to define a mineral resource tonnage in this area.

Phosphate Operations

We mine phosphate ore and manufacture phosphoric acid, solid and liquid fertilizers, animal feed supplements and purified phosphoric acid which is used in food products and industrial processes.

Properties

We conduct our phosphate operations primarily at two facilities, one a 35,000-acre facility near Aurora, North Carolina and the other a 100,580-acre facility near White Springs in northern Florida. We believe the Aurora facility, with a capacity of 1.2 million tonnes of phosphoric acid (“P₂O₅”) per year, to be the largest integrated phosphate mine and phosphate processing complex at one site in the world. The Aurora facility includes a six million tonne per-year mining operation, four sulfuric acid plants, four phosphoric acid plants, a purified acid plant, a liquid fertilizer plant, a superphosphoric acid (“SPA”) plant and two granulation plants capable of producing diammonium phosphate (“DAP”), defluorinated phosphate (“DFP”), animal feed, granular triple superphosphate (“GTSP”) or monoammonium phosphate (“MAP”). We are currently in the process of expanding the Company’s purified phosphoric acid production plant at Aurora, with completion scheduled for the second quarter of 2006. The expansion, which will not increase the plant’s overall capacity in phosphoric acid production, will increase the plant’s purified phosphoric acid capacity by 82,000 tonnes resulting in a total of 333,000 tonnes of purified phosphoric acid.

The White Springs facility is the third largest phosphoric acid producer, by capacity, in the United States. The White Springs facility includes a mine and two production facilities, Suwannee River and Swift Creek, with two sulfuric acid plants, one phosphoric acid plant, two DAP plants, a SPA plant, a dicalcium phosphate plant and a DFP plant located at the Suwannee River complex and two sulfuric acid plants, a phosphoric acid plant and superphosphoric plant located at the Swift Creek complex.

FORM 10-K │ Part I

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The location of our Aurora and White Springs mining operations are as shown on the following map.

At our Geismar, Louisiana facility, we manufacture a variety of phosphate products that are used for agricultural and industrial purposes. The Geismar facility has a sulfuric acid plant, a phosphoric acid plant, a SPA plant and a liquid fertilizer plant. A significant portion of the phosphoric acid produced at the Geismar facility is sold as feedstock to Innophos, Inc. for use in its neighboring purified acid plant. Our other phosphate properties include:

• animal feed plants in Marseilles, Illinois; Weeping Water, Nebraska; Joplin, Missouri; and Sao Vincente, Brazil;

• a technical and food grade phosphate plant in Cincinnati, Ohio; and

• terminal facilities at Morehead City, North Carolina and Savannah, Georgia.

Plant Locations	Phosphate Products Produced
Aurora, North Carolina	DAP, GTSP, MAP, SPA, animal feed, liquid fertilizer, purified acid, merchant grade phosphoric acid (“MGA”)
White Springs, Florida	SPA, DAP, MAP, MGA, animal feed
Cincinnati, Ohio	Blended purified acid products
Geismar, Louisiana	MGA, SPA, liquid fertilizer
Marseilles, Illinois	Animal feed
Weeping Water, Nebraska	Animal feed
Joplin, Missouri	Animal feed
Sao Vincente, Brazil	Animal feed

Production

We extract phosphate ore using surface mining techniques. At each mine site, the ore is mixed with recycled water to form a slurry, which is pumped from the mine site to our processing facilities. The ore is then screened to remove coarse materials, washed to remove clay and floated to remove sand to produce phosphate “rock.” The annual production capacity of our mines is currently 9.6 million tonnes of phosphate rock. During 2005, the Aurora facility’s total production of phosphate rock was 4.42 million tonnes and the White Springs facility’s total production of phosphate rock was 3.19 million tonnes. The sequence for mining portions of the Aurora property has been identified in the permit issued by the U.S. Army Corps of Engineers in 1997.

Phosphate rock is the major input in our phosphorus processing operations. Substantially all of the phosphate rock produced is used internally for the production of phosphoric acid, SPA, chemical fertilizers, purified phosphoric acid and animal feed products. Unlike the Aurora and White Springs operations, the Geismar facility does not mine phosphate rock. Presently, the Geismar facility purchases phosphate rock from Morocco pursuant to a long-term agreement with a Moroccan government-owned company, wherein prices are reset at prescribed dates through negotiation.

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In addition to phosphate ore, the principal raw materials we require are sulfur, sulfuric acid and ammonia. The production of phosphoric acid requires substantial quantities of sulfur, which we purchase from third parties. In December 1997, we entered into a ten-year supply contract with an offshore supplier to supply a portion of our sulfur requirements. In connection therewith, we built a multipurpose ocean-going vessel to ship such sulfur and to handle sulfuric acid, phosphoric acid and other chemicals. We produce sulfuric acid at the Aurora facility, White Springs facility and Geismar facility and purchase additional sulfuric acid from unaffiliated sellers.

Our phosphate operations purchase all of their ammonia at market rates from or through our nitrogen and sales subsidiaries. Phosphoric acid is reacted with ammonia to produce DAP and MAP as well as liquid fertilizers. In addition, ammonia operations include the purchase, sale and terminalling of anhydrous ammonia. Much of the ammonia that we purchase from third parties is produced in Russia and imported through an ammonia terminal which we operate located within the port of Savannah.

We produce MGA at Aurora, White Springs and Geismar. Some MGA is sold to foreign and domestic fertilizer producers and industrial customers. We further process the balance of the MGA to make solid fertilizer (DAP and MAP); liquid fertilizers; animal feed supplements for the poultry and livestock markets; and purified phosphoric acid for use in a wide variety of food, technical and industrial applications.

The following table sets forth, for each of the last three years, the Company’s production of phosphate rock (including tonnage and grade) and the production of phosphoric acid.

Phosphate Rock

(Millions of tonnes)

			2005				2004				2003
	Annual
	Capacity		Production		% P2O5		Production		% P2O5		Production		% P2O5
Aurora, NC		6.0		4.417		27.69		3.964		27.49		3.078		27.41
White Springs, FL		3.6		3.186		30.28		2.745		30.96		2.686		30.76
Geismar, LA		–		–		–		–		–		–		–
Total		9.6		7.603				6.709				5.764

Phosphoric Acid

(Millions of tonnes P₂O₅)

	Annual			2005		2004		2003
	Capacity			Production		Production		Production
Aurora, NC		1.202			1.048		1.018		0.919
White Springs, FL		0.966	(1)		0.865		0.773		0.777
Geismar, LA		0.202			0.184		0.171		0.165
Total		2.370			2.097		1.962		1.861

(1) Elimination of a small phosphoric acid production circuit reduced capacity from 1.093 million tonnes P₂O₅ to 0.966 million tonnes.

Reserves

Our phosphate deposits in North Carolina occur in a formation known as the Pungo River formation of the middle Miocene age. The formation, typically 75 feet to 125 feet below ground surface, is composed of interbedded phosphatic sands, silts and clays, diatomaceous clays and phosphatic limestone. Phosphate of value in the ore horizon occurs as pellets of brown and black sand-sized particles, with flat-sided angular quartz grains and variable amounts of silt, clay and interbedded limestone. The phosphate ore (matrix) horizon throughout is distinguished by its relative uniformity in thickness, percent P₂O₅ and other quality characteristics.

Our White Springs operations are in Hamilton County, Florida. The Hamilton County phosphate deposits in the North Florida Phosphate District are reported to be of the middle Miocene and Pliocene ages. Because of partial reworking during the Pliocene age, these deposits tend to be more variable than middle Miocene deposits, such as those found in North Carolina.

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In estimating our phosphate reserves, we had previously retained a third party to prepare reports of the estimated phosphate ore reserves at Aurora and White Springs. Based on (i) a review and assessment of the Company’s land-ownership maps, (ii) drilling and technical assays and assessments, (iii) discussions with Company personnel familiar both with the geology of the phosphate ore deposits and each site’s mining operations and (iv) judgments regarding the recoverability of phosphate from the ore deposits based on economic and technical factors such as the ore grade, mining, transportation and beneficiation issues and environmental and regulatory factors, the reserve estimates set forth in the reports were developed.

Since receipt of the reports (1995 for Aurora and 1997 for White Springs) we annually adjusted and updated the ore reserve estimates for both the Aurora and White Springs operations by making adjustments for ore consumed, number of tons sterilized (i.e., bypassed), deletions (for property sold, traded or agreed to be set aside for environmental or other purposes), additions (based on land and mineral right acquisitions) and other appropriate adjustments. There has been no third party review of the estimates within the last three years.

The following table sets forth the Company’s estimated proven and probable phosphate reserves for Aurora and White Springs as at December 31, 2005 at an average grade of 30.7% P₂O₅.

	Tonnes of
	Phosphate Rock		Average Grade
	(Millions of tonnes)		% P2O5
Aurora		356		30.7%
White Springs		53		30.7%
Total		409

The reserves set forth above for Aurora would permit mining to continue at annual production rates for about 104 years. This mine life is based on an average annual production rate of approximately 3.43 million tonnes of 30.7% concentrate over the three-year period ended December 31, 2005. Prior to our acquisition of Texasgulf in April 1995, Texasgulf transferred approximately 408 million tonnes of phosphate reserves to a newly established company, the common stock of which was transferred to Elf Aquitaine, Inc. and Williams Acquisition Holding Company, Inc. We were granted a 20-year right of first refusal (from April 10, 1995) in the event that the newly established company proposes to sell the reserves.

The reserves set forth above for White Springs would permit mining to continue at annual production rates for about 18 years. This mine life is based on an average annual production rate of approximately 2.87 million tonnes of 30.7% concentrate over the three-year period ended December 31, 2005.

Nitrogen Operations

Our nitrogen operations include production of nitrogen fertilizers and nitrogen chemicals. These products are used for agricultural, industrial and animal nutrition purposes.

Properties

We have five nitrogen production facilities, of which four are located in the United States and one is located in Trinidad. The following table sets forth the facility locations and production capabilities:

Plant Locations	Nitrogen Products Produced
Augusta, Georgia	Ammonia, urea, nitric acid, ammonium nitrate and nitrogen solutions
Geismar, Louisiana(1)	Ammonia, nitric acid and nitrogen solutions
Lima, Ohio(2)	Ammonia, urea, nitric acid and nitrogen solutions
Memphis, Tennessee(1)	Ammonia and urea
Point Lisas, Trinidad	Ammonia and urea

(1)	In June 2003, we indefinitely shut down our Memphis plant, and suspended production of ammonia and nitrogen solutions at Geismar due to high U.S. natural gas costs and low product margins. On September 15, 2005, nitrogen solutions production in Geismar was re-started.
(2)	Innovene USA LLC operates the Lima facility under an operating agreement with the Company.

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Production

Unlike potash and phosphate, nitrogen is not mined. It is taken from the air and reacted with a hydrogen source, usually natural gas reformed with steam, to produce ammonia. We can produce ammonia at all domestic plants and in Trinidad. The ammonia is used to produce a full line of upgraded nitrogen products, including urea, nitrogen solutions, ammonium nitrate and nitric acid. Ammonia, urea and nitrogen solutions are sold as fertilizers to agricultural customers and to industrial customers for various applications, while nitric acid and ammonium nitrate are sold to industrial customers for various applications. Urea is also sold for animal feed applications.

Raw Materials

Natural gas is the primary raw material used for the production of nearly all of our nitrogen products. In the U.S., we employ natural gas hedges with the goal of minimizing risk from volatile gas prices. In Trinidad, natural gas is purchased pursuant to long-term contracts using pricing formulas related to the market price of ammonia. In Trinidad, we have multiple long-term gas contracts in place which can provide the entire ammonia complex with 100% of our needs, including all announced expansions, through to 2011, 85% through to 2013, and 51% through to 2018. With the exception of the Trinidad facility, we purchase most of our natural gas from producers or marketers at the point of delivery of the natural gas into the pipeline system, then pay the pipeline company and, where applicable, the local distribution company to transport the natural gas to our nitrogen facilities. Approximately 91% of our domestic consumption of natural gas by our nitrogen operations is delivered pursuant to firm transportation contracts, which do not permit the pipeline or local distribution company to interrupt service to, or divert natural gas from, the plant.

PCS Joint Venture

We indirectly hold all outstanding interests in PCS Joint Venture, Ltd. (“PCS Joint Venture”), a limited partnership doing business in Florida as Florida Favorite Fertilizer and in Georgia as Farmer’s Favorite Fertilizer. Potash Corporation of Saskatchewan (Florida), Inc. is the general partner of PCS Joint Venture. PCS Joint Venture manufactures, processes and distributes fertilizer and other agricultural supplies from plants located in Florida and Georgia.

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Marketing

The following table summarizes our sales from potash, phosphate and nitrogen products (by geographical distribution) in the past three fiscal years. Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

		2005		2004		2003
		(millions of dollars)
Potash
	Canada	$	69.3	$	48.3	$	41.1
	United States		576.6		445.8		326.6
	Canpotex(1)		577.1		421.9		260.6
	Other		118.1		140.1		130.4
	Total	$	1,341.1	$	1,056.1	$	758.7
Nitrogen
	Canada	$	16.8	$	5.0	$	10.4
	United States		1,262.1		1,116.2		1,087.1
	Other		89.9		89.2		58.9
	Total	$	1,368.8	$	1,210.4	$	1,156.4
Phosphates
	Canada	$	89.1	$	82.5	$	81.0
	United States		754.3		680.6		655.9
	PhosChem(1)		166.7		140.4		87.0
	Other		127.2		74.4		60.0
	Total	$	1,137.3	$	977.9	$	883.9

(1) See discussion below for information regarding Canpotex Limited (“Canpotex”) and Phosphate Chemicals Export Association, Inc. (“PhosChem”) sales.

For financial information about our business segments and North American and offshore sales, see the information under “Business Segment Review” on pages 26 through 32 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, and Note 18, Segment Information, to our 2005 consolidated financial statements, incorporated by reference under Item 8 in this report. Information with respect to the geographical locations of long-lived assets is disclosed in Note 18, Segment Information, to our 2005 consolidated financial statements incorporated by reference under Item 8 in this report.

We have a diversified customer base and, apart from sales to Canpotex, no one customer accounted for more than 10% of our sales in 2005.

Potash from our Saskatchewan mines for sale outside North America is sold exclusively to Canpotex. PCS Sales (Canada) Inc. executes offshore marketing and sales for our New Brunswick potash and executes marketing and sales for our potash, phosphate and nitrogen products in Canada. PCS Sales (USA), Inc. executes marketing and sales for our potash, phosphate and nitrogen products in the United States. PhosChem, an association formed under the U.S. Webb-Pomerene Act, is the principal vehicle through which we execute offshore marketing and sales for our phosphate fertilizers. See “Offshore Marketing” below.

At December 31, 2005, our sales and transportation and distribution functions were handled by 198 employees in Northbrook, Illinois and various other locations in the United States and Brazil and 18 employees in Saskatoon, Saskatchewan.

North American Marketing

In 2005, North American sales from potash products represented 17% of our total sales, substantially all of which were attributable to potash customers in the United States. Typically, our North American potash sales are larger in the first half of the year. The vast majority of sales are made on the spot market with the balance made under short-

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term contracts. We have no material contractual obligations in connection with North American sales to sell potash in the future at a fixed price.

In 2005, North American sales from phosphate products represented 22% of our total sales, substantially all of which were attributable to phosphate customers in the United States. In 2005, the majority of PCS Phosphate’s phosphate product sales were made on the spot market, with the balance made under short-term contracts (generally on an annual basis) and a limited number of sales made pursuant to multi-year contracts. We have no material contractual obligations in connection with North American sales to sell phosphate products in the future at a fixed price.

In 2005, North American sales from nitrogen products represented 33% of our total sales and PCS Nitrogen’s non-fertilizer products accounted for approximately 60% of PCS Nitrogen’s nitrogen revenue. Typically, North American nitrogen fertilizer sales are greatest in the second calendar quarter. In 2005, the majority of PCS Nitrogen’s nitrogen product sales were made on the spot market, with the balance made under short-term and multi-year contracts. We have no material contractual obligations in connection with North American sales to sell nitrogen in the future at a fixed price.

Ammonia purchased by us is used in our operations and is sold to third party customers by PCS Sales (USA), Inc.

The primary customers for fertilizer products are retailers, dealers, cooperatives, distributors and other fertilizer producers. Such retailers, dealers and cooperatives have both distribution and application capabilities. The primary customers for industrial products are chemical product manufacturers. The majority of our purified phosphoric acid is sold directly to consumers of the product, with the balance sold through an authorized non-exclusive distribution network.

Offshore Marketing

Potash we produce in Saskatchewan for sale outside North America is sold to Canpotex, which is owned in equal shares by the three potash producers in the Province of Saskatchewan (including us). Canpotex, which was incorporated in 1970 and commenced operations in 1972, acts as an export company and as a unified sales, marketing and distribution force for all Saskatchewan potash production in the offshore marketplace. Each shareholder of Canpotex has an equal voting interest as a shareholder and through its nominees on the board of directors. All the shareholders of Canpotex have agreed that, as long as they are members of Canpotex, and with respect to potash produced in Canada, they will not make offshore sales independently. The members of Canpotex have exempted production from our New Brunswick mine from this requirement. Any member may terminate its membership in Canpotex at specified times of the year on six months’ notice.

In general, Canpotex sales are allocated among the producers based on production capacity. If a shareholder cannot satisfy demand for potash by Canpotex, the remaining shareholders are entitled to satisfy the demand pro rata based on their allotted production capacity. In 2005 we supplied 54.2% of Canpotex’s requirements. Canpotex generally sells potash to government agencies and private firms pursuant to contracts at negotiated prices or by spot sales.

The following table sets forth the percentage of sales by Canpotex for the past three calendar years in the various geographical regions:

	2005		2004		2003
Asia		73%		69%		71%
Latin America		19		22		21
Oceania		6		6		5
Europe		2		3		3
Total		100%		100%		100%

For 2005, sales to Canpotex represented 15% of our total sales. Offshore sales of potash from the New Brunswick mine, through PCS Sales (Canada) Inc., represented 3% of our total sales in 2005.

Since 1975, PhosChem has been the largest exporter of U.S. phosphate fertilizers. Currently, the members of PhosChem are PCS Phosphate, Mosaic Fertilizer LLC and Mississippi Phosphates Corporation. The PhosChem members have agreed to export their fertilizer products exclusively through PhosChem, except for exports to

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Canada, any member state of the European Union or the European Economic Area, sales through the U.S. Agency for International Development Tenders and sales to certain buyers affiliated with members. Historically, PhosChem negotiated prices and other terms for the export sale of its members’ phosphate fertilizer products. According to the terms of a PhosChem agreement effective January 1, 1995, Mosaic Global Holdings, Inc. is responsible for the marketing of solid fertilizers (DAP, MAP and GTSP), and PCS Phosphate, or its sales affiliate (PCS Sales (USA), Inc.), is responsible for the marketing of liquid merchant grade phosphoric acid to export countries. Total sales for 2005 (on a P₂O₅ basis) were apportioned as follows: 85% to Mosaic Fertilizer LLC; 14% to PCS Phosphate; and 1% to Mississippi Phosphates Corporation. The PhosChem agreement is renewed annually.

Revenue from sales to PhosChem accounted for 4% of our total sales in 2005. Other offshore phosphate sales accounted for 3% of our total sales in 2005. All of our phosphate fertilizer sales to China were made through PhosChem. In 2005, 71% of PhosChem’s volume was in the form of DAP.

The following table sets forth the percentage of DAP sales of PhosChem for the past three calendar years in the various geographical regions:

	2005		2004		2003
Asia		79%		78%		84%
Latin America		16		10		10
Oceania		4		7		6
Other		1		5		–
Total		100%		100%		100%

With respect to offshore sales of nitrogen, ammonia and urea sales predominate and originate primarily from Trinidad, with other sales coming from purchased product locations. For 2005, our offshore sales of nitrogen products represented 2% of our total sales.

Offshore sales are subject to those risks customarily encountered in foreign operations, including (i) fluctuations in foreign currency exchange rates; (ii) changes in currency and exchange controls; (iii) the availability of foreign exchange; (iv) laws, policies and actions affecting foreign trade; and (v) other economic, political and regulatory policies of foreign governments.

Distribution and Transportation

We have an extensive infrastructure and distribution system to store and transport our products. In addition to storage located at our production facilities, in 2005, we owned or leased approximately 175 strategically located warehouses to store our products and better serve our customers. To complement our distribution system, we also own or lease approximately 7,300 rail cars.

In 2005, the industry experienced significant cost increases with regard to truck and rail freight rates, rail equipment and leasing ocean vessels for dry cargo shipments as a result of greater demand than available supply.

Potash Products

Transportation costs add significantly to the total cost of potash. Producers have a definite advantage in markets close to their sources of supply (e.g., Saskatchewan producers in the Midwestern United States, New Brunswick producers on the U.S. Eastern Seaboard and New Mexico producers in the Southern and Western United States). International shipping cost variances permit offshore producers (including those in the nations of the former Soviet Union, Germany and Israel) to compete effectively in some of our traditional markets.

Most of our potash for North American customers is shipped by rail. Shipments are also made by rail from each of our Saskatchewan mines to Thunder Bay, Ontario, for shipment by lake vessel to our warehouses and storage facilities in Canada and the United States. Potash from the New Brunswick mine is shipped primarily by ocean-going vessel from the Port of Saint John, although truck and rail transport are also used for North American customers.

In the case of our sales to Canpotex, potash is transported by rail principally to Vancouver, British Columbia, where port facilities exist for storage pending shipment overseas. We have an equity interest in Canpotex Bulk Terminals

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Limited, which is a part owner of these port facilities. Through Canpotex, we also have an interest in a port facility located in Portland, Oregon.

Phosphate Products

With respect to phosphates, we have long-term leases on shipping terminals in Morehead City and Beaufort, North Carolina, through which we receive and store Aurora facility raw materials and finished product. We use barges and tugboats to transport solid products, phosphoric acid, sulfuric acid and sulfur between the Aurora facility and Morehead City, North Carolina. Raw materials and products, including sulfur, are also transported to and from the Aurora facility by rail. We receive ammonia for our phosphate operations at Aurora primarily through our ammonia terminal in Savannah, Georgia; the ammonia is shipped by rail from Savannah to the Aurora facility.

Sulfur is delivered to the White Springs facility primarily by rail from Canada and the U.S. Most of the phosphoric acid and chemical fertilizers produced at the White Springs facility are shipped to domestic destinations by rail. We also ship some of our products, produced at the White Springs facility, through the bulk terminal located in Morehead City, North Carolina, for offshore sales. We receive ammonia for our phosphate operations at White Springs primarily through our ammonia terminal in Savannah, Georgia; the ammonia is shipped by rail from Savannah to the White Springs facility.

Much of the Geismar facility’s phosphoric acid and sulfuric acid is delivered via pipeline to nearby customers. The balance of the facility’s phosphate products are shipped by rail or tank truck. Phosphate rock feedstock is delivered to Geismar from Morocco in large ocean-going vessels. Sulfur is delivered to the Geismar facility by barge, truck and rail.

Nitrogen Products

We distribute our nitrogen products by vessel, barge, railcar, truck and direct pipeline to our customers and through our strategically located storage terminals in high consumption areas. We lease or own approximately 17 nitrogen terminal facilities. The terminals provide off-season storage and also serve local dealers during the peak seasonal demand period.

We distribute products from the Trinidad plant to markets in Latin America and Europe in addition to the United States. Our distribution operations in Trinidad employ three long-term chartered ocean-going vessels and utilize short-term and spot charters as necessary for the transportation of ammonia. All bulk urea production from Trinidad is shipped through third-party carriers.

Competition

Potash is a commodity and consequently producers must compete based on price and service (e.g., delivery time and ability to supply high quality material). Apart from competitive pricing, we compete based on the quality of our products and services provided to customers. Among other things, we provide quality service by maintaining warehouses, leasing railcars and chartering ocean-going vessels to enhance our delivery capabilities. The high cost of transporting potash affects competition in various geographic areas. Our competition includes three North American producers and offshore producers located in the former Soviet Union, the Middle East and Europe.

Markets for phosphate products are highly competitive. Our principal advantage at Aurora and White Springs is that we operate integrated phosphate mine and phosphate processing complexes, while most of our competitors are required to ship phosphate rock by rail or truck greater distances from their mines to their chemical processing plants, thus incurring substantially higher rock processing costs. In addition, due to our location in North Carolina and the relatively high cost of transportation, our U.S. phosphate sales from Aurora have a natural advantage in the Northeast, mid-Atlantic and eastern Midwest regions. Similarly, White Springs and other Florida producers have a natural advantage in the South. Gulf Coast producers have a natural advantage in areas of the Midwest accessible to barge traffic up the Mississippi River.

We compete with government enterprises and independent phosphate producers in important exporting countries, including Morocco, Tunisia, Jordan, South Africa, Russia and Australia. In addition, increased phosphate fertilizer production in the traditionally important export markets of China and India have impacted export sales to those countries.

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Within the animal feed supplement business in the phosphate segment, opportunities to differentiate products based on nutritional content exist, thereby making it less commodity-like. We have a significant presence in the domestic feed supplement market.

Industrial products are the least commodity-like of the phosphate products as product quality is a more significant consideration for customer buying decisions. Our industrial product sales are confined to the U.S. where we compete with imports from Morocco, Israel and China, in addition to domestic competitors.

Nitrogen, the most widely produced nutrient, is primarily a regional business. However, ammonia, the feedstock for all nitrogen products, can be manufactured in any country with adequate natural gas supplies and is a way for developing nations to monetize their gas. Several countries with large reserves and low production costs use little of their gas domestically, and can produce ammonia cheaply for the export market. Rising natural gas costs in the developed world have led to plant closures, since gas is up to 90% of the cost of producing ammonia in these developed countries. The resulting tight supply has increased prices, attracting less expensive imports from areas of lower-cost gas such as Trinidad, Venezuela and the Middle East. The U.S. is increasingly supplied from offshore.

Nitrogen is an input into industrial production of a wide range of products. Manufacturers want consistent quality and just-in-time delivery to keep their plants running. Many industrial consumers are attached to their suppliers by pipeline.

Our nitrogen production serves both fertilizer and industrial customers. Our U.S. plants primarily supply industrial customers, and Trinidad supplies both our fertilizer and industrial customers. We are not immune when expensive natural gas makes U.S. ammonia plants non-competitive with offshore production, but our lower-cost Trinidad plants help offset this. Within North America, sales are regionalized due to transportation costs. CF Industries, Inc., Koch Industries, Inc., Terra Industries, Inc. and importers are our main competitors. Imports from inexpensive offshore production are expected to continue.

Employees

At December 31, 2005, we employed 4,879 persons, of whom 1,729 were salaried and 3,150 were hourly paid. Of these employees, our potash operations employed 1,624 people, the phosphate operations 2,123 and the nitrogen operations 665. Excluding sales personnel, the Saskatoon and Northbrook offices had a staff of 251. Our sales group employed 216 people.

We have entered into eight collective bargaining agreements with labor organizations representing employees. The collective bargaining agreements at the Allan, Cory and Patience Lake divisions expire on April 30, 2008. The Lanigan agreement expired on January 31, 2006, and negotiations for a new agreement have commenced. PCS and the Rocanville Potash Employees Association have an agreement that expires on May 31, 2006. The agreement between Mosaic and the union representing the employees at the Esterhazy mine expires on January 31, 2007. The agreement at PCS Cassidy Lake expires on December 31, 2007. The collective bargaining agreement with the union representing employees at the White Springs plant expires on December 4, 2006 and the agreement at the PCS Purified Phosphates facility in Cincinnati expires on November 1, 2007. In addition, the agreement between Innovene USA LLC and the union representing employees at the Lima plant expires on February 16, 2009. We believe our relations with our employees to be good.

Royalties and Certain Taxes

Saskatchewan potash production is taxed at the provincial level under The Mineral Taxation Act, 1983 (Saskatchewan). This tax consists of a base payment and a profits tax (“Potash Production Tax”). In addition to the Potash Production Tax, rental fees, taxes and royalties are payable to the Province of Saskatchewan and municipalities by potash producers in respect of potash reserves or production of potash in the Province of Saskatchewan. Our taxes, fees and royalty expenses were $120.1 million in 2005.

We are subject to capital tax on our paid-up capital (as defined in The Corporation Capital Tax Act of Saskatchewan) and our taxable capital (as defined in the New Brunswick Income Tax Act). In addition, a resource corporation in the Province of Saskatchewan pays a corporate capital tax surtax based on the value of Saskatchewan resource sales. This surtax is only payable to the extent that it exceeds the regular capital tax. In 2005, we paid capital tax of $7.7 million and surtax of $31.8 million.

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We pay royalties to the New Brunswick government on the basis of production from our New Brunswick mine. In addition, we pay municipal taxes. Our expenses for such royalties and municipal taxes were $7.6 million in 2005.

We do not make royalty payments in connection with our phosphate and nitrogen operations.

Income Taxes

PCS and certain subsidiaries are subject to federal income taxes (which include the Large Corporations Tax) and provincial income taxes in Canada.

Our subsidiaries that operate in the United States are subject to U.S. federal and state income taxes. These subsidiaries are not currently subject to federal cash income taxes by virtue of net operating losses incurred. Our nitrogen subsidiary operating in Trinidad is subject to Trinidad taxes.

The effective consolidated rate for 2005 was 33%.

Environmental Matters

Our operations are subject to numerous environmental requirements under federal, provincial, state and local laws and regulations of Canada, U.S., Brazil and Trinidad and Tobago. These laws and regulations govern matters such as air emissions, wastewater discharges, land use and reclamation and solid and hazardous waste management. Many of these laws, regulations and permit requirements are becoming increasingly stringent, and the cost of compliance with these requirements can be expected to increase over time.

We believe that we are currently in material compliance with applicable environmental laws and regulations and that we are also well positioned to meet anticipated requirements under these laws and regulations. Although significant capital expenditures and operating costs have been and will continue to be incurred on account of environmental laws and regulations, we do not believe, except as otherwise set out herein, that such environmental laws and regulations have had, or are reasonably likely to have, a material adverse effect on our business. However, we cannot predict the impact of new or changed laws, regulations or permit requirements, including the matters discussed below, or changes in the ways that such laws, regulations or permit requirements are administered, interpreted or enforced.

We are also subject to environmental statutes that address investigation and, where necessary, remediation of contaminated properties. In addition, we implement programs and requirements to restore and reclaim sites after mining activities. Our obligations and potential liabilities under these statutes and programs have been, and can be expected to continue to be, significant. We do not believe, except as set out herein, that such obligations and potential liabilities are reasonably likely to have a material adverse effect on our business. However, it is often difficult to estimate and predict the potential costs and liabilities associated with these programs, and there is no guarantee that we will not in the future be identified as potentially responsible for additional costs under these programs, either as a result of changes in existing laws and regulations or as a result of the identification of additional matters or properties covered by these programs.

Environmental Requirements, Permits and Regulatory Approvals

Many of our operations and facilities are required by federal, provincial, state and local environmental laws to operate in compliance with a range of regulatory requirements, permits and approvals. Such permits and approvals typically have to be renewed or reissued periodically. We may also become subject to new laws or regulations that impose new requirements or require us to obtain new or additional permits or approvals. We believe that we are currently in material compliance with existing regulatory programs, permits and approvals. However, there can be no assurance that such permits or approvals will issue in the ordinary course. Further, the terms and conditions of future regulations, permits and approvals may be more stringent and may require increased expenditures on our part.

With respect to air emissions, we anticipate that additional actions and expenditures may be required to meet increasingly stringent U.S. federal and state regulatory and permit requirements, including existing and anticipated regulations under the federal Clean Air Act. The U.S. Environmental Protection Agency (“USEPA”) has issued a number of regulations establishing requirements to reduce nitrogen oxide (“NOx”) emissions and other air pollutant emissions. We continue to monitor developments in these various programs and to assess their potential impact on our operations.

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The USEPA announced an initiative to evaluate implementation within the phosphate industry of a particular exemption for mineral processing wastes under the hazardous waste program. In connection with this industry-wide initiative, the USEPA conducted hazardous waste compliance evaluation inspections at numerous phosphate operations, including our plants in Aurora, North Carolina, Geismar, Louisiana and White Springs, Florida. On September 27, 2005 and December 14, 2005, respectively, the USEPA notified us of various alleged violations of the Resource Conservation and Recovery Act at our Aurora and White Springs plants. We currently are reviewing these notices. At this early stage, we are unable to evaluate the extent of any exposure that we may have in these matters.

Significant portions of our phosphate reserves in Aurora, North Carolina are located in wetlands. Under the Clean Water Act, we must obtain a permit from the U.S. Army Corps of Engineers (the “Corps”) before disturbing the wetlands. In 1997, the Corps issued a permit granting us approval to mine certain areas, subject to mining being completed no later than 2017. The permit contains various provisions on mitigation of wetland impacts associated with mining covered by the permit, and we have acquired additional land adjacent to the Aurora facility for mitigation purposes. Our mining activities in North Carolina also require various authorizations from agencies of the State of North Carolina, including State mining permits that contain bonding and reclamation requirements. The State has issued a renewed mining permit effective through August 1, 2013 for the areas presently being mined, including the wetlands covered by the 1997 Corps permit.

On November 2, 2000, we filed a permit application seeking authorization from the Corps to continue mining in certain areas at our facility in Aurora following depletion of the reserves authorized to be mined under the current permit. The Corps’ permitting process involves environmental studies of potential mining areas and evaluation of mine plans and reclamation alternatives. All affected regulatory authorities, various commenting agencies and interested outside parties, including special interest groups and others who may provide organized opposition to our mining plans, participate in the process. Selection of mine plans and reclamation alternatives and the outcome of the environmental studies could require changes to current reclamation and mitigation practices, potentially resulting in higher costs and changes to mining areas with reserve impacts. The magnitude of such cost impacts cannot be estimated until the studies and evaluations are completed and the mine plans and reclamation alternatives likely to be permitted can be identified. Failure to secure the required approvals for continuation of the mining operations under any reclamation or mitigation alternative would negatively affect our reserves and costs.

In 2003, the Corps issued a federal wetlands impact permit, expiring in 2040, for mining operations covering nearly all remaining reserves in the White Springs project area. State approvals were granted for the same area with no expiration date. Local (Hamilton County) approval was granted in 2003 for that area, with provision for a five-year compliance review and automatic renewal of the permit, contingent only upon compliance with permit conditions at the time of renewal. Future mine permitting at White Springs is expected to be limited to the addition of three small areas removed from consideration in late 2002 and minor modifications as needed to accommodate operational changes.

Site Assessment and Remediation

We have incurred and expect to continue to incur costs and liabilities related to our and our predecessors’ past and current waste disposal practices and ownership and operation of real property and facilities. The U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) and other U.S. federal and state laws impose liability on, among others, past and present owners and operators of properties or facilities at which hazardous substances have been released into the environment and persons who arrange for disposal of hazardous substances that are released into the environment. Liability under these laws may be imposed jointly and severally and without regard to fault or the legality of the original actions, although such liability may be divided or allocated according to various equitable and other factors. In the course of our current and former operations, including those of divested and acquired businesses, we have generated and, with respect to our current operations, continue to generate substances that could result in liability for us under these laws.

In 1994, PCS Joint Venture responded to information requests from the USEPA and the Georgia Department of Natural Resources, Environmental Protection Division (“GEPD”) regarding conditions at its Moultrie, Georgia location. PCS Joint Venture believes that the lead-contaminated soil and groundwater found at the site are attributable to former operations at the site prior to PCS Joint Venture’s ownership. In 2005, the GEPD approved a Corrective Action Plan to address environmental conditions at this location. As anticipated, the approved remedy

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requires some excavation and off-site disposal of impacted soil and installation of a groundwater recovery and treatment system. PCS Joint Venture began the remediation in November 2005. No significant change to management’s estimate of accrued costs was required as at December 31, 2005 as a result of approval of the remedial action plan.

In 1998, the Company, along with other parties, was notified by the USEPA of potential liability under CERCLA with respect to certain soil and groundwater conditions at a PCS Joint Venture blending facility in Lakeland, Florida and certain adjoining property. In 1999, PCS Joint Venture signed an Administrative Order and Consent with the USEPA pursuant to which PCS Joint Venture agreed to conduct a Remedial Investigation and Feasibility Study (“RI/FS”) of these conditions. PCS Joint Venture and another party are sharing the costs of the RI/FS. The draft feasibility study has been submitted for review and approval. The parties are reviewing comments of the USEPA and Florida Department of Environment on the draft feasibility study and will respond to such comments in the first quarter of 2006. No final determination has yet been made of the nature, timing or cost of remedial action that may be needed, nor to what extent costs incurred may be recoverable from third parties.

In 2003, the USEPA notified PCS Nitrogen that it considers PCS Nitrogen to be a potentially responsible party with respect to a former fertilizer blending operation in Charleston, South Carolina, known as the Planters Property or Columbia Nitrogen Site, formerly owned by a company from whom PCS Nitrogen acquired certain other assets. In March 2005, the USEPA released for public comment a range of remedial alternatives and a proposed remedy for this site. In September 2005, Ashley II of Charleston, L.L.C., the current owner of the site, filed a complaint in the United States District Court for the District of South Carolina seeking a declaratory judgment that PCS Nitrogen is liable to pay environmental response costs at the site and reimbursement of environmental response and other costs incurred and to be incurred by Ashley II of Charleston, L.L.C. On December 9, 2005 PCS Nitrogen filed a motion to dismiss the petition filed by Ashley II of Charleston, L.L.C., which was denied on March 2, 2006. In February 2006, PCS Nitrogen and other potentially responsible parties received a notice from the USEPA requesting reimbursement of previously incurred response costs of approximately $3.0 million, plus interest, and the performance or financing of future site investigation and response. PCS Nitrogen will continue to monitor these and other developments with respect to the site. PCS Nitrogen intends to vigorously defend its interests in these actions. It will also continue to assert its position that it is not a responsible party and to work to identify former site owners and operators that would be responsible parties with respect to the site.

The Company is also engaged in ongoing site assessment and/or remediation activities at a number of other facilities and sites. Based on current information, it believes that its future obligations with respect to these facilities and sites are not reasonably likely to have a material adverse effect on the Company’s consolidated financial position or results of operations.

Facility and Product Security

Following the September 11, 2001 terrorist attacks in the United States, we, through our Safety, Health and Environment department, evaluated and addressed actual and potential security issues and requirements associated with our operations in the United States and elsewhere. Additional actions and expenditures may be required in the future. In the United States, Congress continues to consider federal legislation designed to reduce the risk of any future terrorist acts at industrial facilities. We believe that we are in material compliance with applicable security requirements and we also have adopted security measures and enhancements beyond those presently required. To date, neither the security regulations nor our expenditures on security matters have had a material adverse effect on our financial position or results of operations. We are unable to predict the potential future costs to us of any new governmental programs or voluntary initiatives.

Environmental Costs and Expenditures

The major categories of expenditures include asset retirement obligations, including reclamation and restoration costs (e.g., management of mining byproducts such as gypsum and various mine tailings) at our mining operations (particularly phosphate mining), the cost of regulatory compliance and environmental management related to ongoing operations other than mining, and costs related to assessment and remediation of environmental

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contamination related to our activities and those of our predecessors, including waste disposal practices and ownership and operation of real property and facilities.

Asset Retirement Obligations

We have recorded in the accompanying consolidated financial statements an asset retirement obligation for the costs associated with the retirement of our long-lived assets when a legal liability to retire such assets exists. This includes obligations incurred as a result of acquisition, construction or normal operation of these assets. The major categories of asset retirement obligations include reclamation and restoration costs at our potash and phosphate mining operations (most particularly phosphate mining), including management of mining byproducts such as gypsum and various mine tailings; land reclamation and revegetation programs; decommissioning of underground and surface operating facilities; general clean-up activities aimed at returning the areas to an environmentally acceptable condition; and post-closure care and maintenance. The asset retirement obligations are generally incurred over an extended period of time.

Production of phosphoric acid also produces gypsum, which is normally placed in above-ground storage areas called gypsum stacks. Our asset retirement obligations include reclamation costs related to the gypsum stack capping, closure and post-closure operating and maintenance requirements applicable to our phosphate facilities. In Florida, regulations require companies to “cap” the gypsum stacks in order to reduce seepage into groundwater when such stacks reach their design capacity, which in the case of White Springs exceeds the projected operating life of the facility, or if groundwater standards are not being met. We expect to be allowed to continue using the three gypsum stacks at the White Springs facility for their remaining useful lives. We also have gypsum stacks at the Aurora facility in North Carolina and the Geismar facility in Louisiana. We have guaranteed the gypsum stack capping, closure and post-closure obligations of White Springs and PCS Nitrogen, respectively, in Florida and Louisiana pursuant to those states’ financial assurance requirements. In February 2005, the Florida Environmental Regulation Commission approved certain modifications to the financial assurance requirements designed to ensure that the responsible parties have sufficient resources to cover all closure and post-closure liabilities associated with gypsum stacks in the state. The new requirements became effective in July 2005 and include financial strength tests that are more stringent than under previous law, including a requirement that gypsum stack closure cost estimates include the cost of treating process water. The rule amendments include alternative mechanisms with which to meet the financial assurance requirements. The Company has met its financial assurance responsibilities as of December 31, 2005. In North Carolina, on exhaustion of the mine’s phosphate reserves, disposition of the remaining gypsum must comply with the laws in effect at that time. Inactive portions of the gypsum stacks at the Geismar facility are capped or lined and have water management systems in place.

Lands mined by White Springs after July 1, 1975 and unmined lands used in certain mining operations after July 1, 1984 are subject to mandatory reclamation requirements of the State of Florida. Wetlands must be reclaimed on an acre-for-acre basis under the rules of the Florida Department of Environmental Protection except as provided in a Memorandum of Agreement (“MOA”), dated February 1, 1995, between us and the Florida Department of Environmental Protection. The MOA established alternate mitigation procedures for certain wetlands impacts, including provision for funding of public acquisition of environmentally sensitive lands in the region. Our cumulative contribution for the land acquisition program through 2005 totaled $6.9 million. In the course of permitting for remaining operations at White Springs, with respect to lands mined after January 1, 2003, we agreed to limit the applicability of the MOA to specifically identified areas and to apply conventional reclamation standards to all other lands. Future payment obligations under the MOA will reflect specific mining and reclamation areas subject to the alternative procedures of the MOA and are not expected to have a material effect on future land reclamation and mitigation costs. The current practice of White Springs is to return most upland areas to commercial pine plantation, which is the predominant pre-operation land use. Reclaimed lands include uplands, wetlands and lakes.

The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation plans. Financial assurances for these plans must be established within one year following approval of these plans by the responsible provincial minister. Pursuant to the regulations, we filed the plans with the Minister of the Environment for Saskatchewan in the spring of 1997. In February 1998, we were advised that, although the plans were technically acceptable, the regulatory agency did not accept the schedule proposed for decommissioning of the waste salt piles. Following further discussions between the provincial potash industry and the regulatory

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agency, we were advised in July 2000 that the plans submitted in 1997 were accepted, provided that the plans are revised by 2005. A government-industry task force was established to produce mutually acceptable revisions of the plans, which would incorporate a cost benefit analysis of the decommissioning options. The process of revising the plans is continuing. In 2001, agreement was reached with the provincial government on financial assurances for the decommissioning and reclamation plan to cover the interim period before 2005. In July 2001, a Cdn$2.0 million irrevocable Letter of Credit was posted. In October 2004, the date for submission of the revised plans was extended for the entire industry until July 2006. The Company is unable to predict, at this time, the outcome of the ongoing task force review or the timing of implementation and structure of any financial assurance requirements.

The estimation of asset retirement obligation costs depends on the development of environmentally acceptable closure and post-closure plans, which, in some cases, may require significant research and development to identify preferred methods for such plans which are economically sound and which, in most cases, may not be implemented for several decades. We have continued to utilize appropriate technical resources, including outside consultants, to develop specific site closure and post-closure plans in accordance with the requirements of the various jurisdictions in which we operate.

At December 31, 2005, we had accrued a total of $91.8 million for asset retirement obligations. The current portion totaled $6.6 million. These amounts represent our current estimate of such costs as last assessed in December 2005.

Site Assessment and Remediation Costs

We have accrued site assessment costs, including legal and consulting fees, and remediation costs related to the clean-up of contaminated sites currently or formerly associated with the Company or its predecessors’ business in the amount of $14.1 million for certain PCS Joint Venture facilities, $0.3 million for various sulfur facilities and $3.4 million for other matters relating to the phosphate and nitrogen businesses. The current portion of these costs totaled $5.7 million.

Environmental Operating Costs and Capital Expenditures

Our operating expenses, other than those associated with asset retirement obligations, relating to compliance with environmental laws and regulations governing ongoing operations were approximately $87.2 million for the year ended December 31, 2005, as compared to $68.9 million and $59.0 million for the years ending December 31, 2004 and December 31, 2003, respectively. These amounts include environmental operating expenses related primarily to the production of phosphoric acid, fertilizer, feed and other products.

We routinely undertake environmental capital projects. In 2005, capital expenditures of $10.0 million (2004 – $7.6 million) were incurred to meet pollution prevention and control objectives and $0.6 million (2004 – $0.3 million) were incurred to meet other environmental objectives.

We anticipate that our operating and capital expenditures related to environmental regulatory matters in 2006 and 2007 will not differ materially from amounts expended within the past two years.

Legislation

In 2002, the Canadian government ratified the Kyoto Protocol, which calls for Canada to reduce its emissions of “greenhouse gases” to 94% of its 1990 emissions by 2012. The Kyoto Protocol became effective on February 16, 2005. In July 2005, the Canadian government announced plans to implement policy in order to meet its commitments under the Kyoto Protocol, and it intends to have this policy in force prior to January 1, 2008. It is expected that, once this policy becomes effective, our potash divisions will be required to use energy more efficiently or purchase “credits.” At this time, we are unable to predict the impact of this program on our operations in Canada. The United States is not presently expected to ratify the Kyoto Protocol and has announced plans for voluntary programs and incentives. Brazil and Trinidad and Tobago have also ratified the Kyoto Protocol. Our operations there would not be immediately impacted by the implementation of the treaty as these are developing countries, which do not have any specific emission reduction requirements. We continue to monitor the development of programs to implement the obligations established by the Kyoto Protocol and will continue to assess the range of potential impacts of these programs on our operations.

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Our Executive Officers

The name, age, period of service with the Company and position held for each of our executive officers as at February 27, 2006 is as follows:

			Served
Name	Age		Since		Position Held
William J. Doyle		55		1987	President and Chief Executive Officer
Wayne R. Brownlee		53		1988	Executive Vice President, Treasurer and Chief Financial Officer
James F. Dietz		59		1997	Executive Vice President and Chief Operating Officer
Betty-Ann L. Heggie		52		1981	Senior Vice President, Corporate Relations
Barbara Jane Irwin		50		2000	Senior Vice President, Administration
Robert A. Jaspar		47		1997	Senior Vice President, Information Technology
Joseph A. Podwika		43		1997	Senior Vice President, General Counsel and Secretary
G. David Delaney		45		1997	President, PCS Sales
Garth W. Moore		57		1982	President, PCS Potash
Thomas J. Regan, Jr.		61		1995	President, PCS Phosphate
Stephen F. Dowdle		55		1999	Senior Vice President, Fertilizer Sales, PCS Sales
Daphne Arnason		50		1988	Vice President, Internal Audit
Karen G. Chasez		52		2000	Vice President, Procurement
John R. Hunt		47		1997	Vice President, Safety, Health and Environment
Denis A. Sirois		50		1978	Vice President and Corporate Controller

Each of the officers have held the position indicated above for the previous five years except as follows:

Name	Dates of Service	Position Held
Wayne R. Brownlee	July 1999 – December 2005	Senior Vice President, Treasurer and Chief Financial Officer
Robert A. Jaspar	December 2000 – June 2003	Vice President, Internal Audit
Joseph A. Podwika	January 2005 – December 2005	Vice President, General Counsel and Secretary
	March 2002 – December 2004	Senior Counsel, U.S
	April 2000 – February 2002	Senior Counsel, Phosphate
Stephen F. Dowdle	July 2000 – December 2005	Vice President, Fertilizer Sales, PCS Sales
Daphne Arnason	November 2000 – June 2002	Senior Director, Taxation
John R. Hunt	November 2003 – January 2005	Senior Director, Operations Development
	March 2000 – October 2003	General Manager, Memphis Plant

Presentation of Financial Information

We have three principal business segments: potash, phosphate and nitrogen. For information with respect to the sales, gross margin and assets attributable to each segment and to our North American and offshore sales, see Note 18, Segment Information, to our consolidated financial statements as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005, incorporated by reference under Item 8 of this Form 10-K.

We present our consolidated financial statements in accordance with accounting principles generally accepted in Canada, or Canadian GAAP. See Note 33, Reconciliation of Canadian and United States Generally Accepted Accounting Principles, to our 2005 consolidated financial statements, incorporated by reference under Item 8 of this Form 10-K, for a discussion of certain significant differences between Canadian GAAP and accounting principles generally accepted in the United States, or U.S. GAAP, as they relate to us.

Unless otherwise specified, financial information is presented in U.S. dollars.

Where You Can Find More Information

We file annual, quarterly and current reports and other information with the Securities and Exchange Commission (the “Commission”). You may read and copy any of the information on file with the Commission at the Commission’s Public Reference Room, 100 F Street, NE, Room 1580, Washington, DC 20549. Please call the

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Commission at 1-800-SEC-0330 for further information on the public reference room. In addition, the Commission maintains an Internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file, as we do, electronically with the Commission.

We make available, free of charge through our website, http://www.potashcorp.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as is reasonably practicable after such material is electronically filed with or furnished to the Commission. The information on our website is not incorporated by reference into this annual report on Form 10-K.

Item 1A. Risk Factors.

Our performance and future development could be materially affected by a wide range of risk factors. Any or all of these risks could have a material adverse effect on our business, financial condition, results of operations and cash flows and on the market price of our common stock. We use an integrated risk management framework to identify risks across all segments of the Company, evaluate those risks, and implement strategies designed to mitigate those risks. Our strategies to mitigate these risks are described under “Managing Risk” on pages 20 through 22 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, incorporated herein by reference. See also note regarding “Forward-Looking Statements,” earlier in this report.

Set forth below are the most significant risks and uncertainties that affect the Company and its businesses:

Lack of growth opportunities, particularly for potash, may limit our sustainable long-term growth.

Opportunities for acquisitions of additional potash operations are limited. Significant increases in potash production capacity can be realized by increasing production at our existing facilities; however, such increases are limited. For phosphate and nitrogen, opportunities to invest in other projects with stable, long-term margins are limited.

Global demand for our products that differs from expectations or that is higher or lower than our excess capacity could adversely affect the results of future operations.

We supply product both in North America and offshore and sales are affected by regional and global markets. We predict the future level of demand for our products and attempt to meet growing demand through utilization of our excess capacity. Accurate predictions allow us to avoid surplus inventory and missed sales opportunities. However, incorrect predictions can lead to rising costs and decreased profits. Growth in demand that exceeds our expectations results in lost opportunity to sell our products and may harm the credibility of our business strategy.

Growth in demand below expectations reduces our expected sales and creates excess inventory and unwanted costs. A decrease in demand could result from a variety of factors, including increasing agricultural input costs, depressed commodity prices, adverse weather conditions, economic downturns or changes in agricultural practices.

Inappropriate handling and transportation of some of our products by customers or carriers could result in harm to third parties or damage to property and may expose the Company to litigation.

Some of our nitrogen products, particularly ammonia and industrial ammonium nitrate, can be dangerous if not handled and secured appropriately. If these products are not handled and secured with the requisite care in transit or by our customers, it may cause personal injury, property damage or environmental damage and the Company may have to defend itself against various legal claims.

Strikes or other forms of work stoppage or slowdown could disrupt our business and lead to increased costs.

Our financial performance is dependent on a reliable and productive work force. Unsuccessful contract negotiations or adverse labor relations could result in strikes or slowdowns. These disruptions may decrease our production and sales or impose additional costs to resolve disputes. The risk of adverse labor relations may increase during periods of high profitability because labor unions’ expectations and demands generally rise at those times.

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The Company may be adversely affected by changing anti-trust laws to which it is subject.

We are subject to anti-trust laws in various countries throughout the world. We cannot predict how these laws or their interpretation, administration and enforcement will change over time. Changes in anti-trust laws globally, or the interpretation, administration or enforcement thereof, may limit our future acquisitions, or the operations of Canpotex and PhosChem.

New product supply can create a structural market imbalance, which could reduce our profits.

Many of our products are commodities and the markets for these products are highly competitive. We compete with other producers on price, product quality and service. An increase in the competitive supply of our products that outpaces the growth in world consumption could depress prices for a prolonged period. A decrease in the price of crop nutrients could negatively affect the Company’s financial performance.

Potash

With recently favorable prices for potash products, producers have been, and will likely continue to be, engaged in expansion and development projects to increase production. Many of the projects to increase potash production are speculative. However, a potash supply increase beyond market demand could depress prices and negatively affect the Company’s financial performance.

Phosphate

Phosphate producers are both private and government enterprises. In addition, governments influence a significant proportion of world capacity for diammonium phosphate (“DAP”), the major phosphate fertilizer product. Through subsidy, control or ownership, governments may encourage overproduction of DAP. Furthermore, governments may accept little or no profit on DAP sales to support domestic employment. Such policies increase the risk of a supply/demand imbalance and lower prices for our products.

Nitrogen

The barriers to entry into the nitrogen business are relatively low. Nitrogen is taken from the air and reacted with a hydrogen source, usually natural gas reformed with steam, to produce ammonia. Ammonia is then used to produce nitrogen products for a wide variety of uses. Countries with large reserves of natural gas and low production costs can produce a large supply of ammonia cheaply for the export market. While the Company’s lower cost nitrogen operations in Trinidad provide us with advantages, the Company is affected by the expensive natural gas markets in the United States.

Cyclicality in prices and products can result in unfavorable market conditions and lower profits.

The market for crop nutrients, particularly certain phosphate and nitrogen products, tends to move in cycles. Periods of high demand, increasing profits and high capacity utilization lead to new plant investment and increased production. This growth increases supply until the market is over-saturated, leading to declining prices and declining capacity utilization until the cycle repeats. This cyclicality in prices can result in supply/demand imbalances; pressure on prices, profit margins and profitable operations; and, eventually, shutdown costs. The fertilizer business is dependent on conditions in the economy generally and the agriculture sector, both in North America and offshore. The agricultural sector can be affected by adverse weather conditions, cost of inputs, commodity prices, animal diseases, the availability of government support programs and other uncertainties that may affect sales of fertilizer products, and our performance.

The Company is subject to risks associated with international operations, which could negatively affect sales to customers in foreign countries as well as the operations and assets in such countries.

The Company has operations and investments in countries outside of the United States and Canada. Historically, these countries have had less stable political environments. We have a nitrogen production facility in Trinidad and a feed plant in Brazil. Much of the ammonia that we purchase from third parties is produced in Russia. In addition, we have significant investments in ICL, APC, SQM and Sinofert. Additionally, potash from our Saskatchewan

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operations for sale outside North America is sold exclusively to Canpotex, which acts as an export marketing and sales company. A large portion of Canpotex sales are to China. Other key offshore customers are located in Brazil, Japan, Malaysia and Indonesia.

Political and economic conditions, foreign trade policies, fiscal policies, laws, regulations and other activities of foreign governments may affect performance and development of our operations and investments. Our operations and investments may be affected by abrupt political change, forced divestiture, selective discrimination, inconvertibility of funds, armed conflict, terrorist activity and unexpected changes in regulatory requirements, social, political, labor and economic conditions. Risks inherent in doing business inside the United States and Canada also exist in foreign countries and may be exaggerated by differences in culture, laws and regulations.

A shortage of railcars and bulk ships for carrying our products and increased transit time could result in customer dissatisfaction, loss of sales and higher equipment costs.

We rely heavily upon railcars and ocean freightliners to transport product to our customers. Transportation is an important part of the final sale price of our products and some of our customers require just-in-time delivery. Finding affordable and dependable transportation is important in allowing us to supply customers close to our operating facilities and customers around the world. An interruption in these transport services due to factors including labor disputes, adverse weather or other environmental events, and changes to rail or ocean freight systems would negatively affect our ability to deliver product to our customers, which could affect our performance.

Strong demand for grain and other products affect railcar availability. A shortage of railcars for carrying product and increased transit time in North America may result in customer dissatisfaction, loss of sales and higher equipment costs. A strong world economy fuels increased demand and higher dry bulk freight rates for ocean transport. The shipping industry has a shortage of ships and the substantial time frame needed to build new ships prevents rapid market response. Delays and missed shipments relying on ocean freight could result in customer dissatisfaction and loss of sales potential, which could negatively affect our performance.

Deliberate, malicious acts involving our products or facilities or downstream product mishaps may expose employees, contractors or the public to extensive injury, cause property damage or affect the Company’s reputation.

Intentional acts of destruction could hinder our sales or production and interrupt our supply chain. Facilities could be damaged leading to a reduction in our operational production capacity. Employees, contractors and the public could suffer substantial physical injury. The consequences of any such actions could damage our reputation, negatively affecting our sales and profits.

Injury to our reputation could negatively affect our performance.

Loss of our reputation can be the consequence of a number of events. Reputation loss cuts across all risk categories and may result in loss of investor confidence, loss of customer confidence, poor community relations and employee apathy. Loss of our reputation could interfere with our ability to execute our strategies. Reputation loss is a negative consequence resulting from these or other risks and can have a detrimental affect on our performance.

Other risks may hurt our operating results.

In addition to the above, other risks may affect our performance including unexpected or adverse weather conditions; price risks associated with feedstocks, including natural gas and sulfur; other hedging activities; changes in capital markets; changes in currencies and exchange rates; unexpected geological or environmental conditions; legal proceedings; changes in government policy and regulation, including environmental regulations; inherent risks in industrial operations, including inability to obtain insurance for underground operations; and future acquisitions by the Company.

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Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Information concerning our properties is set forth under the “Properties” sections in Item 1.

Item 3. Legal Proceedings.

Shaw

On February 23, 1999, Shaw Constructors Inc. (“Shaw”) filed an action against ICF Kaiser Engineers, Inc. (“Kaiser”) and PCS Nitrogen Fertilizer, L.P., PCS Nitrogen Fertilizer, Inc., PCS Nitrogen, Inc. and Potash Corporation of Saskatchewan Inc. in the Eighteenth Judicial District Court for the State of Louisiana seeking to recover the balance allegedly owed to it under a subcontract with Kaiser. Shaw alleged that the defendants are liable for the unpaid balance allegedly due under the subcontract with Kaiser based on a lien it filed against the defendants’ property pursuant to the Louisiana Private Works Act. PCS Nitrogen Fertilizer, L.P. had previously entered into a firm price contract with Kaiser for the construction of a nitric acid facility at the Geismar Plant.

The litigation was subsequently removed to the United States District Court for the Middle District of Louisiana. On August 3, 2001, the trial court granted our motion for summary judgment and denied Shaw’s motion, holding that Shaw had expressly waived its right in the subcontract to file any liens or claims against the defendants and their property.

On February 7, 2002, Shaw filed an appeal with the Fifth Circuit Court of Appeals (the “Fifth Circuit”). On December 30, 2004, the Fifth Circuit reversed the trial court’s decision and entered summary judgment on the issue of liability in favor of Shaw ruling that Shaw has the right to enforce its lien claim against us. The Fifth Circuit remanded the case to the trial court for a determination as to the amount of damages that Shaw is entitled to recover from us. Shaw alleges that we are liable in the amount of approximately $2.04 million plus interest. On January 27, 2005, we filed a Petition for Rehearing and a Petition for En Banc Rehearing with the Fifth Circuit, which were denied. Our Petition for a Writ of Certiorari with the United States Supreme Court has also been denied. We continue to pursue our defenses to the amount of damages claimed by Shaw on remand to the trial court.

General

In the normal course of business, we are subject to legal proceedings being brought against us. The amounts that these proceedings may cost us are not reasonably estimable, due to uncertainty as to the final outcome. However, we believe these proceedings in the aggregate are not reasonably likely to have a material adverse effect on our financial position or results of operations.

Environmental Proceedings

For a description of certain environmental proceedings in which we are involved, see “Environmental Matters” under Item 1.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

The information under “Common Share Prices and Volumes” on page 24 and “Shareholder Information – Ownership and – Dividends” on page 23 in the Business Review section of our 2005 Annual Report, attached as Exhibit 13, is incorporated herein by reference and “11 Year Report” on page 49 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, is incorporated herein by reference.

Dividends paid to U.S. holders of our Common Shares, who do not use the shares in carrying on a business in Canada, will be subject to a Canadian withholding tax under the Income Tax Act. Under the Canada-U.S. Income Tax Convention (1980), the rate of withholding is generally reduced to 15%. Subject to certain limitations, the Canadian withholding tax will be treated as a foreign income tax that can generally be claimed as a deduction from income or as a credit against the U.S. income tax liability of the holder. Holders will generally not be subject to tax under the Income Tax Act with respect to any gain realized from a disposition of Common Shares.

The following table provides information about Company purchases of equity securities that are registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934 during the quarter ended December 31, 2005.

Issuer Purchases of Equity Securities

					(c) Total Number of		(d) Maximum
					Shares Purchased as		Number of Shares
			(b) Average		Part of Publicly		That May Yet Be
	(a) Total Number of		Price Paid per		Announced		Purchased Under the
Period	Shares Purchased		Share(1)		Programs(2)		Programs(2)
October 1, 2005 – October 31, 2005		328,800		80.28		328,800		3,242,300
November 1, 2005 – November 30, 2005		2,033,800		83.11		2,033,800		1,208,500
December 1, 2005 – December 31, 2005		1,208,500		78.71		1,208,500		0
Total		3,571,100		81.36		3,571,100		0

(1)

Average price paid per share includes cash paid for commissions.

(2)

On January 25, 2005, the Company announced that the Board of Directors had approved an open market repurchase program of approximately 5% of the Company’s outstanding Common Shares, or approximately 5.5 million shares, through a normal course issuer bid. Purchasing under the program commenced on February 16, 2005. On September 22, 2005, the Company announced that the Board of Directors had approved an increase in the number of Common Shares to be repurchased under the previously announced open market repurchase program. The increase raised the total number of shares available for repurchase by an additional 4.0 million shares, for a total of 9.5 million shares. Purchasing under the amended program was completed by December 31, 2005.

Item 6. Selected Financial Data.

The information under “11 Year Report” on page 49 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, is incorporated herein by reference. Such information has been presented on the basis of Canadian GAAP. These principles differ in certain significant respects from U.S. GAAP. The following supplemental financial data is provided on the basis of reconciliations between Canadian and U.S. GAAP.

	(in millions of US dollars, except per-share amounts)
U.S. GAAP	2005		2004		2003			2002		2001
Net income (loss)		532.7		290.5		(84.2	)		60.4		94.4
Net income (loss) per share - basic		4.91		2.69		(0.81	)		0.58		0.91
Total assets		5,841.8		5,202.7		4,520.0			4,511.0		4,378.1

FORM 10-K │ Part II

Page 27

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information under “Management’s Discussion & Analysis of Financial Condition and Results of Operations” on pages 2 through 49 and “Appendix” on page 89, except Section 9 of the “2006 Outlook” on page 37, in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, is incorporated herein by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

The information under “Management’s Discussion & Analysis of Financial Condition and Results of Operations – Market Risks Associated With Financial Instruments” on pages 43 and 44 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, is incorporated herein by reference.

Item 8. Financial Statements and Supplementary Data.

The information under “Management’s Responsibility for Financial Reporting”, “Report of Independent Registered Chartered Accountants”, and “Consolidated Financial Statements” contained on pages 53 through 88 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, are incorporated herein by reference and “Management’s Discussion & Analysis of Financial Condition and Results of Operations – Quarterly Results and Review of Fourth-Quarter Performance” on page 35 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, are incorporated herein by reference.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

As of December 31, 2005, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon that evaluation and as of December 31, 2005, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.

There has been no change in our internal control over financial reporting during the year ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. “Management’s Report on Internal Control Over Financial Reporting” and the “Report of Independent Registered Chartered Accountants” contained on pages 53 through 55 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, are incorporated herein by reference.

Item 9B. Other Information.

None.

FORM 10-K │ Part II

Page 28

Part III

Item 10. Directors and Executive Officers of the Registrant.

The information under “Nominees for Election to the Board of Directors” and the second paragraph under “Corporate Governance - Report of the Audit Committee” regarding “audit committee financial experts” in our 2006 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference. Information concerning executive officers is set forth under “Our Executive Officers” in Part I.

We have adopted a Code of Business Conduct that applies to all of our directors, officers and employees. We make this code, as well as our corporate governance principles and the respective Charters of our Corporate Governance and Nominating, Audit and Compensation Committees, available, free of charge, on our website, http://www.potashcorp.com, or by request.

Item 11. Executive Compensation.

The information under “Nominees for Election to the Board of Directors - Compensation/Attendance of Directors,” “Corporate Governance – Report of the Compensation Committee and Compensation Discussion and Analysis,” “Executive Compensation” and “Performance Graphs” in our 2006 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference. Each such incorporation by reference shall be deemed not to include the information referred to in Item 402(a)(8) of Regulation S-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information under “Ownership of Shares,” “Nominees for Election to the Board of Directors” and the table titled “Equity Compensation Plan Information” in our 2006 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

The information under “Nominees for Election to the Board of Directors – Director Independence and Other Relationships” on pages 10 through 12 in our 2006 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The information under “Appointment of Auditors” in our 2006 Proxy Circular, attached as Exhibit 99, is incorporated herein by reference.

FORM 10-K │ Part III

Page 29

Part IV

Item 15. Exhibits and Financial Statement Schedules.

List of Documents Filed as Part of This Report

1.  Consolidated Financial Statements in Annual Report

The consolidated financial statements contained on pages 53 through 88 in the Financial Review section of our 2005 Annual Report, attached as Exhibit 13, are incorporated under Item 8 by reference.

Report of Independent Registered Chartered Accountants	54-55
Consolidated Statements of Financial Position	56
Consolidated Statements of Operations and Retained Earnings	57
Consolidated Statements of Cash Flow	58
Notes to the Consolidated Financial Statements	59-88

2.  Schedules

Schedules not listed are omitted because the required information is inapplicable or is presented in the consolidated financial statements.

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Board of Directors and Shareholders of Potash Corporation of Saskatchewan Inc.

We have audited the consolidated financial statements of Potash Corporation of Saskatchewan Inc. (the “Company”) as at December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, and have issued our reports thereon dated February 14, 2006 (except for Note 34 of the consolidated financial statements which is as of February 24, 2006) (which audit report on the consolidated financial statements expresses an unqualified opinion and includes a separate report titled Comments by Independent Registered Chartered Accountants on Canada – United States of America Reporting Differences referring to changes in accounting principles); such consolidated financial statements and reports are included in your 2005 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedules of the Company listed in Item 15. These consolidated financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants

Saskatoon, Saskatchewan, Canada

February 14, 2006

FORM 10-K │ Part IV

Page 30

Potash Corporation of Saskatchewan Inc.

Schedule II – Valuation and Qualifying Accounts

(in millions of US dollars)

(audited)

				Additions
		Balance at		Charged to
		Beginning of		Costs and				Balance at
Description		Year		Expenses		Deductions		End of Year
Allowance for doubtful trade accounts receivable
	2005		4.6		0.5		–		5.1
	2004		4.9		0.7		1.0		4.6
	2003		6.0		0.5		1.6		4.9
Allowance for inventory valuation
	2005		14.5		7.1		8.7		12.9
	2004		11.9		5.1		2.5		14.5
	2003		4.3		9.5		1.9		11.9
Allowance for deferred income tax assets
	2005		29.4		16.1		–		45.5
	2004		11.4		18.4		0.4		29.4
	2003		28.9		1.0		18.5		11.4

3.  Exhibits

Exhibit
Number		Description of Document
	3(a)	Articles of Continuance of the registrant dated May 15, 2002, incorporated by reference to Exhibit 3(a) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2002 (the “Second Quarter 2002 Form 10-Q”).
	3(b)	Bylaws of the registrant effective May 15, 2002, incorporated by reference to Exhibit 3(b) to the Second Quarter 2002 Form 10-Q.
	4(a)	Term Credit Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated September 25, 2001, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2001.
	4(b)	Syndicated Term Credit Facility Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 23, 2003, incorporated by reference to Exhibit 4(b) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2003 (the “Third Quarter 2003 Form 10-Q”).
	4(c)	Syndicated Term Credit Facility Second Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 21, 2004, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 8-K dated September 21, 2004.
	4(d)	Syndicated Term Credit Facility Third Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 20, 2005, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated September 22, 2005.
	4(e)	Indenture dated as of June 16, 1997, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated June 18, 1997 (the “1997 Form 8-K”).
	4(f)	Indenture dated as of February 27, 2003, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”).
	4(g)	Form of Notes relating to the registrant’s offering of $400,000,000 principal amount of 7.125% Notes due June 15, 2007, incorporated by reference to Exhibit 4(b) to the 1997 Form 8-K.

FORM 10-K │ Part IV

Page 31

Exhibit
Number		Description of Document
	4(h)	Form of Notes relating to the registrant’s offering of $600,000,000 principal amount of 73/4% Notes due May 31, 2011, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated May 17, 2001.
	4(i)	Form of Note relating to the registrant’s offering of $250,000,000 principal amount of 4.875% Notes due March 1, 2013, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated February 28, 2003.

The registrant hereby undertakes to file with the Securities and Exchange Commission, upon request, copies of any constituent instruments defining the rights of holders of long-term debt of the registrant or its subsidiaries that have not been filed herewith because the amounts represented thereby are less than 10% of the total assets of the registrant and its subsidiaries on a consolidated basis.

Exhibit
Number		Description of Document
	10(a)	Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc., incorporated by reference to Exhibit 10(f) to the registrant’s registration statement on Form F-1 (File No. 33-31303) (the “F-1 Registration Statement”).
	10(b)	Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S&P amending agreement dated November 4, 1987, incorporated by reference to Exhibit 10(g) to the F-1 Registration Statement.
	10(c)	Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration Statement.
	10(d)	Canpotex/PCS Amending Agreement, dated as of October 1, 1992, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 1995 (the “1995 Form 10-K”).
	10(e)	Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated as of October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995 Form 10-K.
	10(f)	Canpotex Producer Agreement amending agreement dated as of January 1, 1999, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 2000 (the “2000 Form 10-K”).
	10(g)	Canpotex Producer Agreement amending agreement dated as of July 1, 2002, incorporated by reference to Exhibit 10(g) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2004 (the “Second Quarter 2004 Form 10-Q”).
	10(h)	Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, between International Minerals & Chemical Corporation (Canada) Limited and the registrant’s predecessor, incorporated by reference to Exhibit 10(e) to the F-1 Registration Statement.
	10(i)	Agreement dated December 21, 1990, between International Minerals & Chemical Corporation (Canada) Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, incorporated by reference to Exhibit 10(p) to the registrant’s report on Form 10-K for the year ended December 31, 1990.
	10(j)	Agreement effective August 27, 1998, between International Minerals & Chemical (Canada) Global Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended), incorporated by reference to Exhibit 10(l) to the 1998 Form 10-K.
	10(k)	Agreement effective August 31, 1998, among International Minerals & Chemical (Canada) Global Limited, International Minerals & Chemical (Canada) Limited Partnership and the registrant assigning the interest in the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended) held by International Minerals & Chemical (Canada) Global Limited to International Minerals & Chemical (Canada) Limited Partnership, incorporated by reference to Exhibit 10(m) to the 1998 Form 10-K.
	10(l)	Potash Corporation of Saskatchewan Inc. Stock Option Plan – Directors, as amended January 23, 2001, incorporated by reference to Exhibit 10(bb) to the Second Quarter 2001 Form 10-Q.
	10(m)	Potash Corporation of Saskatchewan Inc. Stock Option Plan – Officers and Employees, as amended January 23, 2001, incorporated by reference to Exhibit 10(aa) to the 2000 Form 10-K.

FORM 10-K │ Part IV

Page 32

Exhibit
Number		Description of Document
	10(n)	Short-Term Incentive Plan of the registrant effective January 2000, as amended March 10, 2005, incorporated by reference to Exhibit 10(x) to the Form 10-K for the year ended December 31, 2004.
	10(o)	Long-Term Incentive Plan of the registrant effective January 2003, incorporated by reference to Exhibit 10(y) to the 2002 Form 10-K.
	10(p)	Resolution and Forms of Agreement for Supplemental Retirement Income Plan, for officers and key employees of the registrant, incorporated by reference to Exhibit 10(o) to the 1995 Form 10-K.
	10(q)	Amending Resolution and revised forms of agreement regarding Supplemental Retirement Income Plan of the registrant, incorporated by reference to Exhibit 10(x) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 1996.
	10(r)	Amended and restated Supplemental Retirement Income Plan of the registrant and text of amendment to existing supplemental income plan agreements, incorporated by reference to Exhibit 10(mm) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2000 (the “Third Quarter 2000 Form 10-Q”).
	10(s)	Form of Letter of amendment to existing supplemental income plan agreements of the registrant dated November 4, 2002, incorporated by reference to Exhibit 10(cc) to the 2002 Form 10-K.
	10(t)	Supplemental Retirement Benefits Plan for U.S. Executives dated effective January 1, 1999, incorporated by reference to Exhibit 10(aa) to the Second Quarter 2002 Form 10-Q.
	10(u)	Forms of Agreement dated December 30, 1994, between the registrant and certain officers of the registrant, concerning a change in control of the registrant, incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
	10(v)	Form of Agreement of Indemnification dated August 8, 1995, between the registrant and certain officers and directors of the registrant, incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.
	10(w)	Resolution and Form of Agreement of Indemnification dated January 24, 2001, incorporated by reference to Exhibit 10(ii) to the 2000 Form 10-K.
	10(x)	Resolution and Form of Agreement of Indemnification – July 21, 2004, incorporated by reference to Exhibit 10(ii) to the Second Quarter 2004 Form 10-Q.
	10(y)	Chief Executive Officer Medical and Dental Benefits, incorporated by reference to Exhibit 10(jj) to the Form 10-K for the year ended December 31, 2004.
	10(z)	Second Amended and Restated Membership Agreement dated January 1, 1995, among Phosphate Chemicals Export Association, Inc. and members of such association, including Texasgulf Inc., incorporated by reference to Exhibit 10(t) to the 1995 Form 10-K.
	10(aa)	International Agency Agreement dated January 1, 1995, between Phosphate Chemicals Export Association, Inc. and Texasgulf Inc. establishing Texasgulf Inc. as exclusive marketing agent for such association’s wet phosphatic materials, incorporated by reference to Exhibit 10(u) to the 1995 Form 10-K.
	10(bb)	Deferred Share Unit Plan for Non-Employee Directors, incorporated by reference to Exhibit 4.1 to the registrant’s Form S-8 (File No. 333-75742) filed December 21, 2001.
	10(cc)	Potash Corporation of Saskatchewan Inc. 2005 Performance Option Plan and Form of Option Agreement, incorporated by reference to Exhibit 10(nn) to registrant’s report on Form 10-Q for the quarterly period ended March 31, 2005 (the “First Quarter 2005 Form 10-Q”).
	10(dd)	Medium Term Incentive Plan of the registrant effective January 2006.
	11	Statement re Computation of Per Share Earnings.
	12	Computation of Ratio of Earnings to Fixed Charges.
	13	2005 Annual Report (Business Review and Financial Review). The 2005 Annual Report, except for those portions that are expressly incorporated by reference, is furnished for the information of the Commission and is not to be deemed “filed” as part of this filing.
	21	Subsidiaries of the registrant.
	23	Consent of Deloitte & Touche LLP.
	31(a)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31(b)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

FORM 10-K │ Part IV

Page 33

Exhibit
Number		Description of Document
	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99	2006 Notice of Meeting, Proxy Circular and Form of Proxy. The 2006 Notice of Meeting, Proxy Circular and Form of Proxy, except for those portions thereof that are expressly incorporated by reference, are furnished for the information of the Commission and are not to be deemed “filed” as part of this filing.

FORM 10-K │ Part IV

Page 34

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

POTASH CORPORATION OF SASKATCHEWAN INC.

By:	/s/ WILLIAM J. DOYLE
	____________________________________ William J. Doyle President and Chief Executive Officer March 9, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ DALLAS J. HOWE Dallas J. Howe	Chair of the Board	March 9, 2006
/s/ WAYNE R. BROWNLEE Wayne R. Brownlee	Executive Vice President, Treasurer and Chief Financial Officer (Principal financial and accounting officer)	March 9, 2006
/s/ WILLIAM J. DOYLE William J. Doyle	President and Chief Executive Officer	March 9, 2006
/s/ FREDERICK J. BLESI Frederick J. Blesi	Director	March 9, 2006
/s/ JOHN W. ESTEY John W. Estey	Director	March 9, 2006
/s/ WADE FETZER III Wade Fetzer III	Director	March 9, 2006
/s/ ALICE D. LABERGE Alice D. Laberge	Director	March 9, 2006
/s/ JEFFREY J. MCCAIG Jeffrey J. McCaig	Director	March 9, 2006
/s/ MARY MOGFORD Mary Mogford	Director	March 9, 2006
/s/ PAUL J. SCHOENHALS Paul J. Schoenhals	Director	March 9, 2006

FORM 10-K │ Signatures

Page 35

Signature	Title	Date
/s/ E. ROBERT STROMBERG, Q.C. E. Robert Stromberg, Q.C.	Director	March 9, 2006
/s/ JACK G. VICQ Jack G. Vicq	Director	March 9, 2006
/s/ ELENA VIYELLA DE PALIZA Elena Viyella de Paliza	Director	March 9, 2006

FORM 10-K │ Signatures

Page 36

EXHIBIT INDEX

Exhibit
Number		Description of Document
	3(a)	Articles of Continuance of the registrant dated May 15, 2002, incorporated by reference to Exhibit 3(a) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2002 (the “Second Quarter 2002 Form 10-Q”).
	3(b)	Bylaws of the registrant effective May 15, 2002, incorporated by reference to Exhibit 3(b) to the Second Quarter 2002 Form 10-Q.
	4(a)	Term Credit Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated September 25, 2001, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2001.
	4(b)	Syndicated Term Credit Facility Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 23, 2003, incorporated by reference to Exhibit 4(b) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2003 (the “Third Quarter 2003 Form 10-Q”).
	4(c)	Syndicated Term Credit Facility Second Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 21, 2004, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 8-K dated September 21, 2004.
	4(d)	Syndicated Term Credit Facility Third Amending Agreement between The Bank of Nova Scotia and other financial institutions and the registrant dated as of September 20, 2005, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated September 22, 2005.
	4(e)	Indenture dated as of June 16, 1997, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(a) to the registrant’s report on Form 8-K dated June 18, 1997 (the “1997 Form 8-K”).
	4(f)	Indenture dated as of February 27, 2003, between the registrant and The Bank of Nova Scotia Trust Company of New York, incorporated by reference to Exhibit 4(c) to the registrant’s report on Form 10-K for the year ended December 31, 2002 (the “2002 Form 10-K”).
	4(g)	Form of Notes relating to the registrant’s offering of $400,000,000 principal amount of 7.125% Notes due June 15, 2007, incorporated by reference to Exhibit 4(b) to the 1997 Form 8-K.
	4(h)	Form of Notes relating to the registrant’s offering of $600,000,000 principal amount of 73/4% Notes due May 31, 2011, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated May 17, 2001.
	4(i)	Form of Note relating to the registrant’s offering of $250,000,000 principal amount of 4.875% Notes due March 1, 2013, incorporated by reference to Exhibit 4 to the registrant’s report on Form 8-K dated February 28, 2003.

The registrant hereby undertakes to file with the Securities and Exchange Commission, upon request, copies of any constituent instruments defining the rights of holders of long-term debt of the registrant or its subsidiaries that have not been filed herewith because the amounts represented thereby are less than 10% of the total assets of the registrant and its subsidiaries on a consolidated basis.

Exhibit
Number		Description of Document
	10(a)	Sixth Voting Agreement dated April 22, 1978, between Central Canada Potash, Division of Noranda, Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales and Texasgulf Inc., incorporated by reference to Exhibit 10(f) to the registrant’s registration statement on Form F-1 (File No. 33-31303) (the “F-1 Registration Statement”).
	10(b)	Canpotex Limited Shareholders Seventh Memorandum of Agreement effective April 21, 1978, between Central Canada Potash, Division of Noranda Inc., Cominco Ltd., International Minerals and Chemical Corporation (Canada) Limited, PCS Sales, Texasgulf Inc. and Canpotex Limited as amended by Canpotex S&P amending agreement dated November 4, 1987, incorporated by reference to Exhibit 10(g) to the F-1 Registration Statement.
	10(c)	Producer Agreement dated April 21, 1978, between Canpotex Limited and PCS Sales, incorporated by reference to Exhibit 10(h) to the F-1 Registration Statement.
	10(d)	Canpotex/PCS Amending Agreement, dated as of October 1, 1992, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 1995 (the “1995 Form 10-K”).

Exhibit
Number		Description of Document
	10(e)	Canpotex PCA Collateral Withdrawing/PCS Amending Agreement, dated as of October 7, 1993, incorporated by reference to Exhibit 10(g) to the 1995 Form 10-K.
	10(f)	Canpotex Producer Agreement amending agreement dated as of January 1, 1999, incorporated by reference to Exhibit 10(f) to the registrant’s report on Form 10-K for the year ended December 31, 2000 (the “2000 Form 10-K”).
	10(g)	Canpotex Producer Agreement amending agreement dated as of July 1, 2002, incorporated by reference to Exhibit 10(g) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 2004 (the “Second Quarter 2004 Form 10-Q”).
	10(h)	Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, between International Minerals & Chemical Corporation (Canada) Limited and the registrant’s predecessor, incorporated by reference to Exhibit 10(e) to the F-1 Registration Statement.
	10(i)	Agreement dated December 21, 1990, between International Minerals & Chemical Corporation (Canada) Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978, incorporated by reference to Exhibit 10(p) to the registrant’s report on Form 10-K for the year ended December 31, 1990.
	10(j)	Agreement effective August 27, 1998, between International Minerals & Chemical (Canada) Global Limited and the registrant, amending the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended), incorporated by reference to Exhibit 10(l) to the 1998 Form 10-K.
	10(k)	Agreement effective August 31, 1998, among International Minerals & Chemical (Canada) Global Limited, International Minerals & Chemical (Canada) Limited Partnership and the registrant assigning the interest in the Esterhazy Restated Mining and Processing Agreement dated January 31, 1978 (as amended) held by International Minerals & Chemical (Canada) Global Limited to International Minerals & Chemical (Canada) Limited Partnership, incorporated by reference to Exhibit 10(m) to the 1998 Form 10-K.
	10(l)	Potash Corporation of Saskatchewan Inc. Stock Option Plan – Directors, as amended January 23, 2001, incorporated by reference to Exhibit 10(bb) to the Second Quarter 2001 Form 10-Q.
	10(m)	Potash Corporation of Saskatchewan Inc. Stock Option Plan – Officers and Employees, as amended January 23, 2001, incorporated by reference to Exhibit 10(aa) to the 2000 Form 10-K.
	10(n)	Short-Term Incentive Plan of the registrant effective January 2000, as amended March 10, 2005, incorporated by reference to Exhibit 10(x) to the Form 10-K for the year ended December 31, 2004.
	10(o)	Long-Term Incentive Plan of the registrant effective January 2003, incorporated by reference to Exhibit 10(y) to the 2002 Form 10-K.
	10(p)	Resolution and Forms of Agreement for Supplemental Retirement Income Plan, for officers and key employees of the registrant, incorporated by reference to Exhibit 10(o) to the 1995 Form 10-K.
	10(q)	Amending Resolution and revised forms of agreement regarding Supplemental Retirement Income Plan of the registrant, incorporated by reference to Exhibit 10(x) to the registrant’s report on Form 10-Q for the quarterly period ended June 30, 1996.
	10(r)	Amended and restated Supplemental Retirement Income Plan of the registrant and text of amendment to existing supplemental income plan agreements, incorporated by reference to Exhibit 10(mm) to the registrant’s report on Form 10-Q for the quarterly period ended September 30, 2000 (the “Third Quarter 2000 Form 10-Q”).
	10(s)	Form of Letter of amendment to existing supplemental income plan agreements of the registrant dated November 4, 2002, incorporated by reference to Exhibit 10(cc) to the 2002 Form 10-K.
	10(t)	Supplemental Retirement Benefits Plan for U.S. Executives dated effective January 1, 1999, incorporated by reference to Exhibit 10(aa) to the Second Quarter 2002 Form 10-Q.
	10(u)	Forms of Agreement dated December 30, 1994, between the registrant and certain officers of the registrant, concerning a change in control of the registrant, incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
	10(v)	Form of Agreement of Indemnification dated August 8, 1995, between the registrant and certain officers and directors of the registrant, incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K.
	10(w)	Resolution and Form of Agreement of Indemnification dated January 24, 2001, incorporated by reference to Exhibit 10(ii) to the 2000 Form 10-K.
	10(x)	Resolution and Form of Agreement of Indemnification – July 21, 2004, incorporated by reference to Exhibit 10(ii) to the Second Quarter 2004 Form 10-Q.

Exhibit
Number		Description of Document
	10(y)	Chief Executive Officer Medical and Dental Benefits, incorporated by reference to Exhibit 10(jj) to the Form 10-K for the year ended December 31, 2004.
	10(z)	Second Amended and Restated Membership Agreement dated January 1, 1995, among Phosphate Chemicals Export Association, Inc. and members of such association, including Texasgulf Inc., incorporated by reference to Exhibit 10(t) to the 1995 Form 10-K.
	10(aa)	International Agency Agreement dated January 1, 1995, between Phosphate Chemicals Export Association, Inc. and Texasgulf Inc. establishing Texasgulf Inc. as exclusive marketing agent for such association’s wet phosphatic materials, incorporated by reference to Exhibit 10(u) to the 1995 Form 10-K.
	10(bb)	Deferred Share Unit Plan for Non-Employee Directors, incorporated by reference to Exhibit 4.1 to the registrant’s Form S-8 (File No. 333-75742) filed December 21, 2001.
	10(cc)	Potash Corporation of Saskatchewan Inc. 2005 Performance Option Plan and Form of Option Agreement, incorporated by reference to Exhibit 10(nn) to registrant’s report on Form 10-Q for the quarterly period ended March 31, 2005 (the “First Quarter 2005 Form 10-Q”).
	10(dd)	Medium Term Incentive Plan of the registrant effective January 2006.
	11	Statement re Computation of Per Share Earnings.
	12	Computation of Ratio of Earnings to Fixed Charges.
	13	2005 Annual Report (Business Review and Financial Review). The 2005 Annual Report, except for those portions that are expressly incorporated by reference, is furnished for the information of the Commission and is not to be deemed “filed” as part of this filing.
	21	Subsidiaries of the registrant.
	23	Consent of Deloitte & Touche LLP.
	31(a)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31(b)	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99	2006 Notice of Meeting, Proxy Circular and Form of Proxy. The 2006 Notice of Meeting, Proxy Circular and Form of Proxy, except for those portions thereof that are expressly incorporated by reference, are furnished for the information of the Commission and are not to be deemed “filed” as part of this filing.

EX-10.DD

Exhibit 10(dd)

Medium-Term
Incentive Plan

Potash Corporation of
Saskatchewan Inc.

Effective for the
Performance Cycle
January 1, 2006 to
December 31, 2008

Contents

Section 1—Establishment of the Plan		1
1.01	Purpose	1
1.02	Term	1
Section 2—Definitions		2
2.01	Award Units	2
2.02	Board	2
2.03	Committee	2
2.04	Corporate TSR	2
2.05	Corporate TSR Award Units	2
2.06	Corporation	3
2.07	Effective Date	3
2.08	Entitled Executive	3
2.09	Index	3
2.10	Index Closing Price	3
2.11	Index Dividends	3
2.12	Index Opening Price	3
2.13	Index TSR	4
2.14	Index TSR Award Units	4
2.15	Just Cause	4
2.16	PCS Inc. Opening Share Price	4
2.17	PCS Inc. Closing Share Price	4
2.18	PCS Inc. Dividends	5
2.19	Performance Cycle	5
2.20	Permanent Disability or Permanently Disabled	5
2.21	Plan	5
2.22	Salary	5
2.23	Target Percentage	5
2.24	Tier Group	5
2.25	Vested Percentage	5
Section 3—Participation		6
3.01	Initial Participation	6
3.02	Continued Participation	6
Section 4—Allocation of Award Units		7
4.01	Allocation	7
4.02	Promotion to New Tier Group or Other Promotion	7
4.03	Corporate TSR Award Units and Index TSR Award Units	7
4.04	Target Percentage	8
Section 5—Vesting of Award Units		9
5.01	Vested Percentages	9
Section 6—Redemption of Award Units		10

i

6.01	Redemption Date	10
6.02	Value of Award Units	10
6.03	Early Redemption Date	11
Section 7—Administration of the Plan		12
7.01	Powers of the Committee	12
7.02	Notification to Entitled Executives	12
7.03	Calculation of Award Payments	12
7.04	Delegation of Duties	12
Section 8—General Provisions		13
8.01	Assignment or Alienation	13
8.02	Amendment or Termination	13
8.03	No Enlargement of Contractual Rights	13
8.04	Withholding of Taxes	13
8.05	Binding on Successors	13
8.06	Currency	13
8.07	Certain Adjustments	14
8.08	Governing Law	14

ii

Section 1—Establishment of the Plan

1.01 Purpose

This Medium-Term Incentive Plan is established for the purpose of:

(a) providing competitive compensation for Entitled Executives;

(b) rewarding Entitled Executives for improving Total Shareholder Return;

(c) rewarding Entitled Executives for attaining a Total Shareholder Return that is equal to or in excess of the increase in the Dow Jones U.S. Basic Materials Companies Index;

(d) rewarding Entitled Executives for their efforts and contributions to the achievement of the long-term success of the business interests of the Corporation;

(e) aligning the interests of Entitled Executives more closely with the shareholders of the Corporation; and,

(f) enhancing the ability of the Corporation to recruit and retain high potential, high value executives.

1.02 Term

Subject to Section 8.02 (Amendment or Termination), this Plan shall be effective for the Performance Cycle January 1, 2006 to December 31, 2008.

1

Section 2—Definitions

2.01 Award Units

“Award Units” means, in respect of an Entitled Executive, the units allocated pursuant to Section 4 (Allocation of Award Units).

2.02 Board

“Board” means the Board of Directors of PCS Inc.

2.03 Committee

“Committee” means the Compensation Committee of the Board.

2.04 Corporate TSR

“Corporate TSR” means the total shareholder return of PCS Inc. in the Performance Cycle, expressed as a percentage, and determined as follows:

(i) PCS Inc. Closing Share Price

MINUS

PCS Inc. Opening Share Price

PLUS

PCS Inc. Dividends

DIVIDED BY

(ii) PCS Inc. Opening Share Price

MULTIPLIED BY

(iii) 100

2.05 Corporate TSR Award Units

“Corporate TSR Award Units” means, in respect of an Entitled Executive, one half of the Award Units allocated to the Entitled Executive pursuant to Section 4 (Allocation of Award Units).

2

2.06 Corporation

“Corporation” means Potash Corporation of Saskatchewan Inc. and its direct and indirect subsidiaries.

2.07 Effective Date

“Effective Date” means January 1, 2006.

2.08 Entitled Executive

“Entitled Executive” means an executive employee of the Corporation who is recommended by the CEO and approved by the Committee to participate in this Plan.

2.09 Index

“Index” means the Dow Jones U.S. Basic Materials Companies Index (DJUSBM).

2.10 Index Closing Price

“Index Closing Price” means the average closing value of the Index, as reported by the Dow Jones Company, for the last 30 trading days of the Performance Cycle or, in the case of an Entitled Executive for whom an early redemption date applies pursuant to paragraph (a) of Section 6.03 (Early Redemption Date), the above reference to “the last 30 trading days of the Performance Cycle” shall be substituted by “the last 30 trading days up to the date of the Entitled Executive’s retirement, disability, death or involuntary termination, as the case may be”.

2.11 Index Dividends

“Index Dividends” means a cumulative amount derived from the return on dividends paid and reinvested by the companies in the Index, during the Performance Cycle or, in the case of an Entitled Executive for whom an early redemption date applies pursuant to paragraph (a) of Section 6.03 (Early Redemption Date), a cumulative amount derived from the return on dividends paid and reinvested by the companies in the Index, during the Performance Cycle up to the date of the Entitled Executive’s retirement, disability, death or involuntary termination, as the case may be.

2.12 Index Opening Price

“Index Opening Price” means the average closing value of the Index, as reported by the Dow Jones Company, for the last thirty trading days of 2005. Such value has been determined as U.S. $204.230.

3

2.13 Index TSR

“Index TSR” means the total shareholder return of the Index in the Performance Cycle, expressed as a percentage, and determined as follows:

(i) Index Closing Price

MINUS

Index Opening Price

PLUS

Index Dividends

DIVIDED BY

(ii) Index Opening Price

MULTIPLIED BY

(iii) 100

2.14 Index TSR Award Units

“Index TSR Award Units” means, in respect of an Entitled Executive, one half of the Award Units allocated to the Entitled Executive pursuant to Section 4 (Allocation of Award Units).

2.15 Just Cause

“Just Cause” has such meaning as determined by the Committee from time to time, consistent with the regular policies of the Corporation.

2.16 PCS Inc. Opening Share Price

“PCS Inc. Opening Share Price” means the average closing price of the common stock of PCS Inc. as reported on the New York Stock Exchange, for the last thirty trading days of 2005. Such price has been determined as U.S. $77.970.

2.17 PCS Inc. Closing Share Price

“PCS Inc. Closing Share Price” means the average closing price of the common stock of PCS Inc. as reported on the New York Stock Exchange, for the last 30 trading days of the Performance Cycle or, in the case of an Entitled Executive for whom an early redemption date applies pursuant to paragraph (a) of Section 6.03 (Early Redemption Date), the above reference to “the last 30 trading days of the Performance Cycle” shall be substituted by “the last 30 trading days up to the date of the Entitled Executive’s retirement, disability, death or involuntary termination, as the case may be”.

4

2.18 PCS Inc. Dividends

“PCS Inc. Dividends” means the cumulative amount of dividends paid by PCS Inc. on a common share of PCS Inc. during the Performance Cycle or, in the case of an Entitled Executive for whom an early redemption date applies pursuant to paragraph (a) of Section 6.03 (Early Redemption Date), the cumulative amount of dividends paid by PCS Inc. on a common share of PCS Inc. during the Performance Cycle up to the date of the Entitled Executive’s retirement, disability, death or involuntary termination, as the case may be.”

2.19 Performance Cycle

“Performance Cycle” means January 1, 2006 to December 31, 2008 inclusive.

2.20 Permanent Disability or Permanently Disabled

“Permanent Disability” or “Permanently Disabled” means the permanent incapacity of an Entitled Executive, as determined in accordance with the disability plan to which the Entitled Executive is eligible to belong.

2.21 Plan

“Plan” means this Medium-Term Incentive Plan, as amended from time to time.

2.22 Salary

“Salary” means, in respect of an Entitled Executive, the Entitled Executive’s annual base salary in effect as of the date the Entitled Executive commenced participation in the Plan. However, if the Entitled Executive is promoted into a new Tier Group during the Performance Cycle or if the annual base salary of the Entitled Executive is significantly adjusted during the Performance Cycle as a result of a promotion, “Salary” for purposes of paragraph (b) of Section 4.02 (Promotion to a New Tier Group or Other Promotion) shall be the annual base salary in effect as of the date the Entitled Executive was promoted into a new Tier Group or otherwise promoted.

2.23 Target Percentage

“Target Percentage” means the target percentage applicable to an Entitled Executive according to the Tier Group in which the Entitled Executive participates, as described in Section 4.04 (Target Percentage).

2.24 Tier Group

“Tier Group” means, in respect of an Entitled Executive, the Tier Group in which the Entitled Executive participates, for purposes of this Plan, as described in section 4.04 (Target Percentage).

2.25 Vested Percentage

“Vested Percentage” means the vested percentage of an Entitled Executive’s Corporate TSR Units and Index TSR Units, as the case may be, as described in Section 5(Vesting of Award Units).

5

Section 3—Participation

3.01 Initial Participation

Participation in the Plan is limited to Entitled Executives.

Each Entitled Executive shall participate in the Plan as of the first day of the Performance Cycle, or on the date on which the Entitled Executive becomes an Entitled Executive, if later.

3.02 Continued Participation

Each Entitled Executive shall continue participation in the Plan throughout the Performance Cycle, or until the Entitled Executive’s employment terminates for any reason, the Entitled Executive becomes Permanently Disabled, or upon the Entitled Executive no longer being designated as an Entitled Executive as recommended by the CEO and approved by the Committee, whichever first occurs.

6

Section 4—Allocation of Award Units

4.01 Allocation

Each person who is an Entitled Executive as of the Effective Date or who becomes an Entitled Executive during the Performance Cycle but after the Effective Date shall be allocated Award Units. The number of Award Units shall be equal to:

(a) the Entitled Executive’s Salary as of the Effective Date or the date the Entitled Executive commences participation in the Plan, whichever is later

MULTIPLIED BY

(b) the number of years and completed months (expressed as fractions of a year, to two decimal places) from the Effective Date or the date the Entitled Executive commences participation in the Plan, whichever is later, to the end of the Performance Cycle

MULTIPLIED BY

(c) the Target Percentage applicable to the Entitled Executive, as described in Section 4.04 below

DIVIDED BY

(d) the PCS Inc. Opening Share Price

4.02 Promotion to New Tier Group or Other Promotion

In the event an Entitled Executive is promoted to a new Tier Group during the Performance Cycle or if the Salary of the Entitled Executive is significantly adjusted during the Performance Cycle as a result of a promotion, additional Award Units shall be allocated to the Entitled Executive reflecting the incremental effect of the Entitled Executive’s participation in the new Tier Group or new Salary, as the case may be, from the date such changes occurred to the end of the Performance Cycle.

4.03 Corporate TSR Award Units and Index TSR Award Units

One half the Award Units allocated pursuant to Sections 4.01 and 4.02 above shall be Corporate TSR Award Units and one half shall be Index TSR Award Units.

7

4.04 Target Percentage

The Target Percentage applicable to an Entitled Executive for purposes of this Plan shall be determined by the Tier Group in which the Entitled Executive participates, as follows:

Tier Group	Positions	Target Percentage
1	Corporation President and Chief Executive Officer	70%
2	Executive Vice President and Chief Operating Officer; Executive Vice President and Chief Financial Officer	45%
3	Selected Corporate Senior Vice Presidents (Administration; Corporate Relations); and Subsidiary Presidents (Potash; Phosphate; Sales)	40%
4	Selected Senior Vice Presidents (IT; General Counsel, Fertilizer); Corporate Vice Presidents; Selected Subsidiary Vice Presidents	30%
5	Selected Subsidiary Vice Presidents Selected Corporate Executive Employees Selected Operations General Managers	25%
6	Selected Operations General Managers Selected Subsidiary Vice Presidents Selected Senior Directors	20%

8

Section 5—Vesting of Award Units

5.01 Vested Percentages

The following Vested Percentages shall be used to determine the redemption of an Entitled Executive’s Corporate TSR Award Units and Index TSR Award Units pursuant to paragraphs (a) and (b) respectively of Section 6.02 (Value of Award Units).

(a) Corporate TSR Vested Percentage

	Corporate TSR
Corporate TSR	Vested Percentage
0% or less	0%
10%	50%
20%	75%
30%	100%
40%	125%
50% or more	150%

(b) Index TSR Vested Percentage

Corporate TSR	Index TSR
minus Index TSR	Vested Percentage
Less than 0%	0%
0%	50%
5%	100%
10% or more	150%

All Corporate TSR and Corporate TSR minus Index TSR performances between the percentages in the above tables will be interpolated in the manner adopted by the Corporation from time to time.

9

Section 6—Redemption of Award Units

6.01 Redemption Date

Subject to the provisions of Section 6.03 below, the Award Units of each Entitled Executive shall be redeemed and paid out by the Corporation in a lump sum cash payment. This payment shall occur as soon as practicable following the end of the Performance Cycle, or following the date of the Entitled Executive’s retirement, permanent disability, death or involuntary termination, if applicable, but in no event later than 2 ¹/2 months after the end of the year in which such Award Units first become payable.

6.02 Value of Award Units

The value of an Entitled Executive’s Award Units shall be equal to the sum of the values of the Entitled Executive’s Corporate TSR Award Units and Index TSR Award Units, as follows:

(a) Corporate TSR Award Units

The value of an Entitled Executive’s Corporate TSR Award Units shall be equal to:

(i) the number of Corporate TSR Award Units granted to the Entitled Executive, subject to the reduction or forfeiture of units described in Section 6.03, if applicable

MULTIPLIED BY

(ii) the Corporate TSR Vested Percentage

MULTIPLIED BY

(iii) PCS Inc. Closing Share Price, subject, however, to a maximum value of three times the PCS Inc. Opening Share Price

(b) Index TSR Award Units

The values of an Entitled Executive’s Index TSR Award Units shall be equal to:

(i) the number of Index TSR Award Units granted to the Entitled Executive, subject to the reduction or forfeiture of units described in Section 6.03, if applicable

MULTIPLIED BY

(ii) the Index TSR Vested Percentage

MULTIPLIED BY

(iii) the PCS Inc. Closing Share Price, subject, however, to a maximum value of three times the PCS Inc. Opening Share Price

10

6.03 Early Redemption Date

(a) Retirement, Permanent Disability, Death or Involuntary Termination Without Just Cause

In the event an Entitled Executive Retires, becomes Permanently Disabled or dies prior to the end of the Performance Cycle or in the event the Entitled Executive’s employment is involuntarily terminated by the Corporation without Just Cause, the number of Award Units allocated to the Entitled Executive pursuant to Section 4 (Allocation of Award Units) shall be reduced such that the calculation of years and completed months of participation as described in paragraph (b) of Section 4.01 (Allocation) shall end as of the date of the Entitled Executive’s retirement, Permanent Disability, death or involuntary termination, as the case may be.

One half the Award Units reduced shall be Corporate TSR Award Units and one half shall be Index TSR Award Units.

An Entitled Executive shall be required to provide at least 30 days prior written notice of retirement to the Corporation. In the event an Entitled Executive provides less than 30 days prior written notice of retirement, the value of award units calculation per Section 6.02 shall be performed as of the Entitled Executive’s retirement date and the date that is 30 days following the date the Entitled Executive provided written notice of retirement to the Corporation, and the Corporation shall provide the lower valued award to the Entitled Executive as determined by such two calculations.

(b) Voluntary Termination or Involuntary Termination With Just Cause

In the event an Entitled Executive Retires voluntarily terminates employment prior to the end of the Performance Cycle or in the event the Entitled Executive’s employment is involuntarily terminated by the Corporation with Just Cause, the allocation of Award Units to the Entitled Executive pursuant to Section 4 (Allocation of Award Units) shall be forfeited as of the date of such termination of employment and the Entitled Executive shall not be entitled to any payment under this Plan.

11

Section 7—Administration of the Plan

7.01 Powers of the Committee

The Committee shall have the discretionary power and authority to determine who shall be Entitled Executives, approve Target Percentages and generally administer the Plan. The Committee shall conclusively interpret the provisions of this Plan and decide all questions of fact arising in the application thereof. To the extent applicable, the Plan shall be interpreted so as to avoid the imposition of penalties pursuant to Section 409A of the U.S. Internal Revenue Code.

7.02 Notification to Entitled Executives

The Corporation will prepare a written notice to each Entitled Executive specifying his or her Target Percentage, the number of Award Units allocated and the terms of the Plan.

7.03 Calculation of Award Payments

Management of the Corporation shall provide a report to the Committee within 30 days of the end of the Performance Cycle showing the calculations for determining award payments including the calculation of the Corporate TSR and Index TSR. Such calculations shall be subject to the review and confirmation of the Committee.

7.04 Delegation of Duties

The Committee and/or the Board may delegate to any director or directors or any officer or officers of the Corporation such administrative duties and powers as it may see fit with respect to the Plan.

12

Section 8—General Provisions

8.01 Assignment or Alienation

Except as required by applicable laws, the right of an Entitled Executive to Award Units under this plan shall not be given as security, be subject to transfer, anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation, or be subject to execution, attachment, levy or similar process or assignment by operation of law, and any attempt to effect any such action will be null and void and of no effect.

8.02 Amendment or Termination

This Plan may be amended in whole or in part from time to time or terminated by the Corporation. Any amendment or termination will be binding on the Corporation, Entitled Executives and their respective beneficiaries. Notice of termination or amendment will be provided to Entitled Executives and in the case of deceased Entitled Executives, their respective beneficiaries. However, no amendment or termination of any provision of this Plan shall directly or indirectly deprive any Entitled Executive or beneficiary of all or any portion of Award Units allocated to the date of the amendment or termination.

8.03 No Enlargement of Contractual Rights

This Plan shall not give any Entitled Executive the right to be retained in the service of the Corporation nor will it interfere with the right of the Corporation to terminate the employment of the Entitled Executive. Participation in this Plan will not give any Entitled Executive any right or claim to any benefit, except to the extent provided in this Plan.

8.04 Withholding of Taxes

The Corporation will withhold all applicable taxes from any amounts paid pursuant to this Plan.

8.05 Binding on Successors

This Plan will be binding on any successor or successors of the Corporation whether by merger, consolidation or otherwise.

8.06 Currency

The Award Units redeemed pursuant to this Plan will be paid in the same currency as the Entitled Executive receives his or her Salary. If the Salary of an Entitled Executive is paid in more than one currency during a Performance Cycle, the currency of his or her Award Payment for that Performance Cycle shall be determined by the Senior Vice-President, Administration.

13

8.07 Certain Adjustments

In the event that, at any time during the Performance Cycle, there is any variation in the common shares of PCS Inc. or of any corporation within the Index by reason of (i) a stock split, reverse of stock split, stock dividend or other increase or decrease in the number of outstanding common shares, (ii) a merger, consolidation, recapitalization, amalgamation, plan of arrangement or similar statutory or corporate transaction or (iii) other event that the Committee determines, such as a sale of all or substantially all of any such corporation’s assets, the Committee shall make such adjustments to the Index Opening Price, PCS Inc. Opening Share Price, Index Closing Price or PCS Inc. Closing Share Price or to the calculation of the Corporate TSR or Index TSR with respect to such corporation and, in the case of any such event affecting the common shares of PCS Inc. the number of then outstanding Award Units as it deems necessary or appropriate to reflect such event.

8.08 Governing Law

This Plan shall be governed by the laws of the Province of Saskatchewan. Section headings are for convenience only and shall not be considered provisions of the Plan. Words in the singular shall included the plural, and vice versa, unless qualified by the context.

Dated effective           January 1, 2006          

/s/ John W. Estey

John W. Estey
Compensation Committee Chair

/s/ Barbara Jane Irwin

Barbara Jane Irwin
Senior Vice President Administration

14

EX-11

Exhibit 11

Potash Corporation of Saskatchewan Inc.
Computation of Per Share Earnings
for the Years Ended December 31

	2005			2004
A Net income as reported, Canadian GAAP ($ millions)		542.9			298.6
B Items adjusting net income ($ millions)		(10.2	)		(8.1	)
C Net income, US GAAP ($ millions)		532.7			290.5
D Weighted average number of shares outstanding		108,568,000			107,967,000
E Net additional shares issuable for diluted earnings per share calculation		2,510,000			2,772,000
CANADIAN GAAP
Basic earnings per share (A/D)		5.00			2.77
Diluted earnings per share (A/(D+E))		4.89			2.70
UNITED STATES GAAP
Basic earnings per share (C/D)		4.91			2.69
Diluted earnings per share (C/(D+E))		4.80			2.62

EX-12

Exhibit 12

Potash Corporation of Saskatchewan Inc.
Ratio of Earnings to Fixed Charges
(in millions of US dollars, except ratio amounts)
(unaudited)

	Year ended December 31
	2005			2004			2003			2002			2001
Canadian GAAP
Net income (loss)	$	542.9		$	298.6		$	(126.3	)	$	53.6		$	121.2
Income taxes		267.4			131.7			(20.6	)		30.2			68.2
Share of earnings of equity investees		(52.1	)		(30.9	)		(12.4	)		(5.3	)		—
Fixed charges		149.1			132.4			117.8			102.7			104.9
Distributed income of equity investees		18.6			8.7			4.0			—			—
Interest capitalized		(5.7	)		(2.5	)		(1.5	)		(4.2	)		(0.5	)
Total Earnings Available for Fixed Charges	$	920.2		$	538.0		$	(39.0	)	$	177.0		$	293.8
Fixed Charges
Interest expensed and capitalized	$	127.2		$	112.8		$	105.7		$	92.0		$	83.9
Amortization of debt issue costs		2.2			2.2			2.1			1.9			1.4
Estimated portion of rent expense representing interest		19.7			17.4			10.0			8.8			19.6
Total Fixed Charges	$	149.1		$	132.4		$	117.8		$	102.7		$	104.9
Ratio of Earnings to Fixed Charges		6.17			4.06			—	(1)		1.72			2.80

(1) Earnings were inadequate to cover fixed charges by $156.8 million for the year ended December 31, 2003.

EX-13

Exhibit 13

PotashCorp is the world’s foremost supplier of potash, the crop nutrient that delivers the highest-quality earnings in the fertilizer universe. Our large, low-cost operations in Canada represented 22 percent of world potash capacity in 2005, giving us an unmatched ability to serve a stable North American customer base and growing offshore markets.

PotashCorp also has approximately 75 percent of the world’s excess potash capacity. This, combined with strategic investments in Jordan, Israel, Chile and China, provides a competitive advantage that makes us the unparalleled leader in our industry.

Our Vision

Our vision is to be the partner of choice, providing superior value to all our stakeholders. We strive to be the highest-quality low-cost producer and sustainable gross margin leader in the products we sell and the markets we serve.

We link our financial performance with areas of extended responsibility that include safety, the environment and all those who have a social or economic interest in our business.

Our Strategy

Using a Potash First strategy, we focus our capital — internally and through investments — to prepare for continuing growth in global demand for potash. By investing in capacity while matching supply to demand, we create the potential for significant growth while limiting downside risk.

In addition, we leverage our strengths in nitrogen and phosphate, focusing on products and locations with the greatest gross margin potential and least volatility.

enriching food

Potash, nitrogen and phosphate are essential for healthy crops. As growing populations place greater demands on the world’s farmland, fertilizer products are needed to replenish nutrients taken from the soil with each harvest.

enriching lives

With greater wealth, people in countries like China and India want to improve their lives with better diets that include more protein from animal sources. To provide that, farmers must grow higher-yielding, nutrient-rich crops to fuel animal production.

enriching our stakeholders

Since 1989, PotashCorp has delivered total shareholder return of 1,055 percent, more than triple the sector average of 346 percent. We also improve our communities through the creation of jobs, local purchasing and a partnership approach to donations and sponsorships

CONTENTS 2 The Potash Advantage 4 Letter to Shareholders 9 Goals and Targets 15 Sustainability 23 Shareholder Information

For Management’s Discussion & Analysis and complete financial statements, please see the accompanying 2005 Financial Review.

PotashCorp’s 2005 Performance

PotashCorp enjoyed double-digit price increases in all three nutrients, leading to record earnings and gross margin. With potash competitors at or near their production limits, we were able to demonstrate the leverage of our excess capacity. This was supported by strong performance in nitrogen, as our Trinidad asset made a larger contribution, and improvements in phosphate, where our ability to produce higher-margin industrial products provides a competitive edge.

2005 Business Highlights

• Delivered record earnings for the second straight year, with $542.9 million beating our previous mark by 82 percent

• Achieved record gross margin of $1.125 billion

• Reached record potash gross margin of $707.4 million

• Delivered record nitrogen gross margin of $318.7 million, including $217.1 million from Trinidad

• Generated $98.9 million in phosphate gross margin, more than six times the 2004 total

• Repurchased 9.5 million PotashCorp shares, nearly 9 percent of the company

2005 Operating Highlights

• Increased potash production to a record 8.82 million tonnes

• Initiated projects to bring back 1.9 million tonnes of idle potash capacity over the next two years

• Recognized as Canada’s best corporate reporter, earning the Overall Award of Excellence in Corporate Reporting for the second consecutive year

Second Consecutive Record for Potash Gross Margin

We set a potash production record in 2005 while capturing higher prices than ever before. This led to a second straight year of record potash gross margin, which exceeded the previous record margin for the entire company.

Graph source: PotashCorp

2005 Financial Highlights | All financial data in this report are stated in US dollars.
$ millions except per-share amounts

	2005		CHANGE			2004		CHANGE			2003			5-YEAR			10-YEAR
			YOY					YOY						CAGR**			CAGR**
Financial Results
Sales	$	3,847.2		19	%	$	3,244.4		16	%	$	2,799.0			10	%		9	%
Net sales *	$	3,475.6		20	%	$	2,901.4		18	%	$	2,465.8			11	%		9	%
Gross margin	$	1,125.0		65	%	$	681.4		79	%	$	380.4			23	%		11	%
Net income (loss)	$	542.9		82	%	$	298.6		n/m		$	(126.3	)		35	%		10	%
Net income (loss) per diluted share	$	4.89		81	%	$	2.70		n/m		$	(1.21	)		33	%		8	%
EBITDA *	$	1,135.0		50	%	$	754.3		339	%	$	171.8			20	%		11	%
Additions to property, plant and equipment	$	382.7		74	%	$	220.5		46	%	$	150.7
Dividends paid	$	65.4		17	%	$	56.1		7	%	$	52.3
Financial Position
Total assets	$	5,357.9		5	%	$	5,126.8		12	%	$	4,567.3
Net debt *	$	1,417.1		57	%	$	903.5		(37	%)	$	1,441.4
Cash flow prior to working capital changes *	$	860.3		60	%	$	538.3		46	%	$	368.5
Cash provided by operating activities	$	865.1		31	%	$	658.3		71	%	$	385.5

n/m — not meaningful
*	See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators in our Financial Review, Pages 50 to 52.
**	Compound annual growth rate expressed as a percentage.

2      POTASHCORP 2005 ANNUAL REPORT | OVERVIEW

The Potash Advantage

Potash is known as the quality nutrient because it enhances the taste, size, shelf life and yield of crops. But it’s also the quality nutrient for investors, offering significant advantages in today’s market:

POTASHCORP 2005 ANNUAL REPORT | OVERVIEW      3

The PotashCorp Advantage

At PotashCorp, our unrivaled potash assets are only part of what sets us apart from other companies. A number of factors make us the leader in our industry:

87 Percent of 2005 Gross Margin Delivers High-Quality Earnings

The objective of our long-term strategy is to reward investors with earnings growth and reduced volatility. High-quality earnings result from our strategic focus on areas with high margin potential and limited downside risk. Thus, in 2005, 63 percent of our gross margin came from potash, 19 percent from Trinidad nitrogen and 5 percent from industrial phosphate (primarily purified acid).

Graph source: PotashCorp

1	Unmatched position in potash
	PotashCorp is uniquely positioned to meet rising global potash demand by bringing on additional production in a timely and cost-effective manner.
2	Global resources
	Our large, low-cost potash facilities in Canada are complemented by strategic investments in Jordan, Israel, Chile and China.
3	Targeted strengths in nitrogen and phosphate
	Long-term, lower-cost natural gas contracts in Trinidad provide an edge in serving the US nitrogen market. In phosphate, our superior-quality rock gives us greater ability to produce higher-margin industrial acids, especially purified acid.
4	Executing long-term vision and strategies
	PotashCorp has followed a steady course for two decades, using proven business strategies that capitalize on our unique strengths.
5	Strong cash flow
	Strong cash flow has been used to strengthen our business. In 2005, we reinvested $1.5 billion, including $852 million to repurchase 9.5 million shares (about 9 percent of our company).
6	Stability
	PotashCorp captured 87 percent of gross margin from areas of our business that are less dependent on volatile agricultural cycles.
7	Commitment to Core Values
	We are committed to safety, integrity, listening, sharing, accountability and continuous improvement.

1,2 1 PotashCorp’s mineral rights at Esterhazy are mined by Mosaic Potash Esterhazy Limited Partnership under a long-term agreement.

4      POTASHCORP 2005 ANNUAL REPORT | LETTER TO SHAREHOLDERS

William J. Doyle
President and Chief Executive Officer

Enriching Our Communities

As chair of the University of Saskatchewan’s “Thinking the World of Our Future” capital campaign, Bill Doyle is shown here in front of the College Building.

Even as your company emerges from another year of record performance, our real excitement comes from what can be accomplished as we move forward. Our life-giving products continue to grow in importance as a larger percentage of the world’s population has greater wealth and wants more nutritious food. This has increased demand for potash — tightening supply, driving up prices and leading to consecutive years of significant gross margin growth. We view our 2005 potash gross margin, which was more than triple the level of two years ago, as the new norm. We believe this so strongly that we continued to reinvest in our Potash First strategy in 2005, repurchasing 9 percent of our company, initiating a three-year, $400-million capital spending program for potash production and extending our investments in other companies around the world that enhance our position in this key nutrient.

Our strategies — and successes — are no surprise to those who follow PotashCorp. We stand where we are today after two decades of consistent and patient commitment to a long-term vision, supported by our people and our stakeholders. Over that period, we often described our business as a marathon rather than a sprint and operated with an understanding that our course includes some tough hills and smooth stretches where we can run flat out. This was still evident in 2005 — a year that included record earnings and gross margin — as the tremendous potash volumes of the first six months were followed by a reduced pace to close the year. That is how we entered 2006, knowing that the fundamentals that drive our growth continue to move more decisively in our favor.

Our offshore customers are enjoying tremendous economic growth, led by China and India. With more money in hand, the first priority for many people in those countries is to improve their quality of life by purchasing better food. That is increasing the demand for potash, the fertilizer ingredient with the greatest impact on food quality.

Over the past few years, all potash producers have benefited from these conditions. This has taken our competitors to or near their production limits, while PotashCorp’s growth was only a prelude to the real power of our excess capacity. The world needs more potash and we are the only source of significant new supply. That enabled us to operate at the highest level in our history, setting a production record while capturing higher prices than ever before.

This raised our potash gross margin to a record level for the second consecutive year, a key driver of our best-ever results. Our success in potash was supported by strong performance in nitrogen, where our Trinidad asset provides a significant advantage, and a bounce-back in phosphate as improvements in feed and fertilizer added to the steady strength of our industrial products, especially purified acid.

POTASHCORP 2005 ANNUAL REPORT | LETTER TO SHAREHOLDERS      5

People unfamiliar with our history see this as “overnight success.” The reality is that PotashCorp has been and will continue to be a long-term story. Today, we have 75 percent of the world’s unused potash capacity and are well positioned to reach our full capacity of 12.9 million tonnes annually. As we increase production by bringing back idle capacity, we reduce our cost per tonne. With reduced costs and higher prices on a growing number of tonnes, we have triple leverage to increase our earnings. As well, our long-term investments in other global potash companies — Arab Potash Company in Jordan, Israel Chemicals Ltd. in Israel and the potassium nitrate producer SQM in Chile — have an immediate impact on our short-term performance.

Another important part of our Potash First strategy is our recent investment in Sinofert, which gives us a 20-percent interest in the fertilizer business of Sinochem. This will take us inside the world’s largest fertilizer-consuming country with state-of-the-art distribution access and better market information.

All of these investments will increase in value and provide us with tremendous growth opportunities.

Enriched performance

The rising value of our products was reflected in double-digit price increases in all three nutrients in 2005. The most significant gains were in potash, which rose 38 percent, or $40 per tonne.

With total sales volumes of 8.2 million tonnes, potash gross margin increased to $707.4 million, surpassing the record $681.4 million in combined margin for all three nutrients in 2004.

The rise in potash gross margin is the best indicator of PotashCorp’s value proposition. In 2005, we increased potash gross margin as a percentage of net sales to 60 percent from 47 percent the previous year. With every dollar of potash sold delivering $0.60 of gross margin, the untapped value of our excess capacity is substantial. Based on our current market outlook, the potential price and volume increases could have a dramatic impact on the growth in potash gross margin.

Nitrogen gross margin climbed to $318.7 million, driven by our Trinidad asset which produced 65 percent of our ammonia and contributed $217.1 million in gross margin.

Trinidad’s location makes it well-suited to deliver to the US market and its gross margin as a percentage of net sales climbed to 38 percent from 32 percent. With natural gas costs at sustained record-high levels, North American producers curtailed nitrogen production. As supply tightened and demand grew, we sold our products at prices 16 percent higher than in 2004. Our nitrogen segment also provided $48.6 million from our 2005 natural gas hedging activities.

In phosphate, we achieved gross margin of $98.9 million despite higher prices for key inputs, including sulfur and ammonia. Our average prices rose by 11 percent with the

Cash Flow Continues to Fuel Growth

In 2005, we demonstrated our confidence in the outlook for potash by reinvesting our considerable cash flow to further enhance our advantage in this nutrient. We repurchased 9.5 million PotashCorp shares, expanded our potash investments in Israel and Jordan and purchased an interest in Sinofert, a large fertilizer supplier in China, the largest fertilizer market in the world.

We made internal investments for organic growth to bring back idle potash capacity in Saskatchewan, a move made possible by tax changes in that province. We also invested in the areas of nitrogen and phosphate with the highest gross margin and most stable returns — specifically, nitrogen in Trinidad and purified acid production at Aurora.

PotashCorp’s Strong Cash Flow

Cash flow continues to be a PotashCorp strength and is an integral part of our value proposition. In 2005, we generated $865.1 million in cash flow from operations.

6      POTASHCORP 2005 ANNUAL REPORT | LETTER TO SHAREHOLDERS

highest increases in feed, where prices improved $42 per tonne in 2005, with another $50 boost planned for 2006.

Industrial phosphate products again delivered the best results in this nutrient, contributing $54 million in phosphate segment gross margin. Purified acid represented $50 million of that margin, which was 29 percent of net sales.

As a result, PotashCorp earned $542.9 million in net income, or $4.89 per diluted share, beating our previous record by 82 percent.

Investors recognized the strength of our business early in the year and drove our share price to a record level. When the price backed off, we saw an opportunity and capitalized on it by extending our share repurchase program. The decision to buy back and cancel these shares should benefit our long-term shareholders to an even greater extent as we move forward. We see the potential of our excess capacity and anticipate it will only increase in value.

A new era in potash

Our optimism for the potash business is fueled by conditions that have unfolded over years and are set to continue for the foreseeable future. PotashCorp is the unparalleled leader in the best-positioned nutrient in the fertilizer industry and this gives us a sense of excitement about the future.

The supply/demand fundamentals in potash are intrinsically tight. Even though the timing of short-term consumption can shift, the picture of our industry is quite clearly drawn. While some producers are working toward incremental expansions, the prospect of significant new production from a greenfield operation is unlikely before the end of the decade. Deposits are rare and even if a new ore body was discovered, we estimate about $1.2 billion and five years would be required to bring it into production. That is a major capital investment and a long wait before positive cash flow would be generated. Although prices have risen, we believe they are still below the level needed to make a greenfield project economically attractive.

PotashCorp’s excess capacity is the quickest and most cost-effective source of additional production. We have in place the ability to raise production to meet demand growth. More important, we do this with the knowledge that every tonne of capacity we bring back costs about 25 cents on the dollar compared to a greenfield investment.

We intend to optimize our production to maximize the value of our potash resources. In 2005, we increased production by 902,000 tonnes and announced plans to invest $275 million to bring back idle capacity at Lanigan and Allan. This will increase our annual production capability by 1.9 million tonnes by 2007. We previously invested $85 million at Rocanville, resulting in a capacity increase of 749,000 tonnes.

This is necessary to meet the growing demand from offshore customers. From 2002 to 2004, world demand grew by 22 percent. Although growth slowed to 1 percent in 2005, the impact remained significant with our competitors operating at capacity. PotashCorp is positioned to reap the lion’s share of any increase in demand.

Our 2005 offshore volumes were consistent with the record levels of the previous year, demonstrating the value of our diverse global customer base. While Brazil, our largest customer in 2004, reduced imports, China and India more than offset the decline with increased volumes. China purchased a record 2.4 million tonnes from Canpotex, as the offshore marketing agency for Saskatchewan producers sold more potash than ever before.

With our investment in Sinofert, Canpotex will be able to increase its market penetration in China in the future. We also expect Brazil to return to the market in 2006, purchasing somewhere between the record total of 2004 and the lower level of 2005. These factors could take our offshore volumes to another record in 2006.

In North America, fertilizer dealers purchased aggressively in the first six months of 2005 in advance of announced price increases, then backed off to see if softening world demand would reduce prices. While this slowed the wind in our sails, it is expected to pick up force again. The requirements of the steady North American market are well established and don’t vary much from year to year. We anticipate North American 2006 volumes to be flat to down slightly from 2005, but consistent with historical levels.

Better prices are expected in offshore and North American markets, which should propel us to another year of record potash earnings.

POTASHCORP 2005 ANNUAL REPORT | LETTER TO SHAREHOLDERS      7

The potash business gives us a long look at the competitive horizon. We can see that there will be no significant new competitive capacity through the end of the decade, so supply will remain tight. North America is a mature market and we know what to anticipate from our customers. The growth from offshore customers will continue driving our business, although we recognize that these evolving markets are subject to some fluctuations in their growth patterns. With that in mind, we are prepared to use only as much of our excess capacity as required to provide stability while generating larger margins and higher earnings.

Tight focus, reduced volatility

Our nitrogen and phosphate strategies are built around areas of each nutrient where we have the greatest competitive strengths, reducing volatility and lessening the impact of fertilizer cycles.

In nitrogen, our advantageous natural gas contracts in Trinidad support our strategy. We can produce nitrogen there with lower-cost gas even as rising natural gas costs in the United States drive up ammonia prices and expand our Trinidad margins.

We are adding nearly 300,000 tonnes of capacity at Trinidad, with 156,000 tonnes brought on stream in 2005 and another 138,000 tonnes in 2006. This will increase the benefit of our lower-cost production there. When natural gas prices climb in the US, our margins grow.

Phosphate fertilizers improved in 2005 with demand rising and inventories under control. However, their long-term fundamentals are challenged, so we are increasingly moving away from commodity-like products into niche markets. Our high-quality rock gives us the flexibility to produce purified acid, the most profitable of our industrial products, as well as DFP, the specialty animal feed supplement. Our production process requires us to produce a certain amount of DAP but we are shifting as much of our phosphoric acid as possible into the high-margin industrial and feed products.

Growth from Diverse Markets

The growth in potash demand is global, creating a diversified customer base that provides strength and balance. With many offshore countries gaining economic power and increasing potash consumption, the impact of short-term fluctuations from any single region is lessened.

Research has shown that China, India and Brazil all need to significantly increase potash consumption to meet scientifically recommended application ratios. China would need to nearly triple its consumption to meet these ratios, adding 16 million tonnes annually. Usage would need to climb 7 million tonnes in India and 6 million tonnes in Brazil to reach optimal levels. Not only is this global need for potash a growth opportunity for PotashCorp, the geographic and customer diversity of our business provides a measure of stability in the event of an economic shift or a poor growing season in one part of the world.

Geographic Diversity
Among Offshore Markets
PotashCorp Sales Volumes

A look at selected offshore markets demonstrates how stronger sales volumes to India and China offset a demand shock in Brazil in 2005.

8      POTASHCORP 2005 ANNUAL REPORT | LETTER TO SHAREHOLDERS

Our focus is on purified acid, where we are expanding production by 82,000 tonnes. This new plant is scheduled to come on stream in the second quarter of 2006, and should add approximately $20 million in gross margin on a full-year basis.

As a result, we expect our 2006 gross margins in nitrogen and phosphate to rival or exceed those of 2005.

Partner of choice

Our vision has always extended beyond financial performance. We want to be a partner of choice for all our stakeholder groups. That means looking beyond financial considerations to explore our company’s social and environmental performance.

Our ability to execute our strategies is linked to the skills and abilities of our people. Their importance cannot be overstated and their safety, without exception, is our No. 1 priority. Our nitrogen operations had a record year, reducing their recordable accident frequency rate by 14.5 percent from their previous best performance. We celebrated many milestones in 2005, including 5 million hours without a lost-time injury in Trinidad and 6.65 million hours at Geismar.

Overall, however, we did not live up to the record safety performance of the previous year and, sadly, we experienced a fatality underground at our Lanigan operation. This is the greatest concern of every miner and mining executive and we will work together to try to ensure this never happens again.

We track safety continuously and recognized in early 2005 that we had fallen behind our 2004 levels. We revitalized our efforts and acted swiftly to introduce the Senior Safety Leadership Team, which will provide direction, leadership and expectations for our safety processes. Another initiative in late 2005 was to have each facility create a Safety Action Plan to address measurable performance in behavior-based safety, key procedures, contractor safety and organizational culture. The initial plans were completed in January 2006 and we will be vigilant in monitoring the key safety measures that were outlined in the plans. While our industry has inherent risks, we want every person who works at our operations to return to their families healthy and safe at the end of each day.

We also strive to improve quality of life by actively participating in our communities. We continued to support the University of Saskatchewan, which has helped develop many of the employees who contribute daily to our success. We renewed our sponsorship of the Chicago Botanic Gardens, funding a research chair in soil science.

As a global company, we operate with a broader view. Early in 2005, we were among the first corporations to step forward following the tsunami in Southeast Asia, providing $1 million to the relief effort. We have a strong connection to the region, where we have worked with people for many years on issues of human development and food production.

Our local governments also benefited from our superior results in 2005. For example, we paid approximately $214 million in royalties and taxes in Saskatchewan. It’s one more way our success enriches others connected to our company.

Enriching lives

At PotashCorp, our products and our performance present opportunities — to help farmers grow greater quantities of more nutritious food, to have a positive impact on the lives of our people and the communities in which they reside, while delivering the best possible returns to investors.

To achieve this, we will continue with our long-term strategy of matching potash supply to demand and focus on the areas of phosphate and nitrogen with the least volatility. By doing so, we can deliver greater value which will enrich all our stakeholders.

Our efforts benefit from the strong guidance and leadership of PotashCorp’s Board of Directors. I’d like to thank each one for their dedication and support.

As we move forward, we will continue to look for ways to deliver on our promise to the many people who recognize that our success is truly their success.

William J. Doyle
President and Chief Executive Officer
February 27, 2006

POTASHCORP 2005 ANNUAL REPORT | GOALS AND TARGETS      9

  Continuous improvement and accountability are among our core values at PotashCorp.

  Each year, we set targets connected to our goals and operating strategies and report on our performance.

To continue to outperform our sector and other basic materials companies in total shareholder return. 2006 Targets

1 Exceed total shareholder return performance for our sector and companies on the DJUSBM for 2006.

2 Non-cash operating working capital to be less than 10 percent of net sales.

3 Total cash flow return to exceed cost of capital by 800 basis points.

4 Carry a higher multiple than the average of other fertilizer companies on both earnings and cash flow.

5 Exceed 2005 gross margin by 20 percent.

2005 Targets

Exceed total shareholder return performance for our sector* and companies on the Dow Jones U.S. Basic Materials Index (DJUSBM) for 2005 and three-year average. Be the preferred fertilizer investment as measured by surveys. Non-cash operating working capital to be less than 10 percent of net sales.**

Total cash flow return to exceed cost of capital by 500 basis points.** Carry a higher multiple than the average of other fertilizer companies on both earnings and cash flow. Exceed five-year average of historical gross margin as a percentage of net sales.**

Be at the top of our earnings guidance range.

2005 Results

Three-year return of 158 percent surpassed the DJUSBM, although PotashCorp trailed the sector for that period. Return for 2005 was below that of the sector and DJUSBM. A survey of buy- and sell-side analysts clearly identified PotashCorp as the leading investment in the sector. PotashCorp’s non-cash operating working capital was approximately 5 percent of net sales. Total cash flow return exceeded cost of capital by 780 basis points.

PotashCorp multiples were higher than the average of other fertilizer companies based on earnings and cash flow. Gross margin as a percentage of net sales reached 32 percent, well above the five-year average of 20 percent. Earnings per share of $4.89 exceeded our initial guidance of $3.50—$4.25 per share.

Gross Margin Increases

as a Percentage of Net Sales Focusing on High-Margin Businesses

A rising gross margin as a percentage of net sales reflected our tighter focus on areas of our business that provide the greatest gross margin: potash, Trinidad nitrogen and industrial phosphate, primarily purified phosphoric acid.

These three businesses generated 87 percent of PotashCorp’s total gross margin in 2005 and each delivered a high percentage of gross margin in relation to net sales — potash was 60 percent, Trinidad nitrogen 38 percent and purified phosphate 29 percent. Graph source: PotashCorp

* Sector = Mosaic, Agrium, Yara, SQM, ICL and K&S.

** See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators in our Financial Review, Pages 50 to 52.

10      POTASHCORP 2005 ANNUAL REPORT | GOALS AND TARGETS

To remain the leader and preferred supplier of potash, nitrogen and phosphate products worldwide. 2006 Targets

1 Increase North American realized prices for potash by 10 percent.

2 Increase offshore potash sales volumes by 5 percent.

3 Increase North American realized feed prices by 20 percent.

4 Increase realized nitric acid prices by 5 percent.

2005 Targets

Increase potash sales volumes by 5 percent at 25 percent higher realized prices.

Industrial nitrogen net sales from US plants to comprise 70 percent of the total from those plants.

Increase North American feed realized prices by 15 percent.

Increase purified acid price realizations by 5 percent.

Implement enterprise-wide customer complaint system to facilitate tracking and resolution.

Outperform competitors on quality and service as measured by customer surveys.

Expand computer applications’ e-mail capabilities to improve communications with customers and vendors.

2005 Results

Potash sales volumes decreased by approximately 1 percent, while realized prices were up by 38 percent. Industrial nitrogen represented 73 percent of net sales from US facilities.

Monocal rose by 17 percent, Dical 19 percent and DFP 28 percent, for an overall increase of 21 percent. Realized prices for purified acid increased by 10 percent. A new system, with automated tracking and reporting, was developed and implemented. PotashCorp outperformed the industry average for quality and service in all key product categories. Customers and vendors now can receive automated order information by fax or e-mail.

Purified Phosphate Industrial Nitrogen Feed Fertilizer Scale of 1-100 PotashCorp

PotashCorp’s Superior Product Quality

Industry Average

Matching Strengths to Opportunities

Tight fundamentals led to higher prices for purified acid products. North American supply tightened considerably as China reduced production in the face of higher energy costs, removing approximately 150,000 tonnes from the export market. European producers moved more product to China, leaving a supply gap in the Western Hemisphere. With our superior-quality rock, PotashCorp focused on higher-margin industrial phosphate products and received better realized prices for our purified acid, leading to a gross margin increase. We are building on this advantage by expanding our facility at Aurora. Graph source: PotashCorp

Maintaining the Highest Standards

Customers consistently list product quality as one of the key criteria they use in choosing a supplier. Our annual customer survey showed that PotashCorp continues to outperform competitors in terms of quality in each of our major product categories: fertilizer, feed, industrial nitrogen and purified phosphate. Service is another important differentiator and PotashCorp has always been a leader in this area. When asked about ease of placing an order and response to problems or questions, PotashCorp’s average score in the four customer groups was approximately 10 percent higher than the average of our competitors.

Graph source: Independent Teleresearch Company

Purified Acid Prices Strengthen

POTASHCORP 2005 ANNUAL REPORT | GOALS AND TARGETS      11

To be the low-cost supplier in our industry. 2006 Targets

1 Achieve rock costs at Aurora and White Springs 3 percent below 2005.

2 Achieve conversion costs for P2O5 production 9 percent better than 2005.

3 Achieve 5-percent reduction in per-tonne potash conversion costs on a Canadian dollar basis.

4 Improve energy efficiency in Trinidad by 10 percent from 2005.

5 Reduce/avoid transportation and distribution expenses to achieve a level 3 percent below market rates.

2005 Targets

Achieve rock costs at Aurora and White Springs 5 percent below 2004. Achieve conversion costs for P2O5 production 4 percent better than 2004.

Achieve 5-percent reduction in per-tonne potash conversion costs on a Canadian dollar basis. Achieve energy efficiency in nitrogen

2 percent better than 2004. Operate the Aurora DFP plant at design capacity. Yield a 3-percent saving in transportation and distribution from industry benchmark.

2005 Results

Rock costs for 2005 were 1 percent below 2004. P2O5 conversion costs for 2005 were 1 percent below 2004. Canadian dollar potash conversion costs rose by 5 percent, largely due to a 25-percent increase in natural gas costs. Energy efficiency in nitrogen remained the same as in 2004. The facility demonstrated its ability to operate at 98 percent of design capacity.

Through cost-avoidance and expense management, transportation and distribution expenses were kept 5 percent below market rates.

Turning Transportation and Distribution into a Competitive Edge

Strong long-term relationships with key transportation suppliers, carefully managed cost-avoidance strategies and a proactive approach to ocean freight contracts enabled PotashCorp to better control expenses and increase gross margin in 2005. While transportation costs have risen by an average 2-3 percent annually, the sharp spike in demand for railcars, combined with rising fuel costs and higher risk premiums, led to cost increases of 10-50 percent for some companies in 2005.

By securing long-term contracts in advance of these increases, PotashCorp was able to minimize the impact of price hikes. Distribution partners recognized the value of our long-term business, along with our large volumes and high safety standards. This enabled us to negotiate better rates with reduced risk premiums. In a similar fashion, long-term ocean freight rate contracts provide a competitive advantage in shipping potash to offshore customers and ammonia from Trinidad. Various cost-avoidance measures yielded savings that far exceeded the industry benchmark, securing our position as a low-cost supplier to our customers.

We made investments to improve our transportation and distribution profile in Brazil, including a new warehouse. As our potash volumes to offshore customers increase, infrastructure improvements are required. We view the improvement of our ability to move additional volumes with increasing efficiency as an important investment in our potash business, which is one of the main reasons for our investment in Sinofert.

We opened a new warehouse in Brazil in January 2006. Potash is shipped to Brazil by sea, then trucked to our warehouse, which gives us an advantage in distribution to customers around that country.

achieved partially achieved did not achieve

12      POTASHCORP 2005 ANNUAL REPORT | GOALS AND TARGETS

To move closer to our goal of no harm to people, no accidents, no damage to the environment. 2006 Targets

1 Reduce recordable and lost-time injury rates by 30 percent from 2005 levels.

2 Reduce reportable releases and permit excursions by 30 percent from 2005 levels.

3 Achieve 100-percent compliance on all environmental, safety and security audit action items.

2005 Targets

Reduce recordable and lost-time injury rates by 10 percent. Reduce reported releases and permit excursions by 25 percent. Achieve 100-percent compliance on all environmental and safety audit action items.

2005 Results

Recordable and lost-time injury rates both increased from the record-low levels of 2004.

Releases and permit excursions were reduced by 30 percent. 100-percent compliance was achieved.

Making Accident Prevention a Priority

Reducing risk is part of PotashCorp’s business strategy — and one of the fundamental principles of our approach to safety. Even after the record safety performance of 2004, our company continued to focus on new ways to prevent accidents. While our results in 2005 did not meet our expectations, the commitment to safety remained a priority.

This led to the creation of a high-level team focused on the prevention of accidents with employees and contractors. This Senior Safety Leadership Team is shifting attention from traditional safety measures such as the frequency of lost-time injuries or recordable accidents and placing greater attention on eliminating behaviors that cause accidents before injuries happen.

“We’re looking for trends of behaviors that cause accidents, so that we can eliminate those vulnerabilities,” said Jim Dietz, PotashCorp’s Executive Vice President, Chief Operating Officer and safety team leader. “When we accomplish this, we’ll really be a leading company in terms of safety.”

For example, the PCS Phosphate Aurora railyard created a Critical Behavior Inventory, illustrated with photos, to demonstrate the correct (and incorrect) methods of dealing with railcars. Since we began focused observation of railyard practices, overall safe behavior has increased from 98.5 percent to 99.8 percent.

The Senior Safety Leadership Team discussed this approach with safety managers from all of PotashCorp’s operating facilities at a safety conference in 2005. The objective is to create consistency in how safety policies, procedures and practices are applied and measured.

Senior Safety Leadership Team

The Senior Safety Leadership Team is composed of (from left to right):

Tom Brower,

Senior Director, Safety and Health

Jim Dietz,

Executive Vice President and Chief Operating Officer

Garth Moore,

President, PCS Potash

John Hunt,

Vice President, Safety, Health and Environment

Tom Regan,

President, PCS Phosphate

Clark Bailey,

Vice President, Manufacturing and Technical, PCS Nitrogen

POTASHCORP 2005 ANNUAL REPORT | GOALS AND TARGETS      13

To have motivated and productive employees committed to our long-term goals. 2006 Targets

1 Fill at least 75 percent of senior staff openings with internal candidates.

2 Maintain or improve employee engagement levels as measured by employee engagement survey.

3 Stabilize rate of employee turnover at Trinidad operations.

2005 Targets

Integrate key corporate performance metrics into regular employee reviews, providing managers with greater discretion to reward individual achievement. Proactively improve orientation programs for new employees and career development processes for existing employees. Complete implementation of a human resources administration system enabled by information technology. Maintain personnel turnover improvements achieved in 2004 in Trinidad.

2005 Results

Key performance indicators are being used in more departmental and individual goal-setting and performance discussions. Changes to compensation and incentive pay have been implemented to allow flexibility in rewarding excellent performance.

A framework for employee orientation, including a handbook for new employees, is in development. Cross-border transfers are being improved, creating new opportunities for current employees.

Full implementation has been completed in the United States, while final extension into Canada is on hold.

Turnover in Trinidad increased as PotashCorp employees were recruited to fill positions in a rapidly developing chemical sector.

Putting Performance First

Continuous improvement is a core value at PotashCorp — one that requires people in our company to deliver better performance in all areas of our operations year after year. In recognition of this, we have developed compensation and advancement plans that challenge and reward employees who drive the company’s success.

This includes a system of short- and long-term incentives based on PotashCorp’s overall performance, using indicators such as total shareholder return and cash flow return versus the cost of capital to measure success. The programs are designed to develop strong corporate management and provide a financial incentive for employees to achieve success.

In 2006, the short-term incentive program will be extended to include approximately 1,500 employees. In addition to linking employee rewards with corporate performance objectives, this strengthens PotashCorp’s ability to attract and retain key talent and provides more people with greater potential to share in our success.

Recognizing that people are motivated by more than financial rewards, we have placed a priority on giving top performers the ability to advance. In 2005, 41 of 54 senior-level position movements were filled from within, including all opportunities at the executive level. Integrity and sharing what we learn are core values at PotashCorp. At our Annual Meeting of Shareholders, Trent Sereda and Tanya Krause (shown here) were recognized for living these values as they perform their functions in the Saskatoon office.

achieved partially achieved did not achieve

14      POTASHCORP 2005 ANNUAL REPORT | GOALS AND TARGETS

To improve the socio-economic well-being of our communities. 2006 Targets

1 Continue to be engaged with community support projects at each of our plants and offices.

2 Achieve a 10-percent increase in individual participation in the matching gift program and a 20-percent increase in total donations.

3 Remain in the top quartile of governance practices as measured by external reviews.

2005 Targets

Be in the top quartile of responses in a survey of community leaders. Be engaged with community support projects at each of our plants and offices. Achieve a 10-percent increase in individual participation in the matching gift program and a 20-percent increase in total donations. Remain in the top quartile of governance practices as measured by external reviews.

2005 Results

A survey conducted in Aurora showed that people view PotashCorp as important to the local economy (97 percent), a strong community supporter (89 percent) and a good employer (85 percent).

Our company and our people were engaged in efforts to improve our communities. This included cash donations, volunteer efforts and relationship-building activities like Limestone Days at Weeping Water.

Individual participation increased by 15 percent and total donations rose by 58 percent.

PotashCorp’s governance practices were ranked in the top 10 percent of 209 S&P/TSX companies evaluated by Report on Business magazine.

Joining Hands with Our Communities

Being engaged with our communities extends beyond the employment and financial impact of our facilities. We are active volunteers in the places where we work and live, and support initiatives that bring us closer to our communities. Our people have embraced this by supporting local organizations, with activities such as:

• At White Springs, our employees have a long-term relationship with the Hamilton County School System, working with at-risk kids and preparing them for opportunities to join the workforce.

• A team of Trinidad employees participated in the Energy Challenge, a 24-hour outdoor event that involves hiking mountain trails and building sleeping accommodations, to raise money for FEEL, which works with charitable agencies to provide aid to people in Trinidad and Tobago.

• Aurora workers spent a day during the holiday season ringing bells to raise money for the Salvation Army.

• In Rocanville, our people formed a team to raise money by running in the 24-Hour Relay For Life.

• Our Cory personnel donated food and gifts to local charitable organizations. In total, 100 percent of our facilities, including each of our operating facilities and our corporate offices in Saskatoon and Northbrook, made connections in their communities through volunteerism, partnerships and financial donations.

Many PotashCorp employees demonstrated their compassion and commitment following Hurricane Katrina. Led by employees at Geismar who opened their homes to victims, people from across our company contributed to the effort by delivering supplies and cooking for volunteers. Debra Flerlage, an executive secretary at our Northbrook office, organized a clothing drive that gathered more than 70 bags of clothing from her fellow employees. As a company, we donated $250,000 to the relief effort.

achieved partially achieved did not achieve

POTASHCORP 2005 ANNUAL REPORT | SUSTAINABILITY      15

Highlights of Sustainability Achievements in 2005

Governance

Introduced formal review process for individual directors.

Energy

Improved natural gas efficiency at Trinidad’s 03 and 04 plants by up to 10 percent; installed a turbine generator to utilize excess steam at Geismar; reduced energy use for future production at Lima by 8 percent.

Community Relations

Participated in volunteer activities in each of the communities where we operate and at our corporate centers.

Safety

Nitrogen operations reduced their accident frequency rate by 14.5 percent from the previous record low.

Environment

Reduced permit excursions by 65 percent to a record low.

Stakeholder Engagement

Surveys with all key stakeholder groups showed that PotashCorp is a preferred supplier to customers, is respected by our communities and is supported by our investors.

Our commitment to sustainability is anchored in two simple propositions:

• it is the right thing to do

• it is good business.

Our sustainability initiatives are having a clear impact on our bottom line through increased productivity and lower operating costs. Our shareholders also benefit from the company’s lower risk profile and improved earnings multiple.

This section highlights some of our sustainability achievements and describes how we addressed a number of sustainability issues in 2005 — such as governance, business benefits, management systems, stakeholder engagement, employee relations and customer concerns — in ways that will form the basis for improved performance in the future.

PotashCorp’s Commitment to Sustainability

Our Sustainability Vision

In pursuing the best interests of the corporation, we consider our impact on investors, customers, employees, suppliers and the communities and environment where we do business. All are essential to PotashCorp’s long-term success.

Our Sustainability Commitments

Health and Safety: Our goal is no harm to people, no accidents.

Integrity: We operate with integrity and respect for human rights and the rule of law.

Governance: We are committed to being a leader in corporate governance, recognizing it as a cornerstone of a sustainable organization.

Financial Performance: We will manage our financial performance to maximize long-term value for shareholders.

Environmental Responsibility: Our goal is no damage to the environment.

Energy: We will use energy efficiently and constantly strive to improve.

Employees: We are committed to respect for human dignity and fairness in the workplace.

Stakeholder Engagement: We listen to all stakeholders.

Community Development: One measure of our success is the economic activity we generate in the communities where we operate.

Customers and Business Partners: We work to create mutual advantage in all our relationships.

16      POTASHCORP 2005 ANNUAL REPORT | SUSTAINABILITY

Why is corporate governance such an important part of sustainability?

Good governance is the underpinning for a sustainable corporation. The value of the company lies not only in its superior physical, logistical and human assets but in the confidence that the business strategy is sound and systems are in place to ensure that corporate assets are consistently deployed for the benefit of the company’s stakeholders.

We believe strongly that good governance practices both protect and enhance shareholder value, and PotashCorp will continue to pursue the highest standards of corporate governance.

What changes did PotashCorp’s board introduce in 2005 to strengthen its governance?

PotashCorp’s board takes a highly disciplined and proactive approach to corporate governance.

Our governance committee ensures that we meet or exceed all regulatory governance practices by maintaining a comprehensive checklist that compares our practices to existing and emerging requirements.

We also review closely what our stakeholders and third-party governance monitors are saying about best governance practices. Our approach is to consider carefully whether any particular suggested best practice makes sense for PotashCorp. We do not adopt practices simply for the sake of change, but we are not afraid of being on the leading edge of best governance practices.

In 2005, we implemented a practice of formally reviewing individual directors. In addition, we initiated a process for directors to set individual goals and objectives for themselves which are designed to improve their own performance and that of the entire board. The board demonstrated its commitment to strategic planning by devoting a portion of every regular meeting to this subject and convening additional special sessions specifically dedicated to strategy. These included an educational component and a thorough review of the strengths, weaknesses, opportunities and threats relevant to PotashCorp, particular competitors and the industry in general.

We also amended our governance principles to implement a meaningful majority vote requirement for the election of directors. Specifically, we now will require directors who fail to get more votes cast in favor of their election than votes cast against and withheld to submit their resignation to the board.

We also gave consideration to the concept of term limits for directors. Proponents argue that directors with lengthy tenure may lack the independence necessary to sit on key committees. However, we have found that experienced directors have the confidence and institutional knowledge necessary to articulate competing points of view and to challenge management, especially in the area of strategy. Consequently, we prefer to rely on an evaluation process rather than arbitrary term limits.

A Clear Approach to Disclosure

Transparency is fundamental to good governance and sound operating practices. PotashCorp has made this a priority and earned the Canadian Institute of Chartered Accountants (CICA) Overall Award of Excellence for Corporate Reporting for the second consecutive year. The overall honor was one of five corporate reporting awards presented to PotashCorp by the CICA in 2005. Others included the top honor for best financial reporting.

POTASHCORP 2005 ANNUAL REPORT | SUSTAINABILITY      17

How did sustainability contribute to business performance and shareholder value in 2005?

Our commitment to sustainability contributes to our financial performance in a number of ways. Our sustainability practices are helping us improve safety, reduce risks, increase productivity and lower operating costs, all of which have a direct impact on our bottom line. For example:

• Paying attention to environmental and social issues lowers our risk profile and our costs.

• Our efforts to improve energy efficiency reduce costs and make us more competitive.

• A culture of integrity, fairness and opportunity is a key motivator for our employees.

• We benefit from reduced insurance premiums that resulted from our joint commitment to safety with a local business partner.

In short, sustainability is good business and good for our shareholders, who benefit directly from our improved financial performance.

Shareholders also benefit from the way in which sustainability increases transparency, enhances our reputation and builds trust.

These are not soft issues. Transparency created through our extensive public reporting and ongoing dialogue with stakeholders compels us to deliver on strategies and targets. It reinforces the need for proper risk mitigation and a disciplined management focus. It also strengthens our reputation, one of our most valuable assets.

Transparency improves our share price and earnings multiple which, in turn, reduce our cost of capital. In addition, it promotes greater opportunities to create value for shareholders.

Our experience is clearly demonstrating the contribution that sustainability is making to both our near-term financial results and our long-term viability as a company — to the benefit of our shareholders and other key stakeholders.

Creating Value by “Doing What’s Right”

Once considered a cost of doing business, sustainability is increasingly being recognized as a way to increase value. According to the Global Environmental Management Initiative:

• 50% of a company’s market value can be attributed to sustainable business practices.

• 35% of institutional investors make portfolio decisions based on intangibles like safety, health and environmental performance.

• 81% of Global 500 executives place safety, health, environmental and social issues among the top 10 value drivers of their businesses.

Sustainability is at the heart of PotashCorp’s vision and values. By addressing the triple bottom line in our business practices, the company grows stronger and perpetuates a culture of “doing what’s right.”

How is PotashCorp driving its sustainability program into the organization?

When we began our sustainability journey nearly five years ago, we recognized that success would depend on change at every level in the organization.

While commitment from the top was essential, our ability to make continuous ongoing improvements in our economic, social, environmental and safety performance also required grassroots support.

In 2004, I visited all of our plant locations to speak to local management and our employees about sustainability. My goal was threefold. First, I explained sustainability. Second, I told our employees why it was in the best interests of all stakeholders for the company to make a long-term commitment to this

18      POTASHCORP 2005 ANNUAL REPORT | SUSTAINABILITY

business approach. Finally, I explained the business reasons for adopting sustainable business practices. The response I got from employees throughout the company was very positive and encouraging.

The same has been true at our annual Best Practices Workshop which brings together all of our plant General Managers. We’ve been addressing sustainable business practices at this workshop since 2001 and sharing innovative approaches for implementing sustainability at the plant level.

Sustainability goals have now been introduced into our plant-level Key Performance Indicators and site action plans.

What were the priority areas for PotashCorp’s sustainability program in 2005?

We created a Senior Safety Leadership Team whose goal is to create an incident-free culture throughout PotashCorp that prevents accidents from happening. Our plant management teams have created specific site action plans to achieve the necessary cultural change and ratchet our safety program up to the next level. Open communication and employee participation are clearly key to our success.

Our efforts to improve our environmental performance are equally ambitious. Our land reclamation programs continue to receive recognition, with our Whitehurst Creek, North Carolina project earning local and national awards. We still see potential for reducing waste and improving energy efficiency throughout the company.

As we begin 2006, I’m confident our production sites will identify and address more opportunities for making PotashCorp sustainable in all areas. There is company-wide recognition that sustainability has become a core part of the way we do business and, quite simply, it is the right thing to do.

In Touch with Our Communities

Sustainability reporting is part of PotashCorp’s program of continuous improvement. While our annual sustainability report provides an overall picture of our progress from year to year, we have also initiated a program of site-specific sustainability reports that give our communities a more detailed picture of what is happening at their local facilities.

The first of these site-specific reports was issued late in 2005 and all of our operating facilities will report directly to their communities in 2006. These reports include information on safety and environmental performance, community involvement initiatives and spending with local business partners.

What steps did PotashCorp take in 2005 to help meet its customers’ needs for sustainable supplies of potash?

When worldwide potash demand first began to spike, PotashCorp implemented a three-pronged plan to increase our sustainable supplies of potash and meet our customers’ needs.

First, we began to tap into our vast reserves by expanding our production capacity and ramping up our production schedule. This increases our ability to meet growing demand and provide customers with greater reliability of supply.

Second, we’re widening the distribution pipeline by expanding our fleet of dedicated hopper cars and making sure our shipping partners are doing the same. As a company, we have added more than 500 covered hopper cars in the last few years, including approximately 120 in 2005; Canpotex added almost 1,200. In addition, Canadian Pacific Railway, which transports our potash destined for offshore sales, has completed a $160-million expansion of its track network between Saskatchewan and the Port of Vancouver. It has also invested in 60 more locomotives. Our North

POTASHCORP 2005 ANNUAL REPORT | SUSTAINABILITY      19

American carrier, CN, acquired 75 new locomotives in 2005 and entered into a major refurbishment program involving 800 covered hopper cars.

Finally, we’re working more closely with our offshore and North American customers to ensure we have the best possible information about their needs. Our industry used to plan for two peak buying seasons with plenty of time to rebuild inventories in between. Those days are gone. The fact is there’s always a spring or fall fertilizer season somewhere in the world. To meet our customers’ needs, we must now move product year-round, and the only way we can do this is to plan with our customers on an ongoing basis.

These efforts have already yielded good results for both our customers and our company. In many countries, we have increased our market share because our customers recognize what we’re doing to secure their supply of potash, not only for today but for the future. Our commitment to sustainable growth helps them to grow.

Mike Anderson, President and CEO

Shared Values, Shared Success

PotashCorp’s sustainability efforts are important to building strong and lasting relationships with customers. As people around the world gain awareness of the importance of sustainable business practices, our approach to triple bottom-line reporting creates confidence that our company is a reliable and trustworthy business partner.

“Looking at their sustainability efforts, it is clear to me that PotashCorp is a company that we share a value system with,” said Mike Anderson, President and CEO of The Andersons, one of the largest fertilizer distributors in the United States Midwest. “I look at the focus of their company — its commitment to relationships and communities, that their word is their bond — and I feel good about working with them.”

How is PotashCorp strengthening its position as an employer of choice?

PotashCorp has always recognized that our financial success and industry leadership as a sustainable company depend on a skilled and dedicated workforce.

To remain competitive in a global environment, we must continue to retain and recruit top performers and provide them with the skills to succeed, the information to understand long-term goals, and a safe and fair work environment.

In 2005 we completed a major review of our compensation practices. This led to some significant changes that will become effective in 2006. Most notably, we adjusted our salary increase process to provide managers with greater flexibility to reward top performers. In addition, we are continuing the application of a top-performer incentive component for merit pay increases that was introduced in 2005.

We are also increasing the number of employees eligible to participate in the annual short-term incentive bonus program. In 2006, the number will jump from approximately 4 percent of the workforce to 30 percent. Because the size of the annual bonus is directly tied to the company’s performance, participating employees will be rewarded for their motivation and commitment to PotashCorp’s success.

Another area we’re addressing is helping individual employees achieve their personal career goals. This effort is strongly supported by a philosophy to “promote from within.” The majority of job openings are first posted internally, enabling qualified employees to advance within our organization and transfer into different functional disciplines or to different locations. This approach has received very positive feedback.

As our business becomes more global, we see the need to prepare our workforce for the challenges of international business. This could include assignments in other countries or training for new and different tasks.

20      POTASHCORP 2005 ANNUAL REPORT | SUSTAINABILITY

Living by Our Code

In addition to making clear our strategies, goals and targets, PotashCorp provides every employee with our Statement of Core Values and Code of Business Conduct. These documents set forth the company’s commitments to integrity, sustainability and the need to avoid conflicts of interest.

The principles embedded in these documents are reflected in our daily business practices, and our successes are celebrated each year at our Annual Meeting of Shareholders. During the meeting, we introduce people from across the company whose efforts brought to life our core values in the workplace and demonstrated how following our code of conduct contributes to business success. Employees are asked to recommit to the code annually.

Why does PotashCorp place so much importance on stakeholder engagement?

Our reputation is one of our most valuable assets and we care about how we are perceived by our key stakeholders. Listening to stakeholders is a core value of our company and engagement with them is a fundamental part of our planning and future success.

The knowledge we gain through our annual surveys shapes our sustainability efforts. We share information on our strategies and performance and solicit feedback because this increases understanding, strengthens our reputation and builds stakeholder support for our growth.

What did you learn from your external stakeholders in 2005?

Each year, we have independent research companies survey our external stakeholders: customers, investors and people in the communities where we operate. In addition, we monitor media coverage and measure whether we are portrayed in a positive, negative or neutral tone.

Our 2005 customer surveys showed that PotashCorp remained a preferred supplier in all four of our product categories: fertilizer, feed, industrial nitrogen and purified phosphate. The surveys also showed considerable concern about reliability of supply. Our communication efforts are focused on what we’re doing to further enhance our supply capability as we bring back potash capacity and expand nitrogen and purified acid production.

We assess the opinions of investors through an annual survey of buy-side and sell-side analysts. This survey showed strong support for our Potash First strategy, as investors view us as the leader for this nutrient. They also recognized the long-term growth potential this gives our company.

The 2005 community survey conducted in Aurora, North Carolina revealed a strong base of support for our operations. On average, 90 percent of respondents provided positive feedback on PotashCorp’s economic, employment and social performance. This connection to the community is invaluable in gaining permits required for continued operations and the expansion of our purified acid facility.

In addition to our own research, we measure the quantity and tone of media coverage at local and national levels. Based on research completed in the fourth quarter of 2005, the volume of media coverage had increased 82 percent over the previous year, reflecting growing interest in our company. The tone of coverage was largely positive, as we drew attention for our strong financial and social performance.

Investors Value Potash First

Our ongoing dialogue with stakeholders, which includes an annual investor survey, gives us insight into their expectations and the opportunities for our company. In 2005, our investors told us they recognize the value-driving potential of our potash operations, rating it as 9 on a scale of 1-10, far surpassing nitrogen (5.4) and phosphate (4.4).

This was supported by responses to follow-up questions related to the preferred use of our significant cash flow. Investors showed a clear preference for spending in the potash business, to bring back capacity and make selective acquisitions.

Value-Driving Capabilities of the Nutrients
As ranked by buy-side analysts

Source: Christensen

POTASHCORP 2005 ANNUAL REPORT | BOARD OF DIRECTORS      21

PotashCorp Board of Directors

Frederick J. Blesi, of Glenview, Illinois, is a retired Chairman and CEO of the Phosphate Chemicals Export Association Inc. (PhosChem), principal exporter of US phosphate chemicals. Before joining PhosChem, he was Vice President, International with International Minerals and Chemical Corporation. He is a director of the Evans Scholars Foundation and The Western Golf Association. He joined the PCS Inc. Board in 2001. 2, 5

William J. Doyle, of Winnetka, Illinois, is President and CEO of Potash Corporation of Saskatchewan Inc. He became President of PCS Sales in 1987, after a career with International Minerals and Chemical Corporation. He is Chairman of The Fertilizer Institute and the Potash & Phosphate Institute and Vice Chairman of Canpotex Limited. Mr. Doyle is on the College Board of Advisors at Georgetown University. He joined the PCS Inc. Board in 1989. 1

John W. Estey, of Glenview, Illinois, is President and CEO of S&C Electric Company. He is a member of the Board of Governors of the National Electrical Manufacturers Association, a director of the Executives’ Club of Chicago, and a member of the Dean’s Advisory Board at the Kellogg School of Management at Northwestern University. He joined the PCS Inc. Board in 2003. 3, 4

Wade Fetzer III, of Glencoe, Illinois, is Retired Partner with the investment banking firm Goldman Sachs. He sits on the boards of Sphere Communications, Northern Star Broadcasting, University of Wisconsin Foundation and Rush-Presbyterian St. Luke’s Medical Center. He is also on the Kellogg Alumni Advisory Board. He joined the PCS Inc. Board in 2002. 2, 3

Dallas J. Howe, of Calgary, Alberta, is owner and CEO of DSTC Ltd., a technology investment company, and a director of Advanced Data Systems Ltd. and the Saskatchewan Wheat Pool. A director of the PCS Crown corporation from 1982 to 1989, he joined the PCS Inc. Board in 1991 and was elected Chair in 2003. 1, 2

Alice D. Laberge, of Vancouver, British Columbia, is a Corporate Director and the former President and CEO of Fincentric Corporation, a global provider of software solutions to financial institutions. She was previously Senior Vice President and Chief Financial Officer of MacMillan Bloedel Limited, and is a director of the Royal Bank of Canada, Catalyst Paper, the United Way of the Lower Mainland and St. Paul’s Hospital Foundation. She joined the PCS Inc. Board in 2003. 4, 5

Jeffrey J. McCaig, of Houston, Texas, is Chairman and CEO of Trimac Holdings, a bulk trucking and third-party logistics company. Prior to that, he practiced law, specializing in corporate financing and securities. He is a director of Orbus Pharma Inc., The Standard Life Assurance Company of Canada and Stoneham Administration Inc. He joined the PCS Inc. Board in 2001. 3, 5

Mary Mogford, of Newcastle, Ontario, is a Corporate Director and a former Ontario Deputy Minister of Finance and Deputy Minister of Natural Resources. She is a director of Falconbridge Ltd., MDS Inc. and Sears Canada Inc., and a member of the Altamira Advisory Council. She is a Fellow of the Institute of Corporate Directors (ICD) and an accredited director under the ICD/Rotman School of Business Directors’ Education Program. She joined the PCS Inc. Board in 2001. 2, 5

Paul J. Schoenhals, of Calgary, Alberta, is President and CEO of Enform, a petroleum industry safety and training service. He is a former Member of the Legislative Assembly and Cabinet Minister in Saskatchewan and was Chairman of Potash Corporation of Saskatchewan, the Crown corporation, from 1987 to 1989. He joined the PCS Inc. Board in 1992. 3, 4

E. Robert Stromberg, QC, of Saskatoon, Saskatchewan, was formerly associated with the Saskatchewan law firm Robertson Stromberg Pedersen. He is a director of NorSask Forest Products Inc. and Hitachi Canadian Industries Ltd. and holds the rank of Honorary Lieutenant-Colonel of the North Saskatchewan Regiment. He joined the PCS Inc. Board in 1991. 1, 2, 4

Jack G. Vicq, of Saskatoon, Saskatchewan, is Professor Emeritus of Accounting, University of Saskatchewan. He is a past Associate Dean of Commerce at the university and was responsible for the Centre for International Business Studies. He formerly held the A.W. Johnson Distinguished Chair in Public Policy in the Saskatchewan Department of Finance. He joined the PCS Inc. Board in 1989. 1, 5

Elena Viyella de Paliza, of the Dominican Republic, is President of Inter-Quimica, S.A., a chemicals importer and distributor, Monte Rio Power Corp and Indescorp, S.A. She is president of the Dominican Business Council, a member of the board of the Inter-American Dialogue and past president of the Dominican Stock Exchange, Dominican Manufacturers Association and the National Agribusiness Board. She joined the PCS Inc. Board in 2003. 1, 4

committees 1 Executive     2 Corporate governance and nominating      3 Compensation
4 Safety, health and environment     5 Audit

22      POTASHCORP 2005 ANNUAL REPORT |CORPORATE OFFICERS AND KEY MANAGEMENT

Corporate Officers and Key Management

William J. Doyle
President and Chief Executive Officer
He joined the company in 1987 as President of PCS Sales, and has more than 30 years in the fertilizer industry. He was named CEO in 1999.

Wayne R. Brownlee
Executive Vice President and Chief Financial Officer
An MBA with responsibility for corporate business development, he joined the company in 1988 and was appointed CFO in 1999.

James F. Dietz
Executive Vice President and Chief Operating Officer
A chemical engineer with more than 30 years in the fertilizer industry, he joined the company in 1997 and became COO in 2000.

Betty-Ann L. Heggie
Senior Vice President, Corporate Relations
An educator with a marketing background, she joined the company in 1981 and rose to her current post in 1995, with responsibility for PotashCorp’s reputation.

Barbara Jane Irwin
Senior Vice President, Administration
A lawyer by training with more than 20 years in human resources, she joined the company in 2000 with responsibility for recruitment, benefits and compensation.

Robert A. Jaspar
Senior Vice President, Information Technology
A chartered accountant, he came to PotashCorp in 1997 as an internal auditor and moved to his current position in 2003, managing the systems that meet company information needs.

Joseph A. Podwika
Senior Vice President, General Counsel and Secretary
A lawyer, he joined PotashCorp in 1997 and took on his current post in 2005, with responsibility for the delivery of legal services and oversight of corporate governance.

G. David Delaney
President, PCS Sales
With a BSc in Agriculture, he has worked in the fertilizer industry since 1983 and joined PotashCorp in 1997, rising to his current position in 2000.

Garth W. Moore
President, PCS Potash
A mining engineer, he has spent more than 30 years in the potash industry and joined PotashCorp in 1982, rising to his current position in 1997.

Thomas J. Regan, Jr.
President, PCS Phosphate
A chemical engineer and MBA, he has spent 30 years in industrial operations, joining PotashCorp in 1995 and becoming president of its phosphate division in 1999.

Stephen F. Dowdle
Senior Vice President, Fertilizer Sales, PCS Sales
A PhD in agronomy and soil science with two decades of industry experience, he joined PotashCorp in 1999 and assumed responsibility for all domestic and international fertilizer transactions in 2000.

Daphne J. Arnason
Vice President, Internal Audit
A chartered accountant, she joined the company in 1988 and rose to her current position in 2003, with responsibility for auditing policies and programs.

Karen G. Chasez
Vice President, Procurement
A social worker with 19 years in fertilizer industry publishing and administration, she has overseen company purchasing, inventory and supplier negotiations since joining PotashCorp in 2000.

John R. Hunt
Vice President, Safety, Health and Environment
After earning a degree in agricultural business, he has spent 24 years in the fertilizer industry, joining PotashCorp in 1997 and moving to his present position in 2005.

Denis A. Sirois
Vice President and Corporate Controller
A certified management accountant, he joined the company in 1978 and has held his current position since 1997, with wide responsibilities in financial reporting.

POTASHCORP 2005 ANNUAL REPORT | SHAREHOLDER INFORMATION       23

Shareholder Information

Annual Meeting

The Annual Shareholders meeting will be held at 10:30 a.m. Central Standard Time May 4, 2006 in the Adam Ballroom, Delta Bessborough Hotel, 601 Spadina Crescent East, Saskatoon, Saskatchewan.

It will be carried live on the company’s website, www.potashcorp.com.

Holders of common shares as of March 13, 2006 are entitled to vote at the meeting and are encouraged to participate.

Dividends

Dividend amounts paid to shareholders resident in Canada are adjusted by the exchange rate applicable on the dividend record date. Dividends are normally paid in February, May, August and November, with record dates normally set approximately three weeks earlier. Future cash dividends will be paid out of, and are conditioned upon, the company’s available earnings. Shareholders who wish to have their dividends deposited directly in their bank accounts should contact the transfer agent and registrar, CIBC Mellon Trust Company.

Registered shareholders can have dividends reinvested in newly issued common shares of PotashCorp at prevailing market rates.

Information for Shareholders Outside Canada

Dividends paid to residents in countries with which Canada has bilateral tax treaties are generally subject to the 15-percent Canadian non-resident withholding tax. There is no Canadian tax on gains from the sale of shares (assuming ownership of less than 25 percent) or debt instruments of the company owned by non-residents not carrying on business in Canada. No government in Canada levies estate taxes or succession duties.

Ownership

On February 27, 2006, there were 1,837 holders of record of the company’s common shares.

Shares Listed

Toronto Stock Exchange
New York Stock Exchange
Ticker Symbol: POT

Investor Inquiries

Betty-Ann Heggie, Senior Vice President, Corporate Relations
Canada: (800) 667-0403   US: (800) 667-3930
e-mail: corporate.relations@potashcorp.com

Visit us at www.potashcorp.com

Common Share Transfer Agent

In Canada:		In the United States:
CIBC Mellon Trust Company		Mellon Investor Services, L.L.C.
600 The Dome Tower		480 Washington Boulevard
333 – 7th Avenue SW		Jersey City NJ 07310-1900
Calgary AB T2P 2Z1
Phone:	(403) 232-2400	Phone: (800) 526-0801
	(800) 387-0825
Website: www.cibcmellon.com		Website: www.mellon.com

Shareholders with address changes or inquiries concerning their Potash Corporation of Saskatchewan Inc. stock are invited to contact:

CIBC Mellon Trust (address above), or
Joseph A. Podwika, Corporate Secretary
PotashCorp
Suite 500, 122 – 1st Avenue South
Saskatoon SK S7K 7G3

Interim Reports, News Releases and Form 10-K

Non-registered shareholders who wish to receive quarterly reports should contact the Corporate Relations department. News releases are available via fax and e-mail.

Copies of the company’s most recent Form 10-K are available upon request and on our website.

NYSE Corporate Governance

Disclosure contemplated by 303A.11 of the NYSE’s listed company manual is available on our website at www.potashcorp.com. The company has filed its annual written affirmations/certifications pursuant to the NYSE listing company manual. The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 are filed as exhibits to our 2005 Annual Report on Form 10-K.

Corporate Offices

Canada:	Suite 500, 122 – 1st Avenue South, Saskatoon SK S7K 7G3 Phone: (306) 933-8500
US:	Suite 400, 1101 Skokie Boulevard, Northbrook IL 60062 Phone: (847) 849-4200

24       POTASHCORP 2005 ANNUAL REPORT | SHAREHOLDER INFORMATION

Common Share Prices and Volumes

The table below sets forth the high and low prices, as well as the volumes, for the company’s common shares as traded on the Toronto Stock Exchange and the New York Stock Exchange (composite transactions) on a quarterly basis. Potash Corporation of Saskatchewan Inc. is on the S&P/TSX 60 and the S&P/TSX Composite indices.

(Note: Data are adjusted for stock split effective August 9, 2004 on the TSX and August 16, 2004 on the NYSE.)

		Toronto Stock Exchange1						New York Stock Exchange
		High		Low		Volume		High		Low		Volume
2005	First Quarter		113.92		89.11		18,297,446		92.00		72.91		32,012,000
	Second Quarter		132.11		98.39		13,432,009		106.67		79.27		29,833,400
	Third Quarter		137.99		108.23		14,451,392		115.15		92.85		24,526,600
	Fourth Quarter		108.89		84.76		22,180,812		93.32		72.77		46,103,900
	Year 2005		137.99		84.76		68,361,659		115.15		72.77		132,475,900
2004	First Quarter		57.93		50.96		12,670,142		44.75		38.13		15,905,400
	Second Quarter		64.87		54.58		12,009,046		48.50		39.46		23,604,000
	Third Quarter		81.00		60.75		13,237,872		64.25		45.78		30,366,000
	Fourth Quarter		104.06		76.05		16,211,631		84.00		60.65		29,245,700
	Year 2004		104.06		50.96		54,128,691		84.00		38.13		99,121,100
2003	First Quarter		51.40		41.28		15,018,768		33.18		27.48		25,139,800
	Second Quarter		47.21		40.75		12,704,274		32.75		29.82		21,213,000
	Third Quarter		50.52		42.40		8,477,440		36.78		30.95		14,140,200
	Fourth Quarter		57.75		46.88		14,428,736		43.63		35.24		24,381,780
	Year 2003		57.75		40.75		50,629,218		43.63		27.48		84,874,780

1 Trading prices are in Cdn $
Source: Thomson Financial

Yearly POT Stock Price — NYSE Composite

Over the last three years we answered the worlds call for more potash. We achieved new records in net sales, EBITDA and gross margin. Our cash flow return on investment rose to 16 percent and our interest coverage increased to 14 times. We ended 2005 with a net-debt-to-capital ratio of under 40 percent, despite using $852 million in cash to buy back almost 9 percent of our outstanding shares.

* See reconciliation and description of certain non-GAAP measures in Financial Performance Indicators in our Financial Review, Pages 50 to 52.

ANYWHERE

When people around the world

search for information, our website provides a great
resource. With material ranging from conditions affecting
our business to fertilizer facts and even a KidsWeb section,
www.potashcorp.com is available to anyone, anywhere, anytime.
We are committed to serving not only our stakeholders
but also a growing world hungry for knowledge.

www.potashcorp.com

PotashCorp has built the world’s largest fertilizer enterprise, by capacity, on quality crop nutrients that enrich the earth’s soils. In doing so, we have made connections to farmers everywhere who value our “powerful pink potash” and other fertilizers for feeding their crops. Their corn and soybeans, bananas and sugar cane and other crops are helping to enrich the lives of people around the world who are eating better than they ever have. We are proud to be part of that achievement.

We enrich the world in other ways, as well. Our products are required by industries manufacturing the consumer goods vital to modern living. You won’t recognize our products in your computer screen or your toothbrush, in plastics, paints or other useful items, but they are there, enriching your life. Just like our high-quality animal feed supplements are helping to feed the cattle, swine, poultry and other sources of the meat people want to eat and, more and more, can afford. We are proud to be part of those achievements, too.

It’s a win-win proposition. PotashCorp is successfully helping to enrich the world and its people, and our success ensures that we will also enrich the lives of all our stakeholders for generations to come.

CONTENTS

2 Management’s Discussion & Analysis
SECTION 1 Core Businesses and Markets
The Global Development Story	3
Overview of Our Business	5
PotashCorp in the World Potash Scene	6
PotashCorp in the World Nitrogen Scene	8
PotashCorp in the World Phosphate Scene	9
SECTION 2 Objectives and Strategies
Strategy for Today and Tomorrow	11
Our Potash Strategy	12
Our Nitrogen Strategy	13
Our Phosphate Strategy	14
SECTION 3 Capability to Deliver
Potash: Supplying the World	15
Nitrogen: Supporting Our Trinidad Production	17
Phosphate: Using Our Product Diversity	17
Key Performance Drivers	18
Rewarding Results	19
Managing Risk	20
SECTION 4 Performance and Prospects
Factors That Shaped 2005 Business Conditions	22
2005 Financial Overview	25
Business Segment Review	26
2006 Outlook	36
Liquidity and Capital Resources/Management	39
Accounting Estimates and Changes	44
50 Financial Information
SECTION 5
Financial Performance Indicators	50
Auditors’ Reports	54
Consolidated Financial Statements	56
Appendix	89

2      POTASHCORP 2005 ANNUAL REPORT | MD&A | N, P & K and PotashCorp Facts

of Financial Condition and Results of Operations (in US Dollars)

The following discussion and analysis is the responsibility of management and is as of February 27, 2006. 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 this disclosure and recommends its approval by the Board of Directors. Additional information relating to us (which is not incorporated by reference herein) can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Different nutrients, different business environments

	Potash (K)	Nitrogen (N)	Phosphate (P)
Base Product	Potassium chloride (KCl)	Ammonia (NH3)	Phosphate rock — phosphoric acid (P2O5)
Geographic Availability of	Very limited	Readily available in	Limited
Raw Materials1		numerous locations
		(natural gas)
Cost of New	Approximately	Approximately $500	Approximately $1 billion for
Capacity2	$1.2 billion for 2	million for 1 million	1 million tonnes P2O5
	million tonnes KCl	tonnes ammonia
Greenfield3 Development Time 4	5 years	2 years	3 years
Producing Countries5	12	Approximately 60	44 (based on phosphoric acid)
State- or Subsidy- Controlled Production 6	18%	51%	47%
Industry Operating Rate 7	91%	85%	76%
PotashCorp Capacity8	12.9 million tonnes	4.1 million tonnes	2.5 million tonnes
	potash	ammonia	phosphoric acid
	22% of world capacity	2% of world capacity	6% of world capacity
PotashCorp World Position by Capacity 9	# 1	# 4	# 3

1-9, See Appendix, Page 89

POTASHCORP 2005 ANNUAL REPORT | MD&A | Core Businesses & Markets        3

section 1
Core Businesses and Markets

THE GLOBAL DEVELOPMENT STORY:

ECONOMIC GROWTH DRIVES DEMAND FOR FERTILIZER

The future for global fertilizer enterprises like PotashCorp is being driven by events in countries far from our facilities, where more and more of our quality products are being delivered. These countries are characterized by:

• rising population

• accelerating income growth

• improving diets that drive the ever-increasing demand for protein

• a shrinking land base per capita that makes higher crop yields vital.

Growing Economies

The world economy grew by 4.3 percent in 2005, led by Asian nations — China, India and many others. In these countries, rising numbers of newly prosperous consumers are enjoying the better diets and improved lifestyles they can now afford. Reports suggest that India’s middle class has reached 250 million and may triple by 2010, and China’s fast-growing middle class already numbers about 200 million.

Rising Incomes

Research has shown that when per capita income rises in countries with developing economies, a significant portion of the additional money is spent on a better-quality diet, particularly meat and other foods rich in protein. In China, for example, about one-third of each new dollar of income is spent on food. People in these countries are happily switching from diets based on starch-rich foods to those focused on chicken, pork, beef and other meats. The global demand for meat has escalated in the last decade, and its production depends on grain, oilseed meal, and phosphate and nitrogen feed supplements to nourish the animals that provide it.

Population Growing, Land Base Per Capita Falling

The global population is now 6.5 billion and increasing by more than 75 million a year. Rising population, rapid economic growth and spreading urbanization work together to diminish the per capita land base available for agriculture, which is expected to fall by 40 percent by 2020 to just over 0.2 hectares. More food must be produced on less available land per person.

Global Trade

Together, these factors are driving trade between global agricultural producers and consumers. For example, China is the world’s fourth-largest producer of soybeans but cannot meet domestic demand for cooking oil and the high-protein soybean meal needed by its growing animal feed industry. Its soybean consumption has tripled in eight years, and its production shortfall and resulting need for imports are encouraging farmers in the United States and Brazil to grow soybeans.

World GDP Growth, 2005

Source: IMF, Global Insight

Asian countries led the world in GDP growth in 2005, and rising incomes lead directly to demand for better diets that stress protein, especially meat. More grain is needed to produce that meat, which means increased application of crop-nourishing fertilizers.

Land Available to Agriculture Is Declining

Source: FAO, PPI-PPIC, PotashCorp

The world’s need for increasing amounts of fertilizer is reinforced by the steady decline in the per capita land available for crops.

4      POTASHCORP 2005 ANNUAL REPORT | MD&A | Core Businesses & Markets

Need for Nutrients

In countries such as China, India and Brazil, the nutrient application rate is key to future agricultural prosperity. Crops require nitrogen, phosphate and potash, the three primary nutrients. Nitrogen has the most immediate impact on yield enhancement, but phosphate and potash work with it synergistically to increase yield, quality and disease resistance. Farmers in many countries need to use more of all three nutrients to improve yield and food quality.

Grain Stocks Shrinking as Consumption Rises

In most recent years, grain production has trailed consumption, requiring withdrawals from world inventories. Stocks are historically low, with just over two months of grain in reserve. Any disruption of the efficient global distribution system that delivers these commodities could be disastrous.

Fertilizer Is Vital

Put these factors together — more people, less land per capita, economic growth, demand for protein, declining grain stocks — and they inevitably spell fertilizer. Adequate fertilization of the remaining agricultural land is vital if the world is to respond successfully to these multifaceted challenges.

Elasticity of Demand for Fertilizer

Farmers’ demand for fertilizer has historically been inelastic to price. The return on their investment in soil nutrition can be as much as triple what they spend. In fact, fertilization is a small portion of their total production costs. US farmers, for example, have to spend about $200 to produce an acre of wheat, and fertilizer makes up only 13 percent of that. Fertilizer represents just 4 percent of the cost of producing an acre of soybeans, 7 percent of an acre of cotton, 9 percent of rice and 14 percent of corn.

This is the global development story that tells of rising demand for PotashCorp’s products, especially potash. From here, we’ll outline how we are positioned to meet that demand, today and in the future; discuss our strategy; outline the resources we’re putting behind our strategy; and describe our financial performance and prospects.

Significant Fertilizer Growth Potential
Million Tonnes per Year

Source: Fertecon, PPI-PPIC, PotashCorp

To achieve scientifically recommended nutrient levels, China and India would both need to increase their annual consumption of N, P₂O₅ and KCl by about 30 million tonnes. Soybeans, Brazil’s major crop, fix their own nitrogen but are hungry for potash.

World N, P and K Demand Forecast to Grow

Source: Fertecon, IFA, PotashCorp

Total world demand of the three major nutrients is expected to increase by 2-3 percent per year to the end of the decade. Potash demand has risen the most in the past few years.

DEMAND DRIVERS

FERTILIZER	FEED	INDUSTRIAL
• Rising world population	• Demand for protein-rich	• Rising world population
• Economic growth and resulting	diets from various animal sources	• Economic growth
desire for protein-rich diets	• Herd and flock size	• Desire for products that contribute
• Acres planted and application rates	• Economic growth and rising	to modern living
• Crop selection and commodity prices	population	• Government policy
• World grain stocks	• Government policy
• Weather
• Currency strength
• Government policy

POTASHCORP 2005 ANNUAL REPORT | MD&A | Business Overview       5

OVERVIEW OF OUR BUSINESS:

FERTILIZER IS MOST SIGNIFICANT

With operations and investments in eight countries, PotashCorp has built a thriving global enterprise based on the primary nutrients — potash, nitrogen and phosphate. Our products serve three different markets: fertilizer, which involves all three nutrients; feed supplements, mostly phosphate; and industrial, mainly nitrogen products for industry and purified acid in phosphate. More than two-thirds of our total N, P and K sales are made in North America and we have dedicated sales teams for fertilizer, feed, industrial nitrogen and purified acid, focused on providing maximum value to our customers.

World’s Ten Largest Fertilizer Companies

Source: Blue, Johnson; Fertecon; Agrium; PotashCorp

The world’s largest integrated producer, by capacity, of the natural nutrients potash, nitrogen and phosphate, PotashCorp is particularly the leader in potash, with excess capacity to meet long-term world needs.

POTASH IS THE BIGGEST CONTRIBUTOR

Fertilizer is the most important of our businesses, and over the last three years has made up 60 percent of our net sales and produced 69 percent of our gross margin. Potash, the core of our enterprise and long-term strategy, is the most significant part of the fertilizer business, producing 83 percent of its gross margin. Over 60 percent of our potash goes offshore.

Diverse Customer Base in Potash

2005 Sales Volumes

Source: PotashCorp

Led by China, Brazil and India, offshore markets made up well over half of our total potash sales volumes in 2005. The North American market is stable while offshore markets are growing.

Fertilizers are sold primarily for spring and fall application in both northern and southern hemispheres. Rice, oil palm, sugar cane, bananas, oranges and coffee are among the diverse offshore crops that are important for growth in our potash segment. In North America, all three nutrients are used on corn, wheat, cotton and rice, while nitrogen-fixing soybeans need mainly potash and phosphate.

In both North American and offshore markets, government policy can influence farm income and subsidy levels, which affect fertilizer purchases. Farmers consider crop prices and weather as they decide what to plant, which impacts fertilizer application rates.

Except in Brazil, the larger offshore fertilizer customers are often governments and private distributors that tend to buy under fixed-term price and volume contracts. China, the biggest offshore purchaser of Canadian potash in 2005, buys on one-year price contracts; India buys under semi-annual contracts. Brazilian customers, however, purchase in the spot market. Other important offshore customers are Japan, Malaysia, Indonesia, Vietnam and Thailand. In North America, retailers, cooperatives and distributors buy N, P and K on the spot market from PotashCorp for resale to their end customer, the farmer.

Canpotex Limited handles all sales of Saskatchewan potash destined for offshore markets, with product from PotashCorp, Mosaic and Agrium. Each company owns one-third of Canpotex, with allocation of sales and costs based on their proportionate shares of Saskatchewan potash capacity. Marketing together to

Diverse Crop Use of Potassium

Source: FAO, IFDC, IFA, PotashCorp

The potassium in potash fertilizer is vital to a diverse range of crops in almost all agricultural regions. This includes common cereal crops such as corn, wheat and rice; oil crops like soybeans and oil palm; and other staples like fruits, vegetables, coffee, rubber and cotton.

6       POTASHCORP 2005 ANNUAL REPORT | MD&A | Potash

offshore customers reduces transportation and marketing costs, which are significant, given our distance from ports. Canpotex maintains a network of agents in those growing markets, ensuring our products are prominently represented.

Potash from our New Brunswick operation is handled separately by our own sales division, which also handles North American sales. In North American markets, continued engagement with our customers and strategic alliances with dealers who warehouse our products influence our success in maintaining fertilizer market share while responding to demand.

For all our products, the most important factor in a customer’s buying decision is price, but surveys show that reliability of supply and product quality are increasingly important. Our annual customer surveys show that PotashCorp is ranked above the average in the industry in both areas. We are sensitive to customers’ specific needs. For example, Chinese buyers prefer pink potash. Granular potash is sought after in North American and Brazilian markets for blending, and China is also testing that higher-margin product. Japan uses our potash products in industrial applications, for which quality is a significant factor.

Transportation is an important part of fertilizer’s final purchase price. Offshore customers buy product at the port where it is loaded (FOB) or at their sites with freight costs included (CFR). Approximately 40 percent of our potash customers are responsible for their freight costs, and the remainder buy CFR, with Canpotex paying the freight. Thus changing freight rates affect our margins. Most offshore phosphate sales are FOB. Our nitrogen is sold primarily in North America and, like our North American phosphate sales, on a delivered basis.

Our success in supplying large volumes to more than 50 countries around the world requires an efficient transportation system. We operate our own transportation department and utilize approximately 175 distribution facilities and a fleet of about 7,300 railcars.

FEED AND INDUSTRIAL ARE MORE STABLE

Sales of feed and industrial products have significantly less seasonality and cyclicality than fertilizer sales.

US bulk feed producers are our main feed customers, and our plants’ proximity to customers is an advantage. Brazil and Mexico are our largest offshore feed customers.

Nitrogen and phosphate are important to industry as inputs into a wide range of products that enhance modern living. Industrial customers for our nitrogen products and our phosphoric acid, including purified acid, are based mainly in the US, and we enjoy long-term relationships with them. They include industrial intermediate and product manufacturers such as ICL and Innophos in phosphate and BASF and DSM in nitrogen. Offshore, growth in industrial products that require nitrogen and phosphate is being driven by rising incomes in fast-growing nations.

POTASHCORP IN THE WORLD POTASH SCENE

Potash is by far the best business of the three fertilizer nutrients, delivering the highest-quality earnings in the fertilizer universe.

PotashCorp is the world’s largest potash producer, with an estimated 22 percent of global capacity in 2005 and three-quarters of excess capacity. Our investments in Arab Potash Company (APC) in Jordan, Sociedad Quimica y Minera de Chile (SQM) in Chile, Israel Chemicals Ltd. (ICL) in Israel and Sinochem Hong Kong Holdings Limited (Sinofert) in China further enhance our position.

The potash industry is consolidated. Good deposits that are easy and economical to mine are rare, so only 12 countries produce significant amounts. Canada, Russia and Belarus together account for over two-thirds of world production. Canada alone accounted for one-third of 2005 production, with PotashCorp providing more than half of that.

Offshore market competitors include producers in Belarus, Russia, Germany and Israel. Our major competitors in North America are Mosaic and Agrium, which have more exposure to North American sales than we do. However, our share of this market is rising because they have alloted more product to fulfilling offshore commitments and they are operating at or near capacity.

PotashCorp Is the Largest Potash Company

*	Investments are: 10% of ICL, 28% of APC and 25% of SQM.
**	We own 20% of Sinofert, which has an option to purchase Sinochem Corporation’s 20% interest in Qinghai Salt Lake, the major potash producer in China.
	Source: Fertecon, IFA, PotashCorp

The potash business has the fewest competitors and least government involvement. With our size and excess capacity, PotashCorp is well positioned.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Potash       7

Significant barriers prevent easy entry to the potash business. The rarity of good deposits limits the potential for greenfield mines, along with their high capital cost and lengthy development time.

Potash is more stable than other fertilizer industries because most ownership is in the private sector, where decisions are made for economic, not political, reasons. The only significant government ownership is in Belarus, where the economy and future GDP growth depend heavily on US dollar-denominated potash sales.

More than 150 countries consume potash and 80 percent of product is traded across borders. The growth markets are in offshore countries with little or no indigenous production, where PotashCorp is a prominent supplier. In many of those countries, nutrient application rates — particularly for potassium — do not achieve a soil nutrient balance that will maximize crop yields. Soils in China, India and Brazil, all major potash purchasers, are far from having an appropriate nutrient balance. While China, the largest consumer, produces about 19 percent of its potash consumption internally, it surpassed the US in 2005 as the largest global importer.

World Potash Production and Consumption

Source: Fertecon, IFA, PotashCorp

Asia and Latin America are regions with little indigenous supply. For the most part, PotashCorp supplies Asia from Saskatchewan while our New Brunswick operations serve Latin America. In both these markets, we compete with producers from the Middle East, Russia and Belarus.

The historical trend line shows potash demand growth of about 2 percent per year, although external consultants suggest the long-term outlook could raise this to 3 percent. That creates a need for 1 million to 1.5 million tonnes of new production each year — roughly equivalent to opening two greenfield mines every three years. Several producers have announced debottlenecking projects, but these incremental expansions will be insufficient to keep pace with forecast increases in demand. With our excess capacity, PotashCorp expects to reap a disproportionate share of this growth.

Strengths

• 75 percent of world excess capacity to respond to rising global consumption

• This excess capacity can be brought on stream quickly for roughly one-quarter of the cost of comparable greenfield capacity

• Low-cost, flexible production with small percentage of fixed costs

• Significant reserve life from existing mine shafts

• Few world producers, little government ownership of assets

• Historically stable pricing with upward trend

• Substantial barriers to entry, with high cost/long lead time for greenfield mines; still no greenfield announcements

• High volumes reduce distribution costs

• Strong free cash flow supports value proposition

• No substitutable products for potash

Weaknesses

• Competitors continue with low-cost incremental expansions

• High Saskatchewan resource taxes and federal and provincial income taxes, relative to global competitors

• Production uses higher-cost North American natural gas

• High freight costs to ship Saskatchewan potash to port

• Exposure to volatility in currency and ocean freight costs

• Water inflow at New Brunswick increases production costs there

• Potential for rail transportation bottlenecks

Opportunities

• Long-term growth in consumption is expected to continue

• With competitors at or near capacity, our excess capacity allows us to achieve a higher share of offshore market growth

• Further international investment opportunities

Threats

• Continued upward pricing trend may attract greenfield operations

• Exposure to fluctuating offshore markets

• Short-term weaknesses in global supply/demand fundamentals fall disproportionately on PotashCorp

Cost of Producing a Tonne of Potash
PotashCorp costs are 70% variable and 30% fixed

Source: PotashCorp

Potash has a low percentage of fixed costs. The jump in natural gas prices in 2005 meant that variable energy costs now make up 21 percent of PotashCorp’s cost of producing a tonne of potash.

8      POTASHCORP 2005 ANNUAL REPORT | MD&A | Nitrogen

POTASHCORP IN THE WORLD NITROGEN SCENE

Two criteria are key to success in North American nitrogen markets:

• Access to low-cost natural gas with which to make ammonia and downstream nitrogen products.

• Proximity to the US market, because ammonia is costly to transport and because the US accounts for more than 40 percent of world ammonia imports.

PotashCorp meets both these criteria. Almost two-thirds of our nitrogen is produced in Trinidad, a growing country with a stable government, where we benefit from long-term, lower-cost natural gas contracts that index costs to Tampa ammonia prices. Our Trinidad nitrogen is less than a week’s sailing time from our many US port facilities.

In contrast with the few global producers in potash, nitrogen is manufactured in approximately 60 countries, which makes it a fragmented regional business. Production of ammonia, the feedstock for all downstream products, depends on access to non-renewable, finite natural gas reserves.

Largest Offshore Ammonia Capacity in the Western Hemisphere

*	There are no current plans to restart Geismar or Memphis.
**	Tringen is the government portion only.
	Source: Blue, Johnson; Fertecon; Agrium; PotashCorp

Compared to other producers in the Western Hemisphere, Trinidad provides us with a competitive advantage. Its long-term natural gas contracts shelter us from rising US gas prices, which almost doubled in the fall of 2005.

Countries with rich reserves of gas that are not needed internally opt to monetize and profit from those reserves by converting the gas into ammonia and other nitrogen products. However, they face rail and ocean transportation costs that limit movement of that ammonia to markets. It must be carefully transported in specialized refrigerated and pressurized vessels, which are currently in short supply. Urea, the most popular nitrogen fertilizer, is easier and cheaper to transport.

Governments own more than half the world’s ammonia plants, so decisions are often made for political reasons and can significantly disrupt global nitrogen markets.

The largest ammonia producer is China, followed by India, Russia and the United States. China also consumes significantly more ammonia and urea than any other country. The US has the second-highest consumption, although it is the largest importer. Rising natural gas costs have squeezed a considerable amount of US production from the market and increased US reliance on imports.

World Natural Gas Costs
2005 Average

Source: Fertecon, PotashCorp

Regions with low-cost reserves of natural gas have a significant economic advantage in ammonia production, and many of their producers aim to export their ammonia to the United States. However, costly specialized vessels are required for transport, which reduces this advantage.

US producers act like a shock absorber. In the past, gas was cheaper and all US producers operated at maximum rates. When demand outstripped supply, ammonia and urea prices rose, quickly attracting imports from offshore, which suppressed nitrogen prices. Now, in an era of high-cost natural gas, nitrogen prices are mainly driven by US gas costs. As gas prices rise, US producers shut down, supply tightens and prices go up. The sustained high US gas costs have kept production down, reducing volatility.

In the last six years, 4.4 million tonnes of US ammonia capacity was permanently closed. A similar amount is considered vulnerable. To mitigate the impact of additional tonnes from low-cost gas regions over the next two years, producers that rely on high-cost gas in North America and Europe are expected to shut down some production.

Industrial customers demand consistent quality and just-in-time delivery to keep their plants running efficiently. They often attain these through pipelines directly attached to their suppliers.

Within North America, nitrogen sales are regionalized due to logistical/transportation costs. This limits our competition from

POTASHCORP 2005 ANNUAL REPORT | MD&A | Nitrogen/Phosphate   9

Agrium and other Canadian sources that serve a different geographic market.

Competitors closer to the Mississippi River system or the US Gulf are far more exposed to imports, and are among the first to curtail production when gas prices spike. These include CF Industries, Terra and Koch. Our Augusta and Lima plants operate in regions somewhat insulated from Gulf imports.

Strengths

• Long-term, lower-cost natural gas contracts in Trinidad

• 65 percent of our gross ammonia production is in Trinidad

• Trinidad plants are expanding within existing gas contracts, adding to cost-advantageous production there

• Close proximity of Trinidad production to the US

• 84 percent of our US manufactured ammonia is sold outside fertilizer cycles to industrial customers, the largest connected by pipeline

• Hedging program mitigates natural gas price risk related to US production

Weaknesses

•    35 percent of our ammonia production is in the US, dependent on higher-cost gas

•    Contractual commitments to industrial customers may force us to operate unprofitably in a high-cost gas environment

Opportunities

• High volume demand in the US

• Natural gas costs now drive the US market

• US distribution system allows us to import and sell purchased tonnes

• US industry consolidation

Threats

• Abundant low-cost natural gas in developing countries leads to its monetization as nitrogen products

• Small supply/demand fluctuations can significantly impact prices

• Nitrogen plants are spread globally, with significant government ownership and influence

• Short construction period for new capacity can impact the market quickly

• Reduction in differential between US and Trinidad natural gas prices

Cost of Producing a Tonne of Ammonia
PotashCorp costs are 82% variable and 18% fixed

Source: PotashCorp

Depending on its price, natural gas can make up between 80 percent and 95 percent of the cash cost of producing a tonne of ammonia. Our long-term contracts for lower-cost gas in Trinidad shield nearly two-thirds of our ammonia production, keeping our average gas price down despite exposure of our US production to high-cost gas.

POTASHCORP IN THE WORLD PHOSPHATE SCENE

Traditionally, the phosphate business has been identified with the solid fertilizer DAP (diammonium phosphate), but in today’s market the ability to direct phosphoric acid — the base for all downstream phosphate products — into non-fertilizer areas has become an important factor. Producers with abundant, high-quality rock reserves and the ability to use phosphoric acid in producing industrial or feed products, while putting as little as possible into DAP or MAP (monoammonium phosphate), have a long-term competitive advantage.

The US is the world’s largest consumer of phosphoric acid, followed by China and India. China, the US, India and Brazil consume significant quantities of phosphate fertilizers.

Phosphate is produced in more than 40 countries, with China the largest producer, followed by the United States, Morocco and Russia. Phosphate products include liquid and solid fertilizers, feed supplements and products used by industry. About 60 percent of PotashCorp’s phosphoric acid is used in fertilizers, mainly DAP and the liquid fertilizers that are especially important in modern minimum-till farming.

Almost half of global phosphate production is owned or controlled by governments, which often accept negligible to negative returns to support employment. As a result, world DAP capacity has surged in recent years, with approximately 45 percent of production traded across borders. Historically, US DAP capacity was built for export markets, particularly China and India. These countries have now developed domestic capacity and have significantly less need for imports from the US.

Others have made announcements about bringing 9 million tonnes of DAP capacity into production over the next five years. In a 28-million-tonne global market with annual demand growth of 900,000 tonnes, the long-term supply/demand situation for DAP is fundamentally flawed unless there are permanent shutdowns to offset this new production. However, at the end of 2005 the North American market was reasonably tight after a series of temporary plant closures.

At PotashCorp, we are required to produce some DAP and currently about 20 percent of our phosphoric acid goes to its production. We orient our phosphoric acid as much as possible to feed and industrial products.

10      POTASHCORP 2005 ANNUAL REPORT | MD&A | Phosphate

Most Diversified Producer
Flexibility Provides Stability

Source: Fertecon, Mosaic, PotashCorp

The quality of our rock provides a competitive advantage compared to the other largest world producers, enabling us to make a greater range of products. We reduce volatility by making the most profitable downstream products.

The longer-term fundamentals for both feed and industrial are favorable. Phosphate rock is necessary for production of all downstream products and global supply/demand fundamentals are tight. For the high-quality rock required to economically produce industrial acid and the specialty feed product DFP, this is especially the case.

There are only three North American producers of purified acid, including PotashCorp. The rock quality at our Aurora operation allows us to be a significant player in this growing high-margin business. Industry demand for purified acid continues to grow globally, while US production has been rationalized. Several energy-intensive thermal phosphoric acid plants have shut down as they are not competitive with the more economical wet process technology for producing purified acid.

Lower Rock Costs Create Competitive Advantage

Source: TFI, British Sulphur, PotashCorp

Now that we are mining from the low-cost NCPC reserve near our Aurora facility, we have reduced our rock costs while other large Florida producers are spending more to transport lower-quality, higher-cost rock over longer distances to their facilities.

Dical, Monocal and DFP are the three phosphate feed supplements. Producers can easily move into Dical and Monocal production, but the quality of our rock at Aurora gives us an advantage over our competitors in producing DFP.

The feed market is growing globally but has stagnated in the US. However, industry rationalization has improved the supply/demand dynamics.

In North America, Mosaic is our major competitor for phosphate fertilizer and feed products, while imports from Morocco and Israel compete for industrial sales. We sell phosphate fertilizers offshore through the sales organization PhosChem, sharing marketing costs and volumes with two other US producers. PhosChem competes with global fertilizer producers and, in India and China, with domestic producers as well. In China, indigenous producers compete for feed sales.

Strengths

• Significant phosphate rock reserves

• Mining close to processing facilities gives competitive cost advantage

• High rock quality and proven technology enable economical production diversity

• Well positioned in North American purified acid and feed phosphate markets

Weaknesses

• Product mix still requires production of some solid fertilizers (DAP/MAP)

• Increases in sulfur and ammonia costs can negatively impact margins

• High percentage of fixed production costs means plants do not perform profitably at lower operating rates

Opportunities

• World phosphate rock supply/demand fundamentals are expected to remain tight

• Very few companies globally with high-quality rock to economically produce purified acid

• Rationalization in North American feed phosphate market

• Increased demand by growing economies for industrial and feed phosphates

Threats

• Significant government control and intervention globally in constructing capacity and restricting imports

• China and India increase DAP production, reducing US exports

• Low DAP margins can cause producers to switch to feed production, hurting this business

• High barriers to exit because of significant environmental restoration and remediation costs

POTASHCORP 2005 ANNUAL REPORT | MD&A | Objectives & Strategies       11

Cost of Producing a Tonne of Phosphoric Acid
PotashCorp costs are 42% variable and 58% fixed

Source: PotashCorp

Rock is the largest contributor to phosphate production costs, and our rock costs are declining due to our high-quality ore close to Aurora. Sulfur costs rose in 2005 when the market tightened after hurricanes shut down natural gas and oil production facilities and refineries along the US Gulf Coast.

We are building a foundation for the future on what makes us unique. In potash, it is our excess capacity, which serves a growing market. In nitrogen, our position as a low-cost supplier to the US from Trinidad makes us stand out. In phosphate, the quality of our rock allows us to readily diversify our production into feed and industrial products.

section 2
Objectives and Strategies

VISION FOR TOMORROW

We envision PotashCorp as the partner of choice, providing superior value to all our stakeholders. We strive to be the highest-quality low-cost producer and sustainable gross margin leader in the products we sell and the markets we serve.

STRATEGY FOR TODAY AND TOMORROW: Generate Long-Term Growth, Reduce Natural Volatility

To provide our stakeholders with superior value, our strategy focuses on generating long-term growth while striving to minimize the natural volatility of our business by reducing fluctuations in our upward earnings trend line. This is our value proposition.

Applying our strategy daily to maximize gross margin, we concentrate on our highest-margin products, which dictates our Potash First strategy. We complement that by focusing on Trinidad nitrogen and purified phosphoric acid. In potash and purified acid, we are in the

Strategic Positioning Profile

Our goal is to grow the parts of our business that fall strategically into the top right quadrant of lowest costs and competitive pressures — potash, our potash investments and purified phosphoric acid. We seek to minimize our exposure, partly through cost reductions, in those operations in the lower left quadrant of high costs and competitive pressures.

PotashCorp’s Highest-Margin Business
Focus on Growth with Less Volatility

* Trinidad contribution to total nitrogen gross margin is shown on Page 13.
Source: PotashCorp

Our highest-margin products — potash, Trinidad nitrogen and purified acid — are stable businesses that are separate from the grain cycle, counteracting the volatility of nitrogen and phosphate fertilizers.

12     POTASHCORP 2005 ANNUAL REPORT | MD&A | Potash Strategy

top right quadrant of our strategic positioning profile, with lowest costs and lower competitive pressures. In nitrogen, our lower-cost, long-term natural gas contracts in Trinidad give us a significant cost advantage over US producers exposed to high US gas prices that are expected to continue far into the future.

We strive to grow PotashCorp by enhancing our position as supplier of choice to our customers. We work hard to deliver the highest-quality products at competitive prices when customers need them — which is what makes us the supplier of choice. We seek to become the preferred supplier to high-volume, high-margin customers with the lowest credit risk. We recognize that customers’ perceptions of our ability to create value for them based on the price they pay for our products are fundamental to our ability to maintain and grow their business.

We also grow the company by expanding our existing businesses that meet our strategic requirements and by seeking value investments that fit our Potash First strategy. Our decisions are based on our cash flow return materially exceeding cost of capital.

In making decisions for the future, we always evaluate the best return on any possible investment that matches our Potash First strategy. We look at global investments, which must compete on an ongoing basis with organic growth and shareholder distribution as the best use of our free cash flow.

OUR POTASH STRATEGY: Meet World Demand for Long-Term Growth

Our business strategy in potash is to use our excess capacity to fill rising world demand while pursuing acquisitions that extend our global enterprise. Our investments in APC, ICL and SQM (28-percent, 10-percent and 25-percent ownership, respectively) and our 20-percent stake in China’s Sinofert fulfill this requirement, enhancing our profitability.

Our value proposition hinges on the opportunity for long-term growth in offshore potash volumes provided by our excess capacity as we bring it on in response to market demand. To execute this strategy effectively, we must have our capacity available so we can deploy our low-cost production as the market grows.

In 2005, demand grew by 1 percent, bringing total growth over the last four years to 23 percent. Other producers have announced that they are evaluating the possibility of bringing up to 4 million new tonnes to market over the next five years. During that time, outside experts predict, demand growth will be between 4 million and 7 million tonnes. Our competitors are operating at or near capacity and, even with their potential incremental expansions, we expect to capture a disproportionate share of the upside in future growth.

If the demand is not there, we simply will not use our excess capacity. The basis of our success in potash is our strategy of matching supply to demand. We monitor market conditions and produce what the market needs. For nearly two decades, we have been faithfully following and benefiting from this strategy.

New greenfield mines could threaten the success of our potash strategy but there are few geographic opportunities. Furthermore, new mines typically make sense economically at 2 million tonnes of capacity. The threat of greenfield projects does grow with higher prices and profitability but capital costs are high and lead

PotashCorp Production Is Driven by Markets
Utilization of Excess Capacity to Meet Demand

Source: PotashCorp

Since 1987, we have followed a strategy of matching our potash production to world demand. In 2004, we sold more than we produced. In 2005, we rebuilt our inventory.

Illustrative Greenfield Potash Sensitivities
Estimated Price Required to Achieve Desired Return

Source: PotashCorp

Our high-level analysis supports our belief that, depending on the return levels and tax jurisdictions involved, potash prices would need to rise by approximately 30 percent to 50 percent — and stay at that level — to justify a new mine anywhere.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Nitrogen Strategy       13

times are long. Our recent estimates suggest that current potash prices do not justify greenfield reinvestment economics.

Our present market position and desire to use our excess capacity — reaping higher sales volumes at higher prices and lower fixed costs spread over more tonnes — give us a real competitive advantage and the opportunity for significant growth in our potash gross margin.

Our strategy requires us to be the low-cost supplier, on a delivered basis, to all key markets. That makes logistical considerations such as the proximity of production to our end customers extremely important, and we manage transportation and related costs strategically to meet this goal.

For example, APC has a significant advantage in delivering potash to India, which is one strategic reason for our increasing investment in that company, where we appoint the top four management positions. Similarly, our investment in Chile’s specialty producer SQM gives us a strategic position in the world’s leading producer of upgraded potash products, which are used by specialized agricultural enterprises. Our investment in Sinofert provides assured access to the world’s largest potash-consuming country.

We will continue to review potash investment and reinvestment opportunities that expand our global footprint, ensuring that we will be the low-cost supplier on a delivered basis. This is a key component of our value proposition.

OUR NITROGEN STRATEGY: Build on Our Trinidad Asset for Reduced Volatility

PotashCorp has the largest offshore ammonia capacity in the Western Hemisphere, founded on long-term, lower-cost natural gas contracts with the National Gas Company of Trinidad. Our gas contracts provide our entire Trinidad complex with 100 percent of our needs, including all announced expansions, through 2011, 85 percent through 2013 and 51 percent through 2018.

Thus the first component of our nitrogen value proposition is the stability and growth potential that these assets provide in a high-cost US gas environment. Maximizing our Trinidad ammonia under our existing gas contracts enhances our overall strategy of growth with reduced volatility.

North America is our primary nitrogen market. We serve its need for nitrogen fertilizers from Trinidad and concentrate our US production on industrial sales where quality and security of supply are key. Our three operating US plants are linked by pipeline to customer plants. About two-thirds of the urea we produce in the US and 84 percent of the ammonia are sold to industrial customers, and we plan to maximize these stable sales.

We vary production at our US plants in response to margin volatility created by natural gas costs. Augusta and Lima produced ammonia and downstream products in 2005. Geismar processed imported ammonia into nitric acid for the industrial market. Memphis remained shut down.

Leveraging our marketing and operations expertise through asset-light, fee-heavy arrangements in low-cost gas regions could enhance our nitrogen strategy. In these situations, we would seek to provide management knowledge and distribution resources with little capital outlay, while a partner provides the assets.

PotashCorp Trinidad Gross Margin Potential
Potential Margins (after Debottlenecks) with Rising Ammonia Prices

*	Trinidad contribution to total nitrogen gross margin is shown on the graph at right.
Source: PotashCorp

When natural gas reaches $8 per MMBtu in the US, ammonia producers there need a Tampa ammonia price of $295 per tonne just to meet their gas costs. At that ammonia price, and with our expansions completed, our potential Trinidad gross margin is $245 million.

PotashCorp Nitrogen Gross Margin
Correlates to US Gas Prices

Source: NYMEX, PotashCorp

In this high-priced gas environment, our Trinidad operation, with its long-term, lower-cost natural gas contracts, has an ever more significant impact on our total nitrogen segment performance.

14     POTASHCORP 2005 ANNUAL REPORT | MD&A | Phosphate Strategy

OUR PHOSPHATE STRATEGY: Develop Industrial and Feed for Reduced Volatility

We focus our phosphate strategy on reducing volatility through our diversified product line. That lets us allocate our phosphoric acid to the most profitable downstream products, rather than fertilizers affected by cyclicality. Our emphasis is on production of the higher-margin products, particularly purified acid and feed.

Our strategy in industrial phosphate is to maximize production and sales in this stable business where we have only two competitors. Industrial products are in demand globally and generate the segment’s highest margins, so we are expanding to gain market share as others shut down high-cost, energy-intensive plants.

The phosphate feed supplement market has improved significantly with recent rationalization of competitors and production. Our strategy is to focus on price rather than volumes in North America and develop infrastructure in offshore markets to increase sales volumes there. Increased offshore production of meat from animals in concentrated feeding operations is promoting long-term export market growth.

Production of high-quality phosphoric acid generates lower-quality acid byproducts suited to production of solid fertilizers such as DAP, making a base level of this production necessary. Our strategy is to control costs as much as possible for the products that compete in this highly volatile market.

While industrial products give this segment of our business stability, phosphate fertilizers have a significant impact. For this segment to excel, DAP must perform well. While the short-term market appears satisfactory, substantial overcapacity threatens the long term. Therefore, continuing development of our purified acid is of utmost importance.

PotashCorp Phosphate Gross Margin

Source: PotashCorp

Significant earnings generated by industrial acids, especially purified acid, pushed our phosphate segment to almost $100 million in gross margin in 2005. While this was an improvement, it is still well below the results of 1998 when we enjoyed better solid and liquid fertilizer markets.

With our Potash First strategy, we focus on supplying global growth in fertilizer demand but only produce what the market needs. Our strategy in nitrogen and phosphate focuses on Trinidad nitrogen and the stability provided by industrial and feed products.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Capability to Deliver      15

section 3
Capability to Deliver

POTASHCORP’S COMMITMENT

We back up our vision and strategy by employing and positioning all necessary resources to deliver on our value proposition. We allocate our substantial cash flow to the businesses generating the highest returns; all projects compete for capital on this basis. Each year we work to find new ways to make it easier for customers to do business with us. Four customer service initiatives were begun in 2005: an enterprise-wide customer complaint system to track all complaints received and their resolution; an order tracking system; a customer contact recording system; and customer website enhancements.

Our strong cash flow, our experienced management team, our productive workforce, our motivated sales teams and our transportation network work together to ensure that we can fulfill our commitment to deliver.

PotashCorp 2005 Capital Expenditures
Total US $383 Million

Source: PotashCorp

We invest our capital where we generate our best returns. In 2005, 27 percent of our capital expenditures went toward our Potash First strategy, to bring back idled potash capacity. This was supported by investments in Trinidad nitrogen and Aurora purified acid, two other stable high-margin businesses.

POTASH: Supplying the World

Quality earnings through growth and reduced volatility depend on putting proportionately more of our resources into potash, as our Potash First strategy requires. It is vital that our excess capacity is ready when the market calls, since tight global supply conditions are forecast to continue in the long term, our competitors are at or near capacity and demand is rising.

We have 12.9 million tonnes of capacity, but we have not been set up and staffed to produce at that level. In 2005, with our $85-million, 749,000-tonne expansion at Rocanville completed (including 500,000 tonnes of compaction capacity), we were set up and staffed to produce 10 million tonnes. Responding to world demand, we produced 8.8 million tonnes, a PotashCorp record. In 2006, we will be set up and staffed to produce up to 10.4 million tonnes.

In 2005, we continued our historical practice of matching product supply to demand. Our objective is to be in a position to handle surges in demand along an upward trending growth line. From time to time, this will require temporary production shutdowns to ensure inventories do not build up.

Making Our Excess Capacity Ready

Our strategy of matching supply to demand is predicated on our ability to have capacity available when needed. We are bringing back 400,000 tonnes of capacity at Allan and 1.5 million tonnes at Lanigan, most of it not used since the 1980s. This 1.9 million tonnes will be ready for production in the second quarter of 2006 (Allan) and the fourth quarter of 2007 (Lanigan) at a cost of $275 million, roughly one-quarter of the cost of building a greenfield mine of that size. This is a huge competitive advantage for PotashCorp and we are putting the resources into it because we expect to realize significant returns.

The work at Allan and Lanigan involves an additional $110 million for another 1.25 million tonnes of compaction capacity to produce

Breakdown of PotashCorp Capacity
Million Tonnes KCl

Source: PotashCorp

The world needs more potash now, and we are setting up and staffing to ensure that we will be able to deliver it. If markets warrant, we can have our full capacity of 12.9 million tonnes available within three years.

16     POTASHCORP 2005 ANNUAL REPORT | MD&A | Capability to Deliver

PotashCorp — Potash Capacity and Production

Source: PotashCorp

The major difference between PotashCorp and other potash producers is that we have the excess capacity to enable real incremental growth in volumes at a time when world demand is forecast to rise by 2-3 percent per year.

more granular product. Sophisticated farmers in North America, Brazil and, increasingly, China, want granular potash — an upgraded product with granules larger than standard product — to blend with granular nitrogen (urea) and dry phosphate fertilizers. It commands a premium of approximately $30 per tonne over standard potash. We expect greater demand for this upgraded product from farmers adopting the most modern agricultural practices. This is in keeping with our strategy of being prepared for the product mix tomorrow’s potash market will demand.

The projects at Allan and Lanigan will raise our productive capacity to 11.9 million tonnes. We are preparing detailed engineering plans to bring on the remaining 1 million tonnes at Cory and Patience Lake. We are also exploring expansion options at New Brunswick beyond that.

In 2005, we committed adequate resources to new three-year contracts with the unions at Allan, Cory and Patience Lake to ensure ongoing production. We are currently negotiating with the union at Lanigan and the Employees Association at Rocanville. Our New Brunswick operation is not unionized.

Investing in Our Distribution Chain

Preparing for the world’s increasing need for our primary product also involves investing through the distribution chain. Canpotex is investing in a $35-million, 135,000-tonne expansion of its terminals at Vancouver and Portland, which serve the rapidly growing Asian markets. Adding capacity and reducing distribution bottlenecks will prepare them for the expected growth, and we will shoulder the majority of the costs and be the largest beneficiary. We have also opened a terminal in Brazil, one of our first distribution points outside North America.

PotashCorp 2005 Cash Usage
Significant Investing and Financing Activities

Source: PotashCorp

Following our Potash First strategy, we increased our investments in ICL and APC in 2005 and purchased an initial stake in China’s Sinofert. Another significant investment was the 9.5 million PotashCorp shares we repurchased, adding value for our long-term shareholders.

Canpotex took delivery of almost 1,200 custom-made potash railcars in 2005 in preparation for the increasing offshore demand. CP Rail, which carries Saskatchewan potash to the Pacific, invested $160 million to expand track capacity and added 60 locomotives to its fleet in 2005.

To help us move more potash domestically, we have increased our own railcar fleet over the past few years by more than 500 covered hopper cars, including approximately 120 in 2005. We have a long-term agreement with CN that will deliver annual savings in a period of otherwise rising freight costs. Committed to meeting our North American growth, CN acquired 75 new locomotives in 2005 and entered into a major refurbishment program involving approximately 800 covered hopper cars.

Increasing Investments Offshore

Potash First means more than internal organic growth; it also means strengthening our global position in potash. We have complemented our internal growth with increases in our offshore investments. We spent $75 million to raise our share of ICL to over 10 percent and $19 million to increase our APC position by 2 percent. We purchased an initial 10-percent stake in China’s Sinofert for $97 million in July 2005, and increased it to 20 percent in February 2006 for an additional $126 million. With 60 percent of the market share for distribution of imported fertilizers in China, Sinofert generates more than half its total gross margin through potash sales. This investment allows us to improve our access to and understanding of the Chinese fertilizer market. At year-end, the combined market value of these investments — over $1.7 billion — exceeded their book value by approximately $1 billion. This is equivalent to $17 per PotashCorp share.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Capability to Deliver      17

NITROGEN: Supporting Our Trinidad Production

Our nitrogen strategy, based on our Trinidad advantage, provides earnings stability as our value proposition requires. We maximized our advantage by investing $41 million to debottleneck all four ammonia production units there. Two units are complete, adding 156,000 tonnes of capacity. Strong nitrogen prices coupled with above-design results have generated investment payback periods of two years at one unit and one year at the other. We will allocate another $20 million in 2006 to complete expansions of the remaining two units. This should bring an additional 138,000 tonnes on stream by the third quarter and generate similar returns.

In the US, we employ a gas hedging program to mitigate the risk of price volatility. We rigorously manage our US operations in a high-cost gas environment and, when necessary, curtail production and meet our customer commitments by upgrading Trinidad production or spot purchasing. However, sometimes we must continue operating these US plants to meet commitments to industrial customers, producing at a loss.

We also secure our ability to deliver economically to the US by signing long-term leases on ammonia vessels at fixed prices to lower transportation costs.

NYMEX and PotashCorp Gas Prices

Source: NYMEX, PotashCorp

PotashCorp has the advantage of producing in Trinidad with long-term natural gas contracts tied to the price of ammonia while, at the same time, hedging our US gas costs to minimize risk from gas price swings and protect US margins.

PHOSPHATE: Using Our Product Diversity

In phosphate, enabled by the quality of our rock, we employ our capital to diversify into higher-margin industrial and feed products and away from fertilizer.

We increased purified phosphoric acid capacity at Aurora by 83,000 tonnes in 2003. In 2005, we spent $47 million on construction of a fourth, 82,000-tonne plant there, with a further $17 million to be spent through June 2006 when it is expected to come on stream.

In feed phosphates, our new-technology DFP plant at Aurora, which came on stream in 2003 amid teething problems that extended through 2004, is now demonstrating its design capacity. We invested the capital necessary to see this project through, and it allowed us to focus feed phosphate production at Aurora in 2005, eliminating the need to operate the White Springs DFP plant.

With both feed and industrial phosphate products, we like their strategic position of low costs and fewer competitive pressures. Higher prices have improved margins in both.

As our process requires us to produce a certain amount of DAP/MAP and export opportunities are declining, we are taking steps to ensure we remain a preferred supplier to North American customers. Thus, we are making investments at both Aurora and White Springs to handle unit trains in the most efficient manner, reinforcing our reputation for reliability.

We are putting our resources behind our strategy in all three nutrients to deliver on our value proposition. As we measure our progress in achieving our goals, we always consider our risk.

18     POTASHCORP 2005 ANNUAL REPORT | MD&A | Key Performance Drivers

KEY PERFORMANCE DRIVERS

We set targets each year to advance our goals and drive results. In 2005, we began to roll out to the organization our key performance indicators so that employees are able to effectively monitor the achievement of their contribution to corporate goals.

The metrics we focused on flowed from PotashCorp’s long-term goals, as follows:

By increasing sales of our products with more stable and higher margins, we maximize shareholder wealth and achieve our goal of outperforming comparable companies. At the corporate level, the key performance metric for maximizing shareholder wealth is total shareholder return on an annual basis and a sustaining basis. Metrics that support this are cash flow return versus our weighted average cost of capital, EBITDA multiple relative to our peers, and growth in sales and gross margin. We want to trade at a higher multiple than our peers so we do annual surveys to measure investors’ perceptions of our company.

The metrics in our sales and production divisions are cash flow return at the divisional gross margin level and associated working capital. We measure our success at increasing sales of products with stable, desirable margins by analyzing volumes, revenue and gross margin for all sales within each nutrient. The question we ask ourselves is, “Have we optimized our gross margin on a product and customer mix basis?”

The metrics for achieving our goal of being the preferred supplier are the number of complaints we receive and order fill rate categories. We survey customers annually to measure our effectiveness at every stage of the sales transaction and how we compare with our competitors. Our goal is to outperform and have top quartile responses. In 2005, we instituted monthly surveys to monitor customer attitudes about our quality and service.

Being a low-cost supplier is essential to sustaining our profitability. We achieve this goal by reducing cash costs and spending appropriate sustaining capital to maintain productivity and low costs. At the corporate level, the metrics for success are total cost per tonne of each nutrient or primary product and supporting selling and administrative expense. In sales, we measure percentage of customer shipments by preferred carrier and route, associated transportation and distribution expense, freight cost, sales expense and number of tonnes per sales representative. Performance reliability relative to maintenance cost is measured for all nutrients.

Reducing injury rates and environmental impact will help us achieve our goal of no harm to people, no accidents and no damage to the environment. Lost-time and recordable injury rates and environmental events such as reportable releases and permit excursions measure the components of this goal.

Our goal of having motivated, productive employees is reached by encouraging and rewarding performance that supports PotashCorp strategy. We survey employee engagement with our goals and objectives, and over time will be able to compare year-over-year results to guide us toward activities we could introduce or improve to increase employee productivity and emotional buy-in to our objectives.

By contributing to socio-economic well-being in the communities in which we operate, we achieve our goal of having a positive impact there. Part of this is having good governance principles, and our board continues to update its practices as it monitors outside opinion and internal effectiveness. We contribute to our communities by being a competitive employer on a compensation and benefit basis, and we support local causes. We measure our success by reviewing the tone of media coverage, the number of events the company sponsors and total charitable donations and volunteer hours. We also do community surveys and aim for superior performance.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Rewarding Results      19

REWARDING RESULTS

PHILOSOPHY

Our objective is to attract world-class talent who can drive the business forward and achieve the highest sustainable results for shareholders. This is essential to the successful leadership and effective management of PotashCorp on the global playing field. Our executive compensation policies are designed to provide compensation packages that are competitive within the marketplace and encourage individual performance consistent with shareholder expectations. The compensation committee of our Board of Directors pays close attention to the structure of our executive compensation and the proportion of remuneration that is performance-related, on both a short-term and long-term basis.

Our executive compensation program, which has both fixed and variable components, is heavily weighted to pay-for-performance and designed to motivate management to carry out the company’s vision and strategy set out on Pages 11 to 14. Cash compensation

Compensation			Performance
Element	Form	Eligibility	Period	Determination
Base salary	Cash	All staff	Annual	•    Base salary targets are set to the median of comparable companies, adjusted to reflect individual performance and internal equity.
Short-term incentives	Cash	All executives and most full-time permanent salaried staff Total: 1,500 people (approximately)	1 year	•    Awards are based on the achievement of predetermined goals for corporate performance or a combination of corporate and operating group performance. •    Individual awards can be adjusted (+/‑ 20%) to recognize individual performance.
Medium-term incentives	Performance share units	All executives and senior management Total: 65 people (approximately)	3 years	•    Units are issued at a price equal to the average market price of our common shares at award date. •    Each award vests and is paid out at the end of the three-year performance period in relation to a vesting schedule whereby half of the units are vested in accordance with corporate total shareholder return (TSR)1 targets and half of the units are vested in accordance with corporate TSR relative to a selected competitive group’s TSR.
				•    The value at payout is based on the number of vested units multiplied by the 30-day average common share price at the end of the performance period.
Long-term incentives	Performance stock options	All executives and other selected managers Total: 215 people (approximately)	3 years (vesting) 10 years (option term)	•    Performance stock options incorporate a performance-based vesting schedule measuring three-year average excess of cash flow return over weighted average cost of capital. •    Value of vested shares based on our common share price appreciation over the 10-year term.

1	TSR represents the total return on an investment in PotashCorp stock from the time the investment is made.
	The total return has two components: (1) growth in the share price and (2) dividend income on the shares.

EXECUTIVE COMPENSATION LINKED TO KEY BUSINESS DRIVERS

We believe the strong alignment of executive compensation with performance is in the interests of our stakeholders and motivates our management with clear signals about the importance of creating sustainable value for PotashCorp shareholders. As noted above, we place significant emphasis on pay-for-performance, with “at risk” components of total compensation linked to the enhancement of cash flow return and total shareholder return. An example of the performance conditions that must be achieved before vesting will occur in our performance stock option plan is set out below. For additional information relating to our incentive plans and how they link to performance, please refer to our 2006 Proxy Circular on our website.

PERFORMANCE MEASURE	VESTING SCALE
3-Year Average Excess of Cash Flow Return on	Percentage of
Investment over Weighted Average Cost of Capital	Stock Option Grant Vesting
<0%	0%
0.20%	30%
1.20%	70%
2.20%	90%
2.50%	100%

20     POTASHCORP 2005 ANNUAL REPORT | MD&A | Risk Management

levels (comprised of salary and annual short-term incentive bonuses) and benefits are typically designed to approximate the median of our comparator group. Motivation to earn compensation at the upper range of competitive market levels is emphasized through medium-term and long-term variable (or “at risk”) incentive components. These medium-term and long-term incentives reward superior performance and are aligned to sustained growth in shareholder value through improvements in cash flow return and total shareholder return. The more senior the management role in PotashCorp, the higher the proportion of compensation “at risk”.

REWARD STRUCTURE

Our executive compensation consists of four main elements: (1) base salary, (2) cash short-term incentives, (3) cash medium-term incentives (units measuring a three-year performance period), and (4) long-term incentives — stock options. Highlights of these elements are outlined in the table on the previous page.

We do not have any non-qualified deferred compensation arrangements in place for management.

MANAGING RISK

Effective planning and execution of our strategy require detailed analysis of associated risks and management of those risks to prevent loss. PotashCorp has adopted a risk management framework which identifies potential events that could have adverse effects. We then manage those risk events to provide reasonable assurance that they will not prevent us from achieving our goals and objectives — the road maps for successful execution of our strategy. We assess risks by identifying, measuring and prioritizing them, based on their estimated likelihood and severity of loss. Through mitigation responses, we accept, control, share or transfer, diversify or avoid each risk. Thereafter, we monitor them at company, process and activity levels.

We have identified six major corporate categories of risks: markets/business, distribution, operational, financial/information technology, regulatory and integrity/empowerment. Together and separately, these threaten our strategies and affect our ability to take advantage of opportunities to maximize returns for all stakeholders, as our value proposition requires. Risk threats are intricately interwoven, but they can be reduced by lowering the expected frequency or the consequences.

Each year, management re-evaluates the risks identified in previous years. It then identifies the most significant new or elevated risks to company strategy resulting from changes in operations or from external factors. Management reports annually to the Board of Directors on actions and plans to manage the risk universe. Most severe of all risks is a loss of reputation, for that could threaten our earnings, our access to capital or our brand by creating negative opinions of PotashCorp in the minds of employees, customers, investors or our communities.

The new or elevated high risks identified in 2005 are:

Sustaining Growth and Our Earnings Multiple

Our Potash First strategy is key to our success. However, circumstances both external and internal can limit our sustainable long-term growth in potash and its historically high earnings multiple. Externally, we believe further acquisition opportunities are available but may be limited, for the industry is now highly concentrated. Internally, we responded to the accelerated growth in world demand that began in 2003 by increasing production. To achieve our stated capacity of 12.9 million tonnes and take advantage of rising world demand, we are investing capital to bring back capacity idled two decades ago.

Opportunities to invest in other projects with stable, high margins as a percentage of revenue, such as industrial phosphate products and Trinidad nitrogen, are limited. It would be difficult for the phosphate or nitrogen sector to change to more closely resemble potash industry fundamentals, because of the significant government involvement in phosphate and the many global opportunities for nitrogen development based on abundant low-cost natural gas. Mitigation of this risk requires ongoing active dialogue between the board and management on PotashCorp strategy and acceptable risk levels. Likely mitigation action is increasing our equity ownership in APC, ICL, SQM and Sinofert. As well, we are conducting a feasibility analysis of expansion in New Brunswick and reviewing other possible potash investments.

Potash Capacity

For nearly two decades, PotashCorp has followed a strategy of matching potash production to demand to minimize inventory overhang, stressing price and margin as more important than volumes. Inability to respond in time to increased global demand could harm the credibility of this strategy.

Recent growth in demand for potash has outpaced the historical trend, and we have responded in ways that mitigate the risk to the credibility of our strategy. We expanded production capability at Rocanville and added fourth shifts at Allan and Lanigan. Allan’s capacity is being refurbished and renovation of Lanigan’s Phase 1 mill is expected to be complete in late 2007.

Downstream Product Mishaps

In 2005, we increased the rated level of risk of an event occurring during transportation or customer use of our nitrogen products that results in third-party exposures and potential PotashCorp liability. We increased the severity rating of this risk after a serious incident involving an unrelated product and company in South Carolina.

We have mitigated it by eliminating production and sales of agricultural ammonium nitrate (AN). For our industrial AN sales, we thoroughly inspect carriers’ equipment, have instituted

POTASHCORP 2005 ANNUAL REPORT | MD&A | Risk Management      21

a proof-of-delivery system for truck shipments of both industrial ammonium nitrate and ammonia, and require a global positioning system on AN truck shipments. We require truck carriers to employ rigid driver background checks, identification, and equipment tracking processes and standards.

Labor Relations

Strikes or other forms of work stoppage or slowdown that result from unsuccessful contract negotiations or other adverse labor relations activities constitute a risk to our strategy and opportunities, through disruption and cost. In 2005, this risk rating increased with the commencement of negotiations with the United Steelworkers at our Allan, Cory and Patience Lake potash facilities. The union’s expectations reflected the high profitability of potash at the time of negotiation.

By the end of the year, we had settled new three-year contracts at Allan, Cory and Patience Lake at acceptable cost increases. We are currently negotiating with the Communications, Energy & Paperworkers Union of Canada at Lanigan and we will commence negotiations with the Rocanville Potash Employees Association.

Regulatory Risk

PotashCorp may be adversely affected by changes in antitrust laws to which we are subject in various countries. We cannot predict how these laws or their interpretation, administration and enforcement will change over time. Changes in antitrust laws globally, or the interpretation, administration or enforcement thereof, may limit our future acquisitions or the operations of Canpotex and PhosChem.

Many risks we identified as serious in 2004 remained high on the 2005 risk matrix:

New Supply Creates Structural Market Imbalance

In phosphate, competitive supply of solid fertilizer continues to be built faster than world consumption grows, upsetting the supply/demand balance and keeping prices down. We consider this risk more severe now than it was in 2004. Saudi Arabia has begun building a new DAP production facility with a reported capacity of 2.9 million tonnes per year, with at least 1 million tonnes expected to come on line in 2009-10.

In response to the surge in world DAP capacity that flooded markets and suppressed prices in recent years, we have refocused our phosphate business by leveraging our strengths in specialty industrial and feed products. Building on our high-quality rock and proven technology, we are expanding our purified acid production. A further mitigation effort involves streamlining production of DAP and the phosphate feed DFP between Aurora and White Springs to optimize production costs.

Suppressed Demand Creates Structural Market Imbalance

Our potash business success would be put at risk if growth in world demand fell below expectations, reducing trade and affecting our sales volumes and price realizations. This is an ongoing high risk in our risk universe, but temporary blips in demand are a feature of the market. Overall, demand has risen by an average of 2 percent a year since the 1960s, culminating in a 23-percent jump from 2002 to 2005. Even though purchases by Brazil dropped by 20 percent in 2005, world demand rose by 1 percent, and forecasts suggest 2-3 percent growth per year to the end of the decade.

Nonetheless, we mitigate this risk by maintaining our strategy of matching production to demand, and considering price more important than volumes. We have increased our ownership in Arab Potash Company, and we invested in Sinofert, giving us stronger ties with the huge Chinese market and potash demand there.

Risk of Cyclicality

The risk of short-term cyclicality in product prices is most significant in phosphate and nitrogen fertilizers, due to competitive costs, availability of supply and world demand. To mitigate this risk in phosphate, we are focusing as much as possible on non-fertilizer products by expanding purified acid production, consolidating feed phosphate production at Aurora and growing offshore feed sales, so our plants can operate at cost-effective utilization rates. In nitrogen, we are expanding our lower-cost Trinidad production, and we continue to hedge a portion of our North American gas requirements.

GLOBAL RISK ENVIRONMENT

World events and trends that are not unique to our sector but rather impact the international business environment — e.g. interest rates, exchange rates or wars affecting international trade.

RISK TO STRATEGY

Risks to strategy limit the implementation of these strategies due to a lack of integration or changes in the business environment, hindering our ability to take advantage of opportunities.

RISK CATEGORIES

Market / Business Risk Distribution Risk Operational Risk Financial / Information Technology Risk Regulatory Risk Integrity / Empowerment Risk

RISK TO REPUTATION

Risks to reputation threaten PotashCorp’s earnings, capital or brand by creating negative opinions of the company in the minds of employees, customers, investors or our communities.

22     POTASHCORP 2005 ANNUAL REPORT | MD&A | Factors That Shaped 2005 Business Conditions

Political Risk

Our decision to acquire strategic interests in low-cost potash producers with logistical advantages to offshore markets carries some risk, as viable low-cost production outside of Canada is in areas which have elements of political risk. We mitigate this risk by producing more in Canada, investing in geographically diverse jurisdictions and encouraging companies we invest in to carry business interruption insurance.

Distribution Risks

Railcar availability is affected by railway efficiencies and demand for grain and other commodities. A shortage of railcars for carrying potash and increased transit time in North America would result in customer dissatisfaction, loss of sales and higher equipment costs. To mitigate this risk, we increased our private fleet of hopper cars in 2005 and influenced Canpotex to do the same. We worked closely with major North American rail carriers to ensure product moved quickly and smoothly.

Security Risks

These risks include deliberate, malicious acts that may cause injury, property damage or harm to the company’s reputation as well as theft of product for use in criminal acts or terrorism. We maintain strict controls, standards and operating procedures, on top of increased security and intrusion measures.

Risk to Reputation

Loss of a company’s reputation is its greatest risk, and any of the circumstances outlined could affect PotashCorp’s reputation. To mitigate this risk, we build goodwill, use best practices, are committed to sustainability, ensure transparency, practice leading-edge corporate governance and communicate continually with stakeholders. We strive to have “no surprises” for stakeholders in order to support our reputation, which is key to achieving our strategies and value proposition.

section 4
Performance and Prospects

FACTORS THAT SHAPED 2005 BUSINESS CONDITIONS

1 Continued Strength in Global Economy

Despite higher energy prices, world economic growth remained strong in 2005 at 4.3 percent, with relatively low interest rates and moderate inflation contributing to rising GDP in most countries. China and India led with growth of 9.8 percent and 8.1 percent, respectively, exceeding their 2004 performance. At a solid 3.5 percent, US growth was somewhat below 2004’s above-average 4.1 percent. This strong world economy supported improving incomes and desire for more and better food, especially animal protein, which requires more grain to produce.

World Economic Growth

Source: IMF

2 World Grain and Rice Inventories Decline

Ideal growing conditions produced a record crop in 2004 but grain and rice production in the more normal 2005 weather again trailed behind demand, although still the second-largest crop on record. Global demand for wheat and coarse grains has outstripped production in six of the last seven years and for rice the last five years. Rice prices were stronger in 2005, but corn and soybean prices fell due to the large US production, which was exceeded only by the record set in 2004.

World Grain Production and Consumption
Wheat and Coarse Grains

Source: USDA

POTASHCORP 2005 ANNUAL REPORT | MD&A | Factors that Shaped 2005 Business Conditions     23

3 Growth in World Potash Demand Returns to Historical Levels

Following three years of unprecedented growth exceeding 22 percent in total, global potash demand grew by approximately 4 percent in the first half of 2005. Customers then slowed activity in the second half, resulting in growth of 1 percent for the year. Imports by China and India rose by 1.5 million tonnes each. That continued growth was partially offset by adverse weather in Indonesia, Malaysia and Vietnam that reduced fertilizer usage, and by difficult economic conditions that cut Brazil’s potash demand by 1.3 million tonnes.

World Potash Demand* Growth

* Producer sales
  Source: IFA, Fertecon, PotashCorp

4 Another Record Year for Canpotex

In 2005, for the third consecutive year, Canpotex sold record potash volumes: 8.2 million tonnes compared to 7.8 million tonnes in 2004 and 6.3 million tonnes in 2003. The rapid rise indicates growing awareness by many nations that their nutrient consumption is out of balance. They understand the need to apply more potash to catch up with nitrogen and phosphate applications and are moving to improve their nutrient ratios.

Canpotex’s Sales Volumes

Source: Canpotex

5 Fertilizer Prices Rise

Prices for all three nutrients increased in 2005. Potash prices responded to tight supply through much of the year. Nitrogen prices were pulled up by sharp increases in natural gas prices, US nitrogen curtailments and rising ocean freight rates for ammonia tankers. Increased phosphate prices reflected higher input costs, global demand growth that surpassed growth in supply, and lost phosphate production after hurricanes hit the US Gulf region.

6 Growing Pains in Brazil

Farmers in Brazil had to adjust in 2005 to global and domestic conditions that affected the national economy. The Brazilian real continued to appreciate against the US dollar, reducing the return on crops such as soybeans that are sold into the international marketplace in US dollars. Drought reduced yields in southern Brazil, and soybean prices fell after the US harvested its second-largest crop, raising global inventories. Brazil’s banks reacted by tightening credit, which reduced fertilizer purchases and cut potash and phosphate imports.

7 Belarusian Potash Company Initiated

Belarusian Potash Company (BPC), a non-profit export marketing agency, was formed in April 2005 under a presidential decree giving it the exclusive right to market Belarusian potash. Before the year ended, Russia’s Uralkali agreed to become a co-founder and Silvinit, also Russian, expressed interest. BPC has stated that its main objective is to supply potash with minimum participation of intermediaries.

8 Hurricanes Spike US Gas Prices, Further Tighten Nitrogen Supply

Growth in global nitrogen demand exceeded new capacity, maintaining a tight supply/demand balance. Supply was further tightened by US ammonia curtailments — totalling 50 percent of capacity at year-end — after hurricanes damaged natural gas and oil production facilities in the Gulf area and coastal oil refineries. The result was a large, long-lasting rise in prices for oil and natural gas, increasing the cash costs of producing ammonia. Several US nitrogen producers were forced to curtail operations. The benchmark Tampa ammonia price reached a 30-year high.

US Natural Gas Price vs Ammonia Price

Source: Fertecon, NYMEX

24     POTASHCORP 2005 ANNUAL REPORT | MD&A | Factors that Shaped 2005 Business Conditions

	Potash						Nitrogen						Phosphate
	2005			2004			2005			2004			2005			2004
Total World Demand 10 (Million Product Tonnes)		50.7			50.2			143.5			140.4			61.4			60.2
PotashCorp Share of World Production 11		17	%		16	%		2	%		2	%		6	%		6	%

10-11, See Appendix, Page 89

9 US Ammonia Production Down, Imports Up

High natural gas prices reduced US ammonia production, attracting more imports from lower-cost gas regions such as Trinidad. Major hikes in ammonia transportation costs had minimal impact on the Trinidad-US Gulf route while substantially affecting longer supply routes, which further improved Trinidad’s competitive position. On the Black Sea-US Gulf route, shipping rates for refrigerated bulk liquid carriers, which carry ammonia, nearly doubled from the beginning to the end of 2005, spurred by increased trade. Trinidad’s proximity to the US improved its competitive position as a supplier to the world’s largest ammonia market.

Delivered Ammonia Costs to US Gulf

Low-Cost Gas Countries Have Advantage

*	Trinidad assumes ammonia based on US gas at $9.00 per MMBtu.
	Source: Fertecon, OMS, PotashCorp

10 Consolidation of Purified Acid Market Continues

High energy prices are pushing consolidation in the purified acid market. In the US, companies using the older, energy-intensive, thermal acid production technology are finding themselves uncompetitive with the new wet process technology, which is used by PotashCorp.

China, also facing high energy costs, reduced purified acid production. European producers moved more product to China, leaving a gap in the Western Hemisphere. These tight global fundamentals led to higher purified acid prices.

11 Feed Market Contraction, Industry Rationalization

The US market for animal feed phosphates continued its slow contraction in 2005, largely due to displacement of feed phosphates by phytase, an enzyme that improves the bioavailability of phosphates, and distillers dried grain solids, an ethanol byproduct suited for use as an animal feed that contains minor amounts of bioavailable phosphates. The mothballing of PotashCorp’s DFP plant at White Springs, Florida continued the industry consolidation begun with the permanent closure of Coronet’s aged and inefficient DFP plant near Lakeland, Florida in 2004.

US DFP Capacity and Production

Source: TFI, PotashCorp

12 Global DAP Market Strengthened by India’s Large Purchases

The global DAP market was tightened as 2005 progressed by US production losses due to Hurricanes Katrina and Rita and the permanent shutdown of the US Chem plant in November, as well as India’s larger purchases. India anchored the increase in DAP trade by importing approximately 1.5 million tonnes more than in 2004. This was due to low inventory as 2005 began; low domestic production, particularly at the Oswal plant; protracted negotiations between producers and their phosphoric acid suppliers that limited phosphoric acid imports; and favorable monsoon rains, which boosted consumption.

India — DAP Imports

Source: Fertecon

POTASHCORP 2005 ANNUAL REPORT | MD&A | 2005 Financial Overview     25

2005 FINANCIAL OVERVIEW

This section provides an overview of our financial performance based on our consolidated financial statements on Pages 56 to 88. All references to per-share amounts pertain to diluted net income or loss per share (EPS). Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

	Dollars (millions)							% Increase (Decrease)
	2005		2004		2003			2005		2004
Sales	$	3,847.2	$	3,244.4	$	2,799.0			19		16
Gross Margin	$	1,125.0	$	681.4	$	380.4			65		79
Operating Income	$	892.6	$	514.3	$	(55.6	)		74		n/m
Net Income	$	542.9	$	298.6	$	(126.3	)		82		n/m
Net Income Per Share — Diluted	$	4.89	$	2.70	$	(1.21	)		81		n/m

n/m = not meaningful

2005 Earnings Compared to Guidance

The company’s initial midpoint estimate for 2005 EPS, based on the Outlook and assumptions described in our 2004 Annual Report, was approximately $3.88 per share. The final result was $4.89 per share. The primary causes of this variance from our guidance midpoint were:

	Effect
Cause	on EPS
Potash realized prices higher		0.52
Potash volumes lower		(0.41	)
Increased potash costs		(0.28	)
Lower provincial mining taxes		0.17
Subtotal potash		—
Increased nitrogen realized prices (exclusive of purchased product)		2.14
Cost of natural gas and purchased ammonia higher		(1.55	)
Larger gain on natural gas hedges and purchased product margin		0.28
Nitrogen costs lower (exclusive of cost of natural gas and purchased ammonia)		0.06
Subtotal nitrogen		0.93
Phosphate realized prices higher		0.87
Increased input costs for ammonia, sulfur and rock		(0.46	)
Phosphate other costs higher along with lower phosphate sales volumes		(0.09	)
Subtotal phosphate		0.32
Increase in other income		0.06
Increase in selling and administrative		(0.15	)
Foreign exchange variance and higher interest expense		(0.15	)
Subtotal other		(0.24	)
Total variance from 2005 diluted EPS guidance		1.01

2005 Earnings Compared to 2004

The company’s EPS for 2004 was $2.70 per share. The final EPS for 2005 was $4.89 per share. The primary causes of this increase from last year’s actuals were:

	Effect
Cause	on EPS
Potash offshore realized prices higher		1.01
Potash North American realized prices higher		0.91
Increase in potash costs due to foreign exchange		(0.15	)
Increased potash costs along with lower potash sales volumes		(0.06	)
Higher provincial mining taxes		(0.26	)
Subtotal potash		1.45
Increased nitrogen realized prices (exclusive of purchased product)		1.05
Cost of natural gas and purchased ammonia higher		(0.70	)
Nitrogen costs lower (exclusive of cost of natural gas and purchased ammonia) combined with higher manufactured volumes		0.05
Larger gain on natural gas hedges and purchased product margin		0.05
Subtotal nitrogen		0.45
Phosphate realized prices higher		0.58
Increased input costs for ammonia and sulfur		(0.08	)
Subtotal phosphate		0.50
Increase in other income (excluding gain on sale of SQM shares)		0.12
Increase in selling and administrative		(0.08	)
Foreign exchange variance and decrease in interest expense		0.06
Subtotal other		0.10
Subtotal of the above		2.50
Gain from the sale of SQM shares in 2004		(0.31	)
Total variance from 2004 diluted EPS		2.19

26     POTASHCORP 2005 ANNUAL REPORT | MD&A | Potash Results

BUSINESS SEGMENT REVIEW

We report our results of operations in three business segments: potash, nitrogen and phosphate. These business segments are differentiated by the chemical nutrient contained in the product that each produces. 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 our segment disclosures in the consolidated financial statements pursuant to Canadian generally accepted accounting principles (Canadian GAAP), which requires segmentation based upon our internal organization and reporting of revenue and profit measures derived from internal accounting methods. Net sales (and the related per-tonne amounts) are 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.

Our discussion of segment operating performance is set out below and includes nutrient product and/or market performance where applicable to give further insight into these results.

POTASH RESULTS

							% Increase												% Increase											% Increase
	Dollars (millions)						(Decrease)						Tonnes (thousands)						(Decrease)					Average Price per Tonne						(Decrease)
	2005		2004		2003		2005			2004			2005		2004		2003		2005			2004		2005		2004		2003		2005		2004
Sales	$	1,341.1	$	1,056.1	$	758.7		27			39
Freight		129.7		128.7		109.9		1			17
Transportation and distribution		34.5		32.6		29.7		6			10
	$	1,176.9	$	894.8	$	619.1		32			45
Net sales
North American	$	495.6	$	347.5	$	230.6		43			51			3,144		3,246		2,870		(3	)		13	$	157.64	$	107.06	$	80.33		47		33
Offshore		668.3		504.6		336.2		32			50			5,020		5,030		4,213		—			19	$	133.13	$	100.33	$	79.80		33		26
		1,163.9		852.1		566.8		37			50			8,164		8,276		7,083		(1	)		17	$	142.56	$	102.97	$	80.01		38		29
Miscellaneous products		13.0		42.7		52.3		(70	)		(18	)		—		—		—		—			—		—		—		—		—		—
		1,176.9		894.8		619.1		32			45			8,164		8,276		7,083		(1	)		17	$	144.16	$	108.12	$	87.41		33		24
Cost of goods sold		469.5		472.0		415.4		(1	)		14													$	57.51	$	57.03	$	58.65		1		(3	)
Gross Margin	$	707.4	$	422.8	$	203.7		67			108													$	86.65	$	51.09	$	28.76		70		78

Note 18 to the consolidated financial statements provides information pertaining to our business segments.

2005 VS 2004

Highlights

• Gross margin as a percentage of net sales increased to 60 percent, a 28-percent improvement from the 2004 figure of 47 percent.

• Tight global potash supply resulted in higher realized prices, contributing the majority of our total annual change in gross margin. World GDP grew an estimated 4.3 percent in 2005, led by countries such as China and India. Growing prosperity allows people to improve their diets, primarily with more protein from animal sources which in turn require more grain — and, as a result, more fertilizer. This contributed to strong potash demand from some key offshore customers, particularly China and India. This increased demand was partially offset by reduced imports by Brazil, our largest customer in 2004. A strong currency, weak soybean prices and tighter agricultural credit negatively affected Brazilian consumption.

• In North America, a sharp spike in energy costs combined with low crop commodity prices led dealers to step back from the fertilizer market in the fall after a strong first half of the year. US purchasers appear to have deferred buying decisions from the fall of 2005 to the spring of 2006 to avoid building high-cost inventories.

• We produced 8.8 million tonnes of potash in 2005 and ended the year with total inventories of approximately 1.1 million tonnes, up from the historic low of 0.5 million tonnes at the end of 2004 but still approximately 1 million tonnes less than our total storage capacity.

Potash gross margin variance attributable to:

Dollars (millions)

	2005 vs 2004
				Change in Prices							Total Gross
	Change in							Cost of			Margin
	Sales Volumes				Net Sales			Goods Sold			Variance
North American	$	(7.7	)		$	158.7		$	(14.1	)	$	136.9
Offshore		(9.4	)			174.7			(22.7	)		142.6
Other		5.5				(1.8	)		1.4			5.1
Total	$	(11.6	)		$	331.6		$	(35.4	)	$	284.6

POTASHCORP 2005 ANNUAL REPORT | MD&A | Potash Results     27

Potash Production (million tonnes KCl)

									Mine Site
			Production						Employees
	Capacity		2005		2004		2003		(active)
Lanigan SK		3.828		2.023		2.025		1.488		378
Rocanville SK 1		3.044		2.573		1.833		1.989		340
Allan SK		1.885		1.431		1.344		.934		293
Cory SK		1.361		.826		.738		.730		207
Patience Lake SK		1.033		.251		.239		.251		66
Esterhazy SK 2		.953		.953		.953		.953		0
New Brunswick NB		.785		.759		.782		.749		332
TOTAL		12.889		8.816		7.914		7.094		1,616

1	Expansion at Rocanville during 2005 raised its capacity to 3.044 million tonnes and total capacity to 12.889 million tonnes.
2	PotashCorp’s mineral rights at Esterhazy are mined by Mosaic Potash Esterhazy Limited Partnership under a long-term agreement.
	For calendar year 2006, our production allocation is 0.953 million tonnes.

• New three-year labor contracts were successfully ratified at our Allan, Cory and Patience Lake mines in the fourth quarter. These contracts extend to April 30, 2008.

Sales and Cost of Goods Sold

The primary reasons for the $284.6-million increase in gross margin were the following sales and cost of goods sold factors:

• Price increases were achieved in all markets due to strong demand for potash. Higher realized prices on sales to Canpotex contributed $151.1 million to the increase while $23.6 million was realized on offshore sales from our New Brunswick operation. North American realized prices rose 47 percent, or over $50 per tonne, due to product price increases effected throughout the year.

• Prices in the North American market were nearly $25 per tonne, or 18 percent, higher than offshore prices. The gap between the two markets is partly due to offshore customers purchasing under long-term contracts that lag behind North American spot-market increases. The difference also reflects product mix, as North American customers prefer granular product that commands a premium over standard product, which is more typically consumed offshore.

PotashCorp Potash Prices

Source: PotashCorp

Our potash prices increased by 38 percent in 2005. Offshore prices rose throughout the year but fell off in the fourth quarter due to a greater percentage of lower-priced tonnes being sold to China under an old contract.

• Canpotex sold record volumes during 2005 as its sales to India and China rose 53 percent and 32 percent, respectively. This was partially offset by a decline in sales volumes to Brazil, as well as Indonesia, Malaysia and Vietnam, which all experienced significant drought during the year. Despite the record sales volumes of 8.2 million tonnes achieved by Canpotex (2004 — 7.8 million tonnes), of which we supplied 54 percent, our total offshore sales volumes were below 2004 due to Brazil’s lower imports from our New Brunswick operation. Sales to China represented 26 percent of our offshore sales volumes, while Brazil represented 17 percent and India 10 percent.

• Saskatchewan competitors were product-constrained throughout most of the year. As a result, we were able to increase our market share in North America by 10 percent. The North American potash market took 12 percent fewer tonnes during 2005 because, we believe, many dealers delayed fourth-quarter purchases until 2006. Our North American sales volumes for the year were still 3.1 million tonnes, only 3 percent lower than 2004.

• PotashCorp produced a record 8.8 million tonnes of potash in 2005. The expansion at Rocanville and additional shifts at Lanigan and Allan early in the year increased production from 7.9 million tonnes in 2004 and resulted in economies of scale and higher operating efficiencies. Costs on a per-tonne basis, however, rose 1 percent from the prior year, due primarily to higher energy costs (in particular, natural gas) and the economic impact of a stronger Canadian dollar. A decline in the US dollar compared to the Canadian dollar during 2005 negatively impacted cost of goods sold by over $3.00 per tonne.

2004 VS 2003

Total potash sales increased by $297.4 million from 2003 and net sales by $275.7 million, driven by higher average realized prices and record volumes. This led potash to provide $422.8 million (62 percent) of our total gross margin for the year and increase

28     POTASHCORP 2005 ANNUAL REPORT | MD&A | Nitrogen Results

its gross margin percentage from 33 percent of net sales in 2003 to 47 percent.

Canpotex sold 7.8 million tonnes for the year and our Saskatchewan-sourced offshore volumes rose 28 percent, favorably impacting net sales by $72.6 million. Brazil remained our largest customer with 23 percent of volumes. China was second with 20 percent. Indonesia, Oceania, China, India, Malaysia and Korea all had double-digit growth, leading to a 19-percent rise in offshore volumes.

Offshore prices climbed 26 percent despite a 46-percent rise in Canpotex’s ocean freight costs. As new contracts were negotiated with many customers, tight market conditions enabled us to more than cover the increases in ocean freight rates. Year over year, our gains in offshore prices on Saskatchewan-sourced tonnes favorably impacted net sales by $88.6 million, despite China being supplied with potash under a contract negotiated last year at old prices. Average price increases realized on the sale of our New Brunswick product contributed $29.3 million to the increase in offshore net sales.

In the North American market, our average realized prices climbed 33 percent. North American volumes rose overall by 13 percent. With competitors operating near capacity, we were able to increase market share as the year progressed.

PotashCorp continued to increase production to meet growing demand, adding shifts at Lanigan and Allan in 2004, and produced 7.9 million tonnes. The growth in volumes allowed us to lower our Canadian dollar cost of goods sold per tonne by 5 percent and capitalize on economies of scale. This was partially offset by a stronger Canadian dollar, resulting in our cost of goods sold decreasing by $1.62 per tonne from 2003.

NITROGEN RESULTS

							% Increase												% Increase												% Increase
	Dollars (millions)						(Decrease)						Tonnes (thousands)						(Decrease)						Average Price per Tonne						(Decrease)
	2005		2004		2003		2005			2004			2005		2004		2003		2005			2004			2005		2004		2003		2005		2004
Sales	$	1,368.8	$	1,210.4	$	1,156.4		13			5
Freight		39.9		38.1		48.8		5			(22	)
Transportation and distribution		49.5		42.3		42.8		17			(1	)
	$	1,279.4	$	1,130.0	$	1,064.8		13			6
Net sales
Ammonia	$	490.0	$	458.0	$	368.0		7			24			1,672		1,776		1,755		(6	)		1		$	293.05	$	257.85	$	209.63		14		23
Urea		369.5		259.1		276.9		43			(6	)		1,321		1,165		1,470		13			(21	)	$	279.63	$	222.44	$	188.33		26		18
Nitrogen solutions, nitric acid, ammonium nitrate		284.2		239.2		250.8		19			(5	)		1,850		1,797		2,144		3			(16	)	$	153.67	$	133.13	$	116.98		15		14
Purchased		109.9		151.5		149.6		(27	)		1			377		612		711		(38	)		(14	)	$	291.28	$	247.66	$	210.53		18		18
		1,253.6		1,107.8		1,045.3		13			6			5,220		5,350		6,080		(2	)		(12	)	$	240.15	$	207.07	$	171.92		16		20
Miscellaneous		25.8		22.2		19.5		16			14			—		—		—		—			—			—		—		—		—		—
		1,279.4		1,130.0		1,064.8		13			6			5,220		5,350		6,080		(2	)		(12	)	$	245.09	$	211.23	$	175.13		16		21
Cost of goods sold		960.7		887.2		871.6		8			2														$	184.04	$	165.84		143.35		11		16
Gross Margin	$	318.7	$	242.8	$	193.2		31			26														$	61.05	$	45.39	$	31.78		35		43

Note 18 to the consolidated financial statements provides information pertaining to our business segments.

Nitrogen gross margin variance attributable to:

Dollars (millions)

	2005 vs 2004
				Change in Prices					Total Gross
	Change in					Cost of			Margin
	Sales Volumes			Net Sales		Goods Sold			Variance
Ammonia	$	(11.2	)	$	63.4	$	(38.9	)	$	13.3
Urea		19.6			79.9		(38.9	)		60.6
Solutions, NA, AN		13.4			35.3		(55.8	)		(7.1	)
Purchased		(7.2	)		15.5		(5.3	)		3.0
Hedge gains		—			—		5.6			5.6
Other		(1.1	)		4.8		(3.2	)		0.5
Total	$	13.5		$	198.9	$	(136.5	)	$	75.9

2005 VS 2004

Highlights

• Price increases were realized for all nitrogen products.

• Hurricanes that struck the US Gulf region during 2005 and cold weather in the US late in the year led to high natural gas prices sustained at more than $13 per MMBtu during the fourth quarter. This caused ammonia prices to climb rapidly late in 2005 and led North American producers to curtail half of their ammonia operating capacity by year-end, tightening market supply.

• Higher ammonia and urea prices were beneficial for PotashCorp’s Trinidad facility due to our long-term, lower-cost natural gas price contracts. Our Trinidad facility contributed 68 percent of nitrogen gross margin for the year, while North American production added

POTASHCORP 2005 ANNUAL REPORT | MD&A | Nitrogen Results       29

17 percent and gains on our natural gas hedges added 15 percent. The major debottlenecking projects at our 03 and 04 Trinidad plants were completed during the year, resulting in 156,000 additional tonnes of ammonia production capacity per year.

Sales and Cost of Goods Sold

The most significant sales and cost of goods sold contributors to the $75.9-million increase in gross margin were the following:

• Urea realized prices increased 26 percent due to tighter supply/demand fundamentals in world trade, as higher natural gas prices caused further US industry curtailments and Chinese export taxes reduced Chinese urea exports by over 2 million tonnes in 2005, compared to 2004.

• Realized prices for ammonia grew by 14 percent as a result of the high gas costs and production curtailments in the US. Tight supply led to increased ammonia imports that were subject to high freight rates that further influenced prices. The rise in realized prices for ammonia and urea favorably impacted margins due to our long-term, lower-cost natural gas price contracts at Trinidad. Our Trinidad facility provided $217.1 million of 2005 gross margin and contributed 68 percent of nitrogen gross margin, compared to $145.3 million, or 60 percent, in 2004.

• Realized prices for nitrogen solutions, nitric acid and ammonium nitrate generally followed the rise in ammonia and urea prices, as a number of our customer contracts are tied to either natural gas prices or the NOLA ammonia price.

• Cost of goods sold increased 11 percent per tonne. Higher natural gas costs, which led to production curtailments at our Augusta and Lima facilities during the fourth quarter of 2005, were partially offset by increased production at our Trinidad operation (which produced at levels above its expected design capacity). Natural gas costs are the single most important factor contributing to our nitrogen cost of goods sold, typically representing between 80 percent and 95 percent of the cash cost of producing one tonne of ammonia. Our total average natural gas cost, including the benefit of the natural gas hedges and our lower-cost Trinidad gas contracts, was $4.46 per MMBtu

PotashCorp Nitrogen Prices

Source: PotashCorp

High natural gas prices in 2005 led to sustained high realized prices for nitrogen products that raised our nitrogen gross margin to a record $318.7 million. Our ammonia prices were up by 14 percent and our urea prices by 26 percent.

Nitrogen Production (million tonnes)

	Ammonia1								Urea Solids								Nitrogen Solutions2
	Annual		Production						Annual				Production				Annual				Production
	Capacity		2005		2004		2003		Capacity		2005		2004		2003		Capacity		2005		2004		2003
Trinidad		2.007		1.887		1.837		1.759		.709		.748		.619		.647		—		—		—		—
Augusta GA		.688		.655		.665		.655		.381		.360		.368		.334		.581		.242		.225		.223
Lima OH		.550		.382		.460		.510		.329		.225		.238		.280		.227		.079		.104		.120
Geismar LA4		.483		—		—		.116		—		—		—		—		1.028		.118		—		.250
Memphis TN5		.371		—		—		.154		.409		—		—		.178		—		—		—		—
TOTAL		4.099		2.924		2.962		3.194		1.828		1.333		1.225		1.439		1.836		.439		.329		.593

	Nitric Acid1,3								Ammonium Nitrate Solids
	Annual				Production					Annual				Production				Employees
	Capacity		2005		2004		2003			Capacity		2005		2004		2003		Active
Trinidad		—		—		—		—			—		—		—		—		406
Augusta GA		.541		.518		.544		.534			.512		.503		.544		.539		118
Lima OH		.100		.098		.103		.097			—		—		—		—		4	6
Geismar LA4		.844		.568		.521		.589			—		—		—		—		59
Memphis TN5		—		—		—		—			—		—		—		—		1
TOTAL		1.485		1.184		1.168		1.220			.512		.503		.544		.539		588	7

1	A substantial portion is upgraded to value-added products.
2	Based on 32% N content.
3	As 100% HNO3 tonnes.
4	Indefinitely shut down production of ammonia and nitrogen solutions June 4, 2003; restarted nitrogen solutions production on September 15, 2005.
5	Indefinitely shut down production June 4, 2003.
6	Innovene USA LLC operates the Lima facility under an operational agreement with PCS Nitrogen.
7	485 contract employees work at the nitrogen plants, for a total active workforce of 1,073.

30      POTASHCORP 2005 ANNUAL REPORT | MD&A | Phosphate Results

in 2005, 20 percent higher than in 2004. Our North American natural gas hedging activities contributed $48.6 million to gross margin, compared to $43.0 million last year.

2004 VS 2003

Nitrogen sales increased by $54.0 million and net sales by $65.2 million as compared to 2003. Tight supply/demand contributed to higher average realized prices, and all products had double-digit percentage price increases in 2004.

Nitrogen gross margin grew by $49.6 million. Our operation in Trinidad provided 60 percent of our total nitrogen gross margin while our US operations contributed 22 percent. The remainder was achieved from our US gas hedging program.

Overall sales volumes were down 12 percent due to the production shutdowns at Memphis and Geismar. Nitrogen solutions sales volumes were down 54 percent and US urea volumes were down 28 percent, negatively impacting net sales by $46.0 million and $45.1 million, respectively. These volume reductions were partially offset by a rise in average realized prices that increased net sales of these products by a total of $33.8 million. Despite a 6-percent increase from our Trinidad operations, total manufactured ammonia sales volumes were flat, due in part to the shutdown of ammonia production at Geismar. Urea volumes at our Trinidad plant were down 12 percent as a result of a turnaround and other tonnage outages, leading to a reduction in net sales of $13.3 million.

The high natural gas price environment supported an 18-percent increase in US ammonia prices, resulting in $17.3 million additional net sales. At our Trinidad facility, average ammonia and urea prices climbed 28 percent and 18 percent, respectively, favorably impacting net sales by $85.8 million. Higher average realized prices for nitric acid and ammonium nitrate were the primary reason for the $23.1-million increase in net sales compared to 2003.

Our average unit cost of natural gas, including our hedge, was $3.71 per MMBtu in 2004, compared to $2.96 per MMBtu in 2003. Since natural gas represents the major component of our cost of goods sold in nitrogen, this increase was a key factor in the 16-percent rise in per-tonne costs. Our natural gas hedging activities contributed $43.0 million to gross margin in 2004, compared to $89.9 million in 2003.

PHOSPHATE RESULTS

								% Increase											% Increase														% Increase
	Dollars (millions)							(Decrease)					Tonnes (thousands)						(Decrease)						Average Price per Tonne								(Decrease)
	2005		2004		2003			2005		2004			2005		2004		2003		2005			2004			2005		2004		2003				2005		2004
Sales	$	1,137.3	$	977.9	$	883.9			16		11
Freight		80.1		71.9		75.8			11		(5	)
Transportation and distribution		37.9		29.4		26.2			29		12
	$	1,019.3	$	876.6	$	781.9			16		12
Net sales
Fertilizer — liquids	$	208.2	$	147.3	$	167.7			41		(12	)		931		704		751		32			(6	)	$	223.68	$	209.17	$	223.17				7		(6	)
Fertilizer — solids		346.7		324.7		249.2			7		30			1,516		1,590		1,494		(5	)		6		$	228.60	$	204.16	$	166.78				12		22
Feed		221.0		190.6		182.6			16		4			860		888		861		(3	)		3		$	256.96	$	214.78	$	212.25				20		1
Industrial		231.2		204.1		174.5			13		17			664		611		541		9			13		$	348.12	$	334.09	$	322.72				4		4
		1,007.1		866.7		774.0			16		12			3,971		3,793		3,647		5			4		$	253.61	$	228.50	$	212.23				11		8
Miscellaneous		12.2		9.9		7.9			23		25			—		—		—		—			—			—		—		—				—		—
		1,019.3		876.6		781.9			16		12			3,971		3,793		3,647		5			4		$	256.66	$	231.11	$	214.40				11		8
Cost of goods sold		920.4		860.8		798.4			7		8														$	231.75	$	226.94	$	218.92				2		4
Gross Margin	$	98.9	$	15.8	$	(16.5	)		526		n/m														$	24.91	$	4.17	$	(4.52	)			497		n/m
Note 18 to the consolidated financial statements provides information pertaining to our business segments.																																n/m = not meaningful

Phosphate gross margin variance attributable to:

Dollars (millions)

				2005 vs 2004
				Change in Prices					Total Gross
	Change in					Cost of			Margin
	Sales Volumes			Net Sales		Goods Sold			Variance
Fertilizer — liquids	$	27.6		$	21.6	$	(33.3	)	$	15.9
Fertilizer — solids		(1.7	)		32.6		(11.6	)		19.3
Feed		(0.4	)		37.5		3.8			40.9
Industrial		3.3			14.3		(11.0	)		6.6
Other		0.9			—		(0.5	)		0.4
Total	$	29.7		$	106.0	$	(52.6	)	$	83.1

2005 VS 2004

Highlights

• Increased export demand, industry curtailments, higher input costs (particularly for ammonia and sulfur) and the closure of a competitor’s plant led to price increases.

• Hurricanes which struck the US Gulf region in the third quarter disrupted competitor production of phosphate products, reinforcing an already tight supply situation in the US marketplace.

• Feed phosphate conditions greatly improved, with 20 percent higher realized prices due to tight supply/demand fundamentals.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Phosphate Results      31

• Higher-margin industrial phosphate products represented 55 percent of phosphate gross margin at $54.3 million in 2005, compared to $47.7 million in 2004, when all other major product categories saw negative gross margins.

Sales and Cost of Goods Sold

The $83.1-million improvement in gross margin was largely attributable to the following sales and cost of goods sold components:

• Price improvements were realized in all major product categories. In feed, we benefited from tighter North American supplies and higher North American prices as previously announced price increases were realized. Realized prices for solid fertilizers were up as demand in India and Pakistan increased during 2005. As well, industry curtailments and production cutbacks in the US during the latter part of 2005 (resulting from the continuing effects of Hurricanes Katrina and Rita and the closure of US Chem’s plant) led to reduced supply. Liquid phosphate fertilizers benefited from strong demand, resulting in higher realized prices. Price increases for liquid fertilizers in the Indian market were a major contributor to overall favorable offshore price realizations, but higher prices in the North American market were also achieved.

• Sales volumes were relatively flat, though there was a marked change in product mix. Liquid fertilizer sales volumes were 32 percent higher as the benefit of the first full year of an MGA

Purified Acid Production (million tonnes P₂O₅ )

	Annual				Production
	Capacity		2005		2004		2003
Aurora NC		.251		.248		.246		.204

Purified acid is a feedstock for production of downstream industrial products such as metal brighteners, cola drinks and pharmaceuticals.

Phosphate Feed Production (million tonnes)

	Annual				Production				Employees
	Capacity		2005		2004		2003		(active)
Marseilles IL		.278		.127		.138		.151		24
White Springs FL (monocal)		.272		.190		.126		.060		23
Weeping Water NE		.209		.119		.122		.147		31
Joplin MO		.163		.080		.087		.088		26
Aurora NC (DFP)		.159		.115		.079		.050		31
Kinston NC1		—		—		—		.008		0
White Springs FL (DFP)2		.100		.044		.086		.059		0
Fosfatos do Brasil		.110		.076		.075		.051		93
TOTAL		1.291		.751		.713		.614		228

1	Ceased production February 19, 2003.
2	Ceased production July 31, 2005.

PotashCorp Phosphate Prices

Source: PotashCorp

Our average phosphate prices rose by 11 percent in 2005, with the highest increases — $42 per tonne or 20 percent — in feed. Prices for industrial phosphate products, which represent 55 percent of 2005 phosphate gross margin, rose $14 per tonne.

Rock and Acid Production

	Phosphate Rock (million tonnes)								Phosphoric Acid (million tonnes P2O5)
	Annual				Production				Annual					Production				Employees
	Capacity		2005		2004		2003		Capacity			2005		2004		2003		(active)
Aurora NC		6.000		4.417		3.964		3.078		1.202			1.048		1.018		.919		1,003
White Springs FL		3.600		3.186		2.745		2.686		.966	1		.865		.773		.777		874
Geismar LA		—		—		—		—		.202			.184		.171		.165		77
TOTAL		9.600		7.603		6.709		5.764		2.370			2.097		1.962		1.861		1,954

¹ Elimination of a small phosphoric acid production circuit reduced capacity from 1.093 million tonnes P₂O₅ to 0.966 million tonnes.

Phosphate Production (million tonnes product)

	Aurora									White Springs									Geismar
	Annual			Production						Annual			Production						Annual			Production
	Capacity			2005		2004		2003		Capacity			2005		2004		2003		Capacity			2005		2004		2003
Liquids:
MGA1		1.835			1.697		1.687		1.522		1.908			.879		.858		.966		.337			.304		.282		.272
SPA		.676			.149		.224		.285		1.138			.719		.569		.748		.196			.059		.086		.091
Solids (total)		1.247	DAP		.495		.472		.377		.710	DAP		.477		.575		.625			DAP		—		—		—
			MAP		.413		.525		.469			MAP		.172		.091		—			MAP		—		—		—
			Total		.908		.997		.846					.649		.666		.625					—		—		—

¹ A substantial portion is consumed internally in the production of downstream products. The balance is exported to phosphate fertilizer producers and sold domestically to dealers who custom-mix liquid fertilizer.

32      POTASHCORP 2005 ANNUAL REPORT | MD&A | Expenses & Other Income

contract with India was realized. These volumes were partially offset by declines in solid fertilizer volumes as reduced demand in Brazil more than offset higher Pakistan and India purchases. The decline in solid fertilizer volumes positively impacted gross margin as the products for which sales declined were lower-margin products.

•

Cost of goods sold rose by $59.6 million. Although a 7-percent increase in phosphoric acid production levels allowed us to benefit from operating rate efficiencies, we experienced an unfavorable price variance of $52.6 million due to increases in chemical, reagent and energy costs, as well as higher fixed costs (primarily fringe benefits and accretion expense associated with asset retirement obligations). Additionally, raw material input costs for ammonia and sulfur increased by 10 percent and 3 percent, respectively. The cost and availability of both of these inputs were negatively impacted by the hurricanes.

2004 VS 2003

Our total phosphate gross margin improved to $15.8 million in 2004 from a loss of $16.5 million in 2003. Total phosphate sales increased by $94.0 million and net sales by $94.7 million, with freight, transportation and distribution costs remaining flat, in aggregate, compared to 2003.

Solid fertilizer net sales increased by $75.5 million over 2003, driven by 16 percent higher offshore volumes. Volumes were lower in 2003 as they were impacted by the shutdown of DAP capacity at the White Springs Suwannee River plant. Prices for DAP and MAP were higher due to hurricanes during the third quarter that decreased North American inventory and tightened supply. The higher prices had a positive impact on net sales of $55.0 million.

Net sales of liquid fertilizers declined by $20.4 million from last year. Sales volumes dropped 6 percent, largely due to a 23-percent decline in North American tonnages, as PotashCorp chose to sell less there when strong competition kept prices under pressure. The overall decline in sales volumes negatively impacted net sales by $23.6 million. Prices for liquid fertilizers were also below 2003 levels, primarily as a result of product mix.

Net sales of feed improved by $8.0 million as we benefited from higher DFP prices and extra volumes due to a plant closure by a competitor. Industrial net sales rose by $29.6 million compared with 2003. Volumes increased by 13 percent, favorably impacting net sales by $28.7 million. The volume increase was largely a result of lower imports from China, and more product being available from our purified acid plant expansion at Aurora.

While overall phosphate prices and volumes increased, product costs continued to be a challenge. Cost of goods sold increased by $8 per tonne. Average sulfur and ammonia input costs per tonne rose 4 percent and 31 percent, respectively, increasing cost of goods sold by a total of $29.4 million. In addition to these higher input costs, continuing start-up problems with our DFP plant at Aurora negatively impacted cost of goods sold by approximately $9.0 million.

EXPENSES AND OTHER INCOME

					Dollars (millions)									% Increase (Decrease)
	2005		% of Sales		2004		% of Sales		2003			% of Sales		2005			2004
Selling and administrative	$	144.5		4	$	130.6		4	$	96.1			3		11			36
Provincial mining and other taxes		137.2		4		92.6		3		57.0			2		48			62
Foreign exchange loss		12.5		—		19.7		1		51.9			2		(37	)		(62	)
Other income		61.8		2		79.4		2		33.2			1		(22	)		139
Other expenses		—		—		3.6		—		264.2			9		(100	)		(99	)
Interest expense		82.3		2		84.0		3		91.3			3		(2	)		(8	)
Income tax expense (recovery)		267.4		7		131.7		4		(20.6	)		n/m		103			n/m

n/m = not meaningful

2005 VS 2004

Selling and administrative expenses increased $13.9 million over 2004, primarily as a result of the non-cash expense associated with performance stock options approved by the company’s shareholders and granted to employees in the second quarter of 2005. For those awards granted to employees eligible to retire before the vesting period, compensation cost is attributed over the period from the grant date to the date of retirement eligibility. The compensation cost attributable to the 2005 stock option grants for the year ended December 31, 2005 was $24.8 million and we expect compensation cost for the years ended December 31, 2006 and 2007 to approximate $5.1 million and $4.6 million, respectively. Total pre-tax stock option expense recorded in 2005 was $27.5 million, of which 81 percent pertained to selling and administrative expenses. This compared to $11.1 million in 2004, when 74 percent represented selling and administrative expenses. The remaining changes in selling and administrative expenses resulted largely from increased repair and maintenance activities, partially offset by reductions in other performance-based compensation due to movements in our share price.

Provincial mining and other taxes rose by $44.6 million, principally due to increased Saskatchewan Potash Production Tax and corporate capital tax. Saskatchewan’s Potash Production Tax is comprised of a base tax per tonne of potash sold and an

POTASHCORP 2005 ANNUAL REPORT | MD&A | Expenses & Other Income                      33

additional tax based on mine profits. The profits tax component rose significantly, driven by 38 percent higher realized potash prices year over year.

The year-end translation of Canadian dollar-denominated monetary items on the Consolidated Statement of Financial Position contributed to a net foreign exchange loss of $12.5 million in 2005. The impact of the change in the Canadian dollar relative to the US dollar was not as significant for the year ended December 31, 2005 as it was in 2004, when a foreign exchange loss of $19.7 million was recognized.

Other income declined $17.6 million over 2004 despite an increase of $21.2 million in our share of earnings from equity investments in SQM and APC. The primary reason for the decline was that other income in 2004 included a $34.4-million gain on the sale of approximately 9.8 million shares of SQM.

Weighted average long-term debt outstanding in 2005 was $1,266.3 million (2004 — $1,269.5 million) with a weighted average interest rate of 6.9 percent (2004 — 6.9 percent). The weighted average interest rate on short-term debt outstanding was 3.5 percent (2004 — 1.4 percent). Despite the higher average interest rates on short-term debt, interest expense decreased $1.7 million in 2005, largely due to the impact of higher average cash balances.

Our effective consolidated income tax rate for 2005 was approximately 33 percent of income before income taxes. This compares to a rate of approximately 33 percent in 2004 when adjusted to reflect the non-taxable gain on the sale of SQM shares and the provision for PCS Yumbes. Income tax expense increased substantially over 2004, driven by the marked rise in operating income. For the year, 85 percent of the effective rate pertained to current income taxes and 15 percent to future income taxes. The increase in the current portion of the current/future split from 80 percent in 2004 was principally due to the substantial rise in potash operating income in Canada.

2004 VS 2003

Selling and administrative expenses increased by $34.5 million, primarily due to compensation programs tied to our share price performance and our cash flow return. Our share price nearly doubled over the course of the year, requiring higher accruals in respect of these programs. Additionally, $11.1 million in compensation related to stock options was expensed during 2004. This non-cash expense arose on the prospective adoption of a new provision of Canadian GAAP in December 2003. Only $1.0 million relating to stock option expense was recorded in 2003.

Provincial mining and other taxes increased by $35.6 million year over year as a direct result of significant increases in profits per tonne, sales volumes and prices in our Canadian potash operations.

The company experienced a net foreign exchange loss of $19.7 million in 2004 (2003 — $51.9 million loss). The decline in foreign exchange loss reflects the Canadian to US dollar exchange rate changes, year over year. The Canadian dollar closed the year $0.09 stronger than at December 31, 2003, which compares with an appreciation of $0.29 from December 31, 2002 to December 31, 2003. The net foreign exchange loss was also reduced in part by $8.0 million in gains realized from foreign currency forward contracts.

Other income rose by $46.2 million, chiefly as a result of: a $34.4-million gain on sale of approximately 9.8 million shares of SQM in December in order to comply with certain Chilean securities ownership thresholds; increases in our share of earnings of equity investees; and growth in dividends from our portfolio investments.

Interest expense decreased by $7.3 million, due to lower total debt balances outstanding, interest rate hedging activities and a substantial build-up of cash and cash equivalents. Weighted average long-term debt outstanding in the year was $1,269.5 million (2003 — $1,230.9 million) with a weighted average interest rate of 6.9 percent (2003 — 7.0 percent). The weighted average interest rate on short-term debt outstanding in the year was 1.4 percent (2003 — 1.4 percent).

IMPACT OF FOREIGN EXCHANGE

Because of the international nature of our operations, we incur costs and expenses in a number of foreign currencies other than the US dollar. The exchange rates covering such currencies have varied substantially over the last three years. The sharp decline in the US dollar has had a significant unfavorable impact on costs and expenses incurred in other currencies, which are translated into US dollars for financial reporting purposes. The economic impact was most pronounced in Canada, where our revenue is earned and received in US dollars, while the cost base for our potash operations is in Canadian dollars. This results in higher translated expenses without any offsetting increase in revenues.

The following table shows the impact on net income if the 2005 exchange rate had remained at the 2004 year-end rate of 1.2036, and the impact on 2004 net income had the rate remained at the 2003 year-end rate of 1.2924:

Impact on net income	2005		2004
Dollars (millions), except per-share amounts
Operating income increase before income taxes	$	12.1	$	26.3
Net income increase		8.1		17.5
Diluted net income per share increase		0.07		0.15

A general description of our hedging activities to help mitigate volatility is outlined on Page 44.

34      POTASHCORP 2005 ANNUAL REPORT | MD&A | Expenses & Other Income

The company’s effective consolidated income tax rate in 2004 approximated 33 percent of income before income taxes when adjusted to reflect the non-taxable gain on the sale of SQM shares and the provision for PCS Yumbes. This compares with a rate of approximately 40 percent (exclusive of the provision for PCS Yumbes and a future income tax reversal of $6.5 million) for 2003. The decrease in rate is due primarily to the impact of Saskatchewan resource tax incentives, changes to the Canadian federal resource allowance and the scheduled Canadian federal statutory rate reduction. Income tax expense increased, driven by the rise in operating income levels. For the year, 80 percent of the effective rate pertained to current income taxes and 20 percent to future income taxes. The increase in the current tax provision from zero percent in 2003 was principally due to the substantial rise in potash operating income in Canada.

STATUS OF 2003 RESTRUCTURING ACTIVITIES REPORTED IN OTHER EXPENSES

Nitrogen and Phosphate Plant Shutdowns

In 2003, we indefinitely shut down our Memphis, Tennessee plant and suspended production of certain products at Geismar, Louisiana due to high US natural gas costs and low product margins. We recorded $4.8 million in employee special termination costs, $101.6 million in long-lived asset impairment charges and $12.4 million in parts inventory writedowns. No significant payments remain to be made. Management expects to incur other shutdown-related costs of approximately $10.3 million should applicable facilities be dismantled, and nominal annual expenditures for site security and other maintenance costs. The other shutdown-related costs have not been recorded in the consolidated financial statements as of December 31, 2005.

The phosphate feed plant at Kinston, North Carolina ceased operations in 2003. In that year, the company recorded $0.6 million for costs of special termination benefits, $0.3 million for parts inventory writedowns and $4.0 million for long-lived asset impairment charges. The Kinston property was sold in 2004 for nominal proceeds.

No additional significant costs were incurred in 2005 or 2004 in connection with the nitrogen or phosphate plant shutdowns.

Provision for PCS Yumbes S.C.M.

In December 2004, we concluded the sale of 100 percent of our shares of PCS Yumbes to SQM. The total gain on the sale was $3.5 million, of which $2.6 million was recognized in 2004. During 2004, we also recorded an additional writedown of $6.2 million, relating primarily to certain mining machinery and equipment not transferred to SQM. The machinery and equipment were sold in 2005 for nominal proceeds.

In 2003, in connection with entering into the share purchase (and related) agreement with SQM, we recorded long-lived asset impairment charges of $77.4 million, non-parts inventory writedowns of $50.2 million, employee contractual termination benefit costs of $1.8 million and $11.1 million for early termination penalties relating to other contractual arrangements. No significant payments remain to be made.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Quarterly Data       35

QUARTERLY RESULTS AND REVIEW OF FOURTH-QUARTER PERFORMANCE

(unaudited, in millions of US dollars except per-share amounts)

					2005											2004
		Q1		Q2		Q3		Q4	Total			Q1			Q2		Q3		Q4	Total
Sales	$	921.4	$	1,057.3	$	938.0	$	930.5	$	3,847.2	$	728.4		$	833.7	$	815.7	$	866.6	$	3,244.4
Less: Freight		67.2		67.4		59.9		55.2		249.7		58.1			68.9		51.2		60.5		238.7
Transportation & distribution		28.9		32.1		29.8		31.1		121.9		23.0			31.3		23.6		26.4		104.3
Cost of goods sold		566.8		613.0		568.8		602.0		2,350.6		523.3			562.8		551.5		582.4		2,220.0
Gross margin		258.5		344.8		279.5		242.2		1,125.0		124.0			170.7		189.4		197.3		681.4
Operating income		216.7		265.7		214.9		195.3		892.6		97.8			129.2		133.1		154.2		514.3
Net income		131.3		164.2		130.3		117.1		542.9		50.7			72.6		75.2		100.1		298.6
Net income per share — basic		1.18		1.50		1.20		1.11		5.00		0.48			0.68		0.69		0.91		2.77
Net income per share — diluted		1.15		1.46		1.17		1.09		4.89		0.47			0.67		0.68		0.88		2.70
Potash gross margin		176.2		223.3		167.6		140.3		707.4		66.7			121.4		120.8		113.9		422.8
Nitrogen gross margin		65.3		99.4		79.7		74.3		318.7		58.2			43.6		68.0		73.0		242.8
Phosphate gross margin		17.0		22.1		32.2		27.6		98.9		(0.9	)		5.7		0.6		10.4		15.8

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; therefore, quarterly amounts may not add to the annual total. Per-share calculations are based on full dollar and share amounts.

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.

The fourth quarter capped a record year for our company. The final three months of 2005 resulted in earnings of $117.1 million, or $1.09 per diluted share, making it the best fourth quarter we have ever had. Over the course of the year, we also set new standards for each one of our four quarters. Our total earnings of $542.9 million, or $4.89 per diluted share, were more than 80 percent higher than our earnings last year. Each of our three nutrients produced strong operating results.

The foundation for our annual performance came from aggressive potash purchasing by customers early in 2005. This was followed in the second half by a pullback in volumes from Brazil, our largest customer in 2004, and a lull in North American markets. That lull in potash demand continued into the first quarter of 2006, following an extended period of record-setting global growth.

Highlights of our 2005 fourth quarter include:

• Our potash operations delivered gross margin of $140.3 million (2004 — $113.9 million) and raised our margin for the year for this nutrient to $707.4 million. This is more than the combined total margin for all three nutrients in 2004. Gross margin as a percentage of net sales rose to 58 percent from 50 percent quarter over quarter. Price was the largest contributor to the substantial increase in margins. Realized prices for potash were up 21 percent from last year’s fourth quarter, but down 5 percent from third-quarter 2005, as the fourth quarter included record volumes of lower-priced standard-grade tonnes sold to China under the old contract. We produced 2.4 million tonnes of potash in the fourth quarter, an increase of 18 percent quarter over quarter that raised our 2005 total to a record 8.8 million tonnes. We took six mine shutdown weeks in the fourth quarter in response to 32 percent lower sales volumes in North America, compared to the fourth quarter of 2004.

• In nitrogen, gross margin of $74.3 million was 2 percent higher than last year’s fourth quarter, raising 2005 gross margin to $318.7 million, a 31-percent increase over our record 2004 margin of $242.8 million. As North America grew accustomed to sustained high natural gas prices, nitrogen producers in the US (including PotashCorp) curtailed production. This tightened supply and led to increased ammonia imports. It also raised ammonia prices by 27 percent quarter over quarter. We were able to capitalize on this by producing nitrogen under long-term, lower-cost gas contracts in Trinidad, a country well positioned to deliver to the US market. Trinidad represented 65 percent of our nitrogen production in 2005; it delivered 87 percent of the quarter’s gross margin in this nutrient.

• Both the quarter and the year marked a resurgence for the phosphate nutrient. Overall, phosphate gross margin of $27.6 million for the quarter was up from $10.4 million in the same quarter last year. Feed phosphate was the largest contributor to the increase, as prices rose 3 percent over the third quarter and 25 percent quarter over quarter as supply/demand fundamentals tightened. In fertilizer, we benefited from tighter supply and better prices, although the gains were largely offset by higher costs for sulfur and ammonia.

• Selling and administrative expenses declined $18.3 million from last year’s fourth quarter, reflecting reductions in accruals for our performance unit incentive plan, which was tied to our share price at year-end.

• Although the strong Canadian dollar unfavorably impacted fourth-quarter results, the effect was smaller than in last year’s same quarter given the much sharper decline in the US dollar in that period.

• Other income declined $39.0 million from last year’s fourth quarter, largely due to 2004’s results reflecting a $34.4-million gain on sale of certain shares of SQM.

36      POTASHCORP 2005 ANNUAL REPORT | MD&A | 2006 Outlook

2006 OUTLOOK

1 Economy: Continued strong global economic growth is projected for 2006. The International Monetary Fund forecasts the same 4.3-percent growth as in 2005, supported by a moderate rise in world and US interest rates. China’s yuan is expected to appreciate in value by more than 3 percent relative to the US dollar, and its economy to grow at 8-9 percent, supporting its rising fertilizer expenditures.

2 Agriculture: The 2006 outlook for agriculture is favorable. In many countries with rising population and strong GDP growth, people are more affluent and able to buy food of improved quality and quantity. The ballooning global demand for grain is expected to reduce the stocks-to-use ratio of wheat and coarse grains to the second-lowest level in more than 30 years, while rice stocks-to-use has fallen to its lowest in that period. To prevent further decline, farmers in key offshore growing areas need to adopt scientifically recommended nutrient application rates to increase crop production.

World Grain Stocks
Wheat and Coarse Grains

Source: USDA

3 Ocean Freight Rates: The 2005 decline in ocean freight rates is projected to continue in 2006, reflecting lower growth in world trade and increasing dry bulk fleet capacity. This decline should help cushion the impact of higher fertilizer prices in some jurisdictions. Older vessels are being scrapped at a moderate rate and capacity is expected to grow by 6.2 percent, reducing fleet utilization from 95 percent to below 93 percent. The high freight rate for ammonia vessels is expected to continue, due to strong demand for transporting ammonia.

Dry Bulk Vessel Supply and Demand

Source: Marsoft

4 Potash: Global demand is projected by industry consultants to increase by 2-3 percent in 2006. Continued growth in demand is projected for China and Southeast Asian countries. Brazil, PotashCorp’s largest offshore customer in 2004, is expected to return to the market with purchases somewhere between its record of 2004 and the reduced 2005 level. Brazil traditionally buys in the second or third quarter as it prepares for its spring season, so this will have a greater impact in the second half of the year.

In the US, deferred purchases in the second half of 2005 drew down field-level potash inventories. As a result, in calendar year 2006, US demand is expected to be similar to that of 2005. However, in the first quarter of 2006, North American shipments got off to a slow start as dealers stepped back to see if softness would lead to lower prices. Consistent with our strategy, we reduced our production to meet this lower demand. By mid-February, dealers were re-entering the market but, with greater inventories at the producer level and very little with dealers, there could be transportation bottlenecks to get product in place for the spring season. PotashCorp has an advantage in this scenario because of our extensive potash warehouse system in the US.

Potash Demand* Growth vs Capacity
Assumes All Capacity Announcements Completed

     

*  Producer sales

Source: Fertecon, PotashCorp

5 Natural Gas: February 7, 2006 futures markets forecast US gas prices in the $8-$11/MMBtu range throughout the year. More drilling rigs and higher liquid natural gas imports are not expected to keep pace with growth in demand. As a result, a high percentage of US ammonia production is expected to remain shuttered while prices rise and imports are high, benefiting our Trinidad plant which serves the US market.

POTASHCORP 2005 ANNUAL REPORT | MD&A | 2006 Outlook    37

   Approximately 78 percent of our 2006 gas needs are hedged, including our indexed gas contracts in Trinidad, as of February 27, 2006. Our total North American 10-year gas hedge position is currently valued at approximately $233 million, with the 2006 portion representing $77 million. We liquidated 40 percent of the 2006 position in the fourth quarter of 2005 for a $40-million gain, which will be recognized over the course of 2006 as the related inventory is sold.

NYMEX US Natural Gas Futures Prices
As at February 7, 2006

Source: NYMEX

6 Nitrogen: High gas prices are expected to keep much US nitrogen production shut down in 2006, maintaining tight supply/demand. New global capacity is forecast to come on stream in low-cost gas regions. This will increase pressure for permanent curtailments among producers in the US Gulf/Lower Mississippi area vulnerable to import competition or European producers whose gas costs have risen, tracking rising oil prices. In addition, gas supply reductions due to contract disputes and adverse weather have led to nitrogen curtailments and shutdowns in Ukraine, Russia, Romania and Eastern Europe.

Vulnerable US Ammonia Plants
11 Plants (Approximately 4.6 Million Tonnes)

Source: Fertecon, PotashCorp.

7 Phosphate: Phosphate fertilizers continue to enjoy some improvement as inventories are under control and demand is rising. Developments in India and China will be influential in 2006. India’s DAP producers have good potential to increase production, which could lower import needs. Chinese policy on new DAP production could also impact markets, encouraging production in excess of China’s domestic needs to enter the export market. However, the permanent shutdown in November 2005 of 1.2 million tonnes of export-oriented DAP/MAP production at US Chem in Florida could offset these events. As always, the Indian acid tender will set the tone for the year. However, it should help that phosphate rock exports from China, an important supplier, may be further limited. Like natural gas in ammonia production, rock costs have gone up. This should push up prices and improve our margins, given our low-cost rock position.

DAP Imports by Country

Source: Fertecon

8  Feed Phosphate Products: US feed phosphate consumption is expected to continue to decline slowly in 2006. Feed phosphate margins are expected to grow as fundamentals are tight due to consolidation, and prices are projected to increase by 20 percent.

9  Financial: Our income tax rate may continue at 33 percent; however, a recent Canadian appeals court decision in the case of a uranium producer could lead to a tax refund in 2006 that, while not assured, would have the effect of lowering our effective annual tax rate to 31 percent. The non-cash future tax rate is expected to increase to 25 percent from 15 percent in 2005, due to anticipated higher tax depreciation claims related to expenditures for the Allan and Lanigan potash projects. Provincial mining and other taxes are forecast to approximate 15 percent of total potash gross margin in 2006, down from 19 percent in 2005, again due to accelerated depreciation claims.

    In these conditions, and assuming a Canadian dollar exchange rate of 1.15, we anticipate a third consecutive record year, with earnings expected to increase by approximately 10 percent to 30 percent. That would provide 2006 earnings between $5.25 and $6.25 per share.

38       POTASHCORP 2005 ANNUAL REPORT | MD&A | Key Earnings Sensitivities/Financial Condition Review

KEY EARNINGS SENSITIVITIES

A number of factors affect the earnings of the company’s three nutrient segments. The table below shows the key factors and their approximate effect on EPS based on the assumptions used in the 2006 earnings guidance of $5.25 to $6.25 per diluted share.

		Effect
INPUT COST SENSITIVITIES		on EPS
NYMEX gas price increases by	Nitrogen		+ 0.13
$1/MMBtu	Potash		– 0.04
Sulfur changes by	Phosphate		± 0.06
$5/long ton
Canadian to US dollar changes by $0.01	Canadian operating expenses net of provincial taxes		± 0.02
	Translation gain/loss		± 0.03

		Effect
PRICE AND VOLUME SENSITIVITIES		on EPS
Price	Potash changes by $5/tonne	± 0.19
	DAP/MAP changes by $5/tonne	± 0.05
	Ammonia increases by $10/tonne
	• Nitrogen	+ 0.06
	• Phosphate	– 0.02
	Urea changes by $10/tonne	± 0.07
Volume	Potash changes by 100,000 tonnes	± 0.06
	Phosphate changes by 50,000 P2O5 tonnes	± 0.06
	Nitrogen changes by 50,000 N tonnes	± 0.06

The above sensitivities affect cash flow as well,except the translation gain/loss which is primarily non-cash.

INDICATORS TO WATCH IN 2006

FERTILIZER

FEED AND INDUSTRIAL

•   Weather and global acreage planted   •   US dollar exchange rates with global currencies   •   Global crop prices   •   Ocean freight rates   •   Prices for natural gas, ammonia and sulfur   •   US nitrogen curtailments   •   Brazil — weather, soybean prices, credit policy   •   China’s agricultural policy, corn exports,     soybean imports   •   US progress on new Farm Bill 2007   •   Ethanol and biodiesel developments

•   Health of US and world economies   •   Effect of livestock-based disease restrictions on world trade     — Avian flu, BSE, F&MD   •   Potential tightening of restrictions on the use of meat and     bone meal in animal feeds   •   Impact of residual grain from ethanol production on US     feed phosphate consumption

FINANCIAL CONDITION REVIEW

Total assets were $5,357.9 million at December 31, 2005, up $231.1 million or 5 percent over December 31, 2004. Total liabilities increased $484.2 million from December 31, 2004 to $3,225.4 million at December 31, 2005, and total shareholders’ equity decreased $253.1 million to $2,132.5 million.

The largest contributors to the change in assets during 2005 were fixed assets, other assets (primarily intercorporate investments), inventories, accounts receivable and cash. Total cash declined $365.0 million from December 31, 2004, primarily due to:

• common share repurchases of $851.9 million;

• additions to property plant and equipment of $382.7 million (including key expansion projects in all three nutrients);

• dividend payments of $65.4 million; and

• additional investments in APC and ICL of $18.6 million and $74.9 million, respectively, and an initial investment in Sinofert of $97.4 million.

The increase in long-term assets was offset in part by depreciation and amortization of $242.4 million. Inventories rose $125.7 million year over year as input costs increased and we began to rebuild inventory levels in anticipation of demand. Accounts receivable

POTASHCORP 2005 ANNUAL REPORT | MD&A | Liquidity & Capital Resources      39

increased $100.7 million over the prior year, largely due to record fourth-quarter potash shipments to offshore customers.

The increase in liabilities was largely attributable to an increase of $242.8 million in accounts payable, of which $145.2 million related to a rise in hedging margin deposits associated with substantially higher natural gas prices at December 31, 2005 compared to December 31, 2004. Short-term debt increased $158.7 million as a result of timing of cash flows and funds required for our share repurchase program. Current income and other taxes payable increased $95.8 million and future income taxes payable increased $43.9 million compared to December 31, 2004, due to substantially higher profits.

Retained earnings increased at December 31, 2005 compared to December 31, 2004, while share capital and contributed surplus balances declined. The $29.1-million decrease in share capital from December 31, 2004 to December 31, 2005 was the result of two offsetting factors: (1) common share repurchases of $125.1 million under our normal course issuer bid; and (2) the issuance of $96.0 million in common shares arising from stock option exercises and our dividend reinvestment plan. Our share repurchase program also had the effect of decreasing contributed surplus by $264.3 million and decreasing retained earnings by $462.5 million compared to December 31, 2004. Net earnings for 2005 of $542.9 million increased retained earnings while dividends declared of $65.0 million and the impact of the share repurchase program correspondingly reduced the balance, for a net increase in retained earnings of $15.4 million at December 31, 2005 compared to December 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES

The following section explains how we manage our cash and capital resources to carry out our strategy and deliver results.

Liquidity risk arises from our general funding needs and in the management of our assets, liabilities and optimal capital structure. We manage liquidity risk to maintain sufficient liquid financial resources to fund our balance sheet and meet our commitments and obligations in the most cost-effective manner possible.

CASH REQUIREMENTS

The following aggregated information about our contractual obligations and other commitments aims to provide insight into our short- and long-term liquidity and capital resource requirements. The information presented in the table below does not include obligations that have original maturities of less than one year, planned capital expenditures or potential share repurchases.

Long-Term Debt

Long-term debt consists of $1,250.0 million of notes payable that were issued under US shelf registration statements, a net of $5.9 million under a back-to-back loan arrangement (described in Note 12 to the consolidated financial statements) and other commitments of $2.9 million payable over the next five years. During 2005, $9.0 million of Industrial Revenue and Pollution Control Obligations were repaid. The notes payable represent 99 percent of our total long-term debt portfolio and are unsecured. Of the notes outstanding, $400.0 million bear interest at 7.125 percent and mature in 2007, $600.0 million bear interest at 7.750 percent and mature in 2011 and $250.0 million bear interest at 4.875 percent and mature in 2013. There are no sinking fund requirements. The notes payable are not subject to any financial test covenants but are subject to certain customary covenants (including limitations on liens and sale and leaseback transactions) and events of default, including an event of default for acceleration of other debt in excess of $50.0 million. The other long-term debt instruments are not subject to any financial test covenants but are subject to certain customary covenants and events of default, including, for other long-term debt, an event of default for non-payment of other debt in excess of $25.0 million. Non-compliance with such covenants could result in accelerated payment of the related debt. The company was in compliance with all covenants as at December 31, 2005.

The estimated interest payments on long-term debt in the table below include our cumulative scheduled interest payments on fixed and variable rate long-term debt. Interest on variable rate debt is based on interest rates prevailing at December 31, 2005.

Contractual Obligations and Other Commitments Payments Due by Period — Dollars (millions)

	Total		Within 1 year		1 to 3 years		3 to 5 years		Over 5 years
Long-term debt	$	1,258.8	$	1.2	$	400.7	$	0.6	$	856.3
Estimated interest payments on long-term debt		392.7		87.7		132.6		118.2		54.2
Operating leases		560.6		80.3		137.6		113.7		229.0
Purchase obligations		943.7		122.4		223.7		191.1		406.5
Other commitments		43.0		13.6		16.8		12.6		—
Other long-term liabilities		849.9		45.9		81.1		70.2		652.7
Total	$	4,048.7	$	351.1	$	992.5	$	506.4	$	2,198.7

40      POTASHCORP 2005 ANNUAL REPORT | MD&A | Liquidity & Capital Resources

Operating Leases

We have long-term operating lease agreements for buildings, port facilities, equipment, ocean-going transportation vessels, mineral leases and railcars, the latest of which expires in 2025. The most significant operating leases consist of three items. The first is our lease of railcars, which extends to approximately 2020. The second is the lease of port facilities at the Port of Saint John for shipping New Brunswick potash offshore. This lease runs until 2018. The third is the lease of three vessels for transporting ammonia from Trinidad. One vessel agreement runs until 2011; the others terminate in 2016.

Purchase Obligations

We have long-term agreements for the purchase of sulfur for use in the production of phosphoric acid. These agreements provide for minimum purchase quantities and certain prices are based on market rates at the time of delivery. The commitments included in the table on Page 39 are based on contract prices.

We have entered into long-term natural gas contracts with the National Gas Company of Trinidad, the latest of which expires in 2018. The contracts provide for prices that vary with ammonia market prices, escalating floor prices and minimum purchase quantities. The commitments included in the table on Page 39 are based on floor prices and minimum purchase quantities.

We also have long-term agreements for the purchase of phosphate rock used at our Geismar facility and limestone used in Brazil. The commitments included in the table on Page 39 are based on the expected purchase quantity and current net base prices.

Other Commitments

Other operating commitments consist principally of amounts relating to various rail freight contracts, the latest of which expires in 2010.

Other Long-Term Liabilities

Other long-term liabilities consist primarily of net accrued pension and post-retirement benefits, future income taxes, environmental costs and asset retirement obligations.

Future income tax liabilities may vary according to changes in tax laws, tax rates and the operating results of the company. Since it is impractical to determine whether there will be a cash impact in any particular year, all long-term future income tax liabilities have been reflected in the “over 5 years” category in the table on Page 39.

Capital Expenditures

We expect to incur capital expenditures of approximately $320 million for opportunity capital during 2006, and approximately $160 million to sustain operations at existing levels.

SOURCES AND USES OF CASH

The company’s cash flows from operating, investing and financing activities, as reflected in the Consolidated Statements of Cash Flow, are summarized in the following table:

Dollars (millions)

										% Increase
										(Decrease)
	2005			2004			2003			2005		2004
Cash provided by operating activities	$	865.1		$	658.3		$	385.5			31		71
Cash used in investing activities	$	(555.3	)	$	(225.5	)	$	(361.7	)		146		(38	)
Cash (used in) provided by financing activities	$	(674.8	)	$	21.4		$	(43.6	)		n/m		n/m
Net (decrease) increase in cash and cash equivalents	$	(365.0	)	$	454.2		$	(19.8	)		n/m		n/m

n/m — not meaningful

Dollars (millions) except ratio amounts

										% Increase
	December 31			December 31			December 31			(Decrease)
	2005			2004			2003			2005			2004
Current assets	$	1,110.8		$	1,243.6		$	733.9			(11	)		69
Current liabilities	$	(1,096.1	)	$	(703.7	)	$	(557.8	)		56			26
Working capital	$	14.7		$	539.9		$	176.1			(97	)		207
Current ratio		1.01			1.77			1.32			(43	)		34

Our liquidity needs can be met through a variety of sources, including: cash generated from operations, short-term borrowings against our line of credit and commercial paper program, and long-term debt issued under our US shelf registration statement and drawn down under our syndicated credit facility. Our primary uses of funds are operational expenses, sustaining and opportunity capital spending, dividends, and interest and principal payments on our debt securities.

Cash provided by operating activities increased in 2005 by 31 percent or $206.8 million. The favorable variance was mainly attributable to: (1) increases in gross margin in all three nutrients, largely driven by higher sales prices throughout 2005; (2) a $145.2-million increase in hedging margin deposits caused by rising natural gas prices; (3) $24.8 million of non-cash costs associated with our performance stock options approved by the company’s shareholders and granted to eligible employees in May 2005; and (4) increases in dividends received from our equity investees.

Cash used in investing activities rose $329.8 million. The most significant cash outlays included:

• In June 2005, we acquired 1,000,000 additional shares in APC for $18.6 million and 21,000,000 additional shares in ICL for $74.9 million. As a result of these purchases, our ownership interest in APC increased from (approximately) 26 percent to 28 percent and our interest in ICL increased from (approximately) 9 percent to 10 percent.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Capital Structure & Management      41

• In July 2005, we acquired a 10-percent interest in the ordinary shares of Sinofert for cash consideration of $97.4 million. Pursuant to a strategic investment agreement, we also held an option to acquire an additional 10-percent interest within three years of the acquisition. We exercised the option subsequent to year-end for $126.0 million, plus transaction costs. Sinofert, a vertically integrated fertilizer enterprise in the People’s Republic of China, is a subsidiary of Sinochem Corporation and is listed on The Hong Kong Stock Exchange.

• We invested $382.7 million, or 10 percent of revenues (2004 — $220.5 million, or 7 percent of revenues), in capital projects, largely related to major expansion projects in all three nutrients. Approximately 43 percent of our consolidated capital expenditures related to the potash segment.

During the year, we received $5.2 million relating to the disposal of PCS Yumbes in 2004. We did not have any significant business dispositions in 2005.

Cash used in financing activities during 2005 increased by $696.2 million over last year. We repurchased a total of 9,500,000 common shares at a net cost of $851.9 million during 2005, all of which had been settled at December 31, 2005. No shares remain to be repurchased under the program. This spending was partially offset by a $158.7-million increase in short-term borrowings during the year, whereas in 2004 we used our cash generated from operations to reduce commercial paper balances by $82.7 million. We also received $67.3 million less proceeds from issuance of common shares in 2005, primarily due to fewer stock options being exercised compared to 2004.

We have historically paid quarterly dividends to shareholders at a rate of $0.125 per share on a post-split basis. In July 2004, we announced that our quarterly cash dividend payment would be increasing to $0.15 per share, commencing in November 2004. As a result, total dividend payments to shareholders in 2005 increased by $9.3 million compared to 2004.

We believe that internally generated cash flow, supplemented by borrowing from existing financing sources if necessary, will be sufficient to meet our anticipated capital expenditures and other cash requirements in 2006, exclusive of any possible acquisitions, as was the case in 2005. At this time, we do not reasonably expect any presently known trend or uncertainty to affect our ability to access our historical sources of cash.

CAPITAL STRUCTURE AND MANAGEMENT

Capital Structure
Dollars (millions), except as noted

	December 31			December 31
		2005			2004
Short-term debt	$	252.2		$	93.5
Current portion of long-term debt		1.2			10.3
Long-term debt		1,257.6			1,258.6
Total debt		1,511.0			1,362.4
Shareholders’ equity	$	2,132.5		$	2,385.6
Total debt to capital		41	%		36	%
Fixed rate debt as a percentage of total indebtedness		83	%		92	%
Common shares outstanding		103,593,792			110,630,503
Stock options outstanding		5,081,756			6,400,730
Dividend payout ratio		12	%		20	%

Principal Debt Instruments
Dollars (millions) at December 31, 2005

	Total		Amount		Amount		Amount
	Amount		Outstanding		Committed		Available
Syndicated credit facility	$	750.0	$	—	$	252.2	$	497.8
Line of credit		75.0		—		18.7		56.3
Commercial paper		500.0		252.2		—		247.8
US shelf registration		2,000.0		1,250.0		—		750.0

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 fixed rates on our long-term debt.

We have a $750.0-million syndicated credit facility, renewed in September 2005 for a five-year term, which provides for unsecured advances. The amount available to us is the total facility amount less direct borrowings and amounts committed in respect of commercial paper outstanding. No funds were borrowed under the facility as of December 31, 2005. The line of credit is renewable annually and outstanding letters of credit and direct borrowings reduce the amount available. Both the line of credit and the syndicated credit facility have financial tests and other covenants with which we must comply at each quarter-end. Principal covenants under the credit facility and line of credit require a debt-to-capital ratio of less than or equal to 0.55:1, a long-term
debt-to-EBITDA (defined in the respective agreements as earnings before interest, income taxes, provincial mining and other taxes, depreciation, amortization and other non-cash expenses) ratio of less than or equal to 3.5:1, tangible net worth greater than or equal to $1,250.0 million and debt of subsidiaries not to exceed $590.0 million. The syndicated credit facility and line of credit are also subject to other customary covenants and events of default, including an event of default for non-payment of other debt in excess of Cdn $40.0 million. Non-compliance with any of the above covenants could result in accelerated payment of the

42      POTASHCORP 2005 ANNUAL REPORT | MD&A | Capital Structure & Management

related debt and amount due under the line of credit, and termination of the line of credit. We were in compliance with all covenants as at December 31, 2005.

The commercial paper market is a source of “same day” cash for the company, and we have a commercial paper program of up to $500.0 million. This program was increased to $750.0 million subsequent to year-end. Access to this source of short-term financing depends primarily on maintaining our R1 low credit rating by Dominion Bond Rating Service (DBRS) and conditions in the money markets. The interest rates we pay are partly based on the quality of our credit ratings, which are all investment grade. Our credit rating, as measured by Standard & Poor’s senior debt ratings, remained unchanged from December 31, 2004 at BBB+ with a stable outlook. Our credit rating as measured by Moody’s senior debt ratings was upgraded during 2005 from Baa2 with a positive outlook to Baa1 with a stable outlook.

We also have a US shelf registration statement under which we may issue up to an additional $750.0 million in unsecured debt securities.

For 2005, our weighted average cost of capital was 8.3 percent (2004 — 8.4 percent), of which 89 percent represented equity.

OUTSTANDING SHARE DATA

We had 103,593,792 common shares issued and outstanding at December 31, 2005, compared to 110,630,503 common shares issued and outstanding at December 31, 2004. The company repurchased 9,500,000 common shares during the year, while 2,463,289 common shares were issued pursuant to the exercise of stock options and our dividend reinvestment plan.

During the second quarter, the 2005 Performance Option Plan was approved by our shareholders. The new plan permits the grant to eligible employees of options to purchase common shares of the company at an exercise price based on the market value of the shares on the date of grant. The key design difference between the 2005 Performance Option Plan and the company’s other stock option plans is the performance-based vesting feature. In general, options will vest, if at all, according to a schedule based on the three-year average excess of the company’s consolidated cash flow return on investment over the weighted average cost of capital.

At December 31, 2005, there were 5,081,756 options to purchase common shares outstanding under the company’s three stock option plans, as compared to 6,400,730 at December 31, 2004.

OFF-BALANCE SHEET ARRANGEMENTS

We enter into off-balance sheet arrangements in the normal course of our business, including guarantee contracts, certain derivative instruments and long-term fixed price contracts. We do not reasonably expect any presently known trend or uncertainty to affect our ability to continue using these arrangements. These types of arrangements are discussed below.

Guarantee Contracts

In the normal course of operations, we provide indemnifications that are often standard contractual terms to counterparties in transactions such as purchase and sale contracts, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require us to compensate the counterparties for costs incurred as a result of various events. The terms of these indemnification agreements will vary based upon the contract, the nature of which prevents us from making a reasonable estimate of the maximum potential amount that could be required to pay to counterparties. Historically, we have not made any significant payments under such indemnifications and no amounts have been accrued in our consolidated financial statements with respect to these guarantees.

We have guaranteed various debt obligations (such as overdrafts, lines of credit with counterparties for derivatives and back-to-back loan arrangements) and other commitments (such as railcar leases) for certain subsidiaries. We would be required to perform on these guarantees in the event of default by the guaranteed parties. No material loss is anticipated by reason of such agreements and guarantees. At December 31, 2005, the maximum potential amount of future (undiscounted) payments under significant guarantees provided to third parties approximated $236.8 million, representing the maximum risk of loss if there were a total default by the guaranteed parties, without consideration of possible recoveries under recourse provisions or from collateral held or pledged. At December 31, 2005, no subsidiary balances subject to guarantees were outstanding in connection with the company’s cash management facilities, and we had no liabilities recorded for other obligations other than subsidiary bank borrowings of approximately $5.9 million and cash margins held of approximately $173.7 million to maintain derivatives.

We have guaranteed the gypsum stack capping, closure and post-closure obligations of White Springs and Geismar, in Florida and Louisiana, respectively, pursuant to the financial assurance regulatory requirements in those states. In February 2005, the Florida Environmental Regulation Commission approved certain modifications to the financial assurance requirements designed to ensure that responsible parties have sufficient resources to cover all closure and post-closure costs and liabilities associated with gypsum stacks in the state. The new requirements became effective in July 2005 and include financial strength tests that are more stringent than under previous law and a requirement that gypsum stack closure cost estimates include the cost of treating process water. The company has met its financial assurance responsibilities as of December 31, 2005. Costs associated with the retirement of long-lived tangible assets are included in the accrued costs reflected in Note 15 to our consolidated financial statements to the extent that a legal liability to retire such assets exists.

The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and

POTASHCORP 2005 ANNUAL REPORT | MD&A | Market Risks Associated with Financial Instruments      43

reclamation (D&R) plans. In 2001, agreement was reached with the provincial government on the financial assurances for the D&R plan to cover an interim period to July 1, 2005. In October 2004, this interim period was extended to July 1, 2006. A government/industry task force has been established to assess decommissioning options for all Saskatchewan potash producers and to produce mutually acceptable revisions to the plan schedules. We have posted an irrevocable Cdn $2.0 million letter of credit as collateral.

Derivative Instruments

We use derivative financial instruments to manage exposure to commodity price, interest rate and foreign exchange rate fluctuations. We may choose to enter into certain derivative transactions that may not qualify for hedge accounting treatment under Canadian GAAP, but nonetheless economically hedge certain of our business strategies. These economic hedges are recorded at fair value on our Consolidated Statements of Financial Position and marked-to-market each reporting period. However, we consider any derivative transactions that are specifically designated (and qualify) for hedge accounting under Canadian GAAP to be off-balance sheet items since they are not recorded at fair value.

We employ derivative instruments to hedge the future cost of committed and anticipated natural gas purchases, primarily for our US nitrogen plants. By policy, the maximum period for these hedges cannot exceed five years. Exceptions to policy may be made with the specific approval of our Gas Policy Advisory Committee. The fair value of our gas hedging contracts at December 31, 2005 was $277.1 million (2004 — $66.5 million).

We may use interest rate swaps to manage the interest rate mix of our total debt portfolio and related overall cost of borrowing. In 2005, the company terminated our interest rate swap contracts that effectively converted a notional amount of $225.0 million (2004 — $300.0 million) of fixed rate debt (due 2011) into floating rate debt for cash proceeds of $1.8 million (2004 — $3.0 million) and a gain of $1.6 million (2004 — $0.8 million). Hedge accounting on all terminated interest rate swap contracts was discontinued prospectively. The associated gains are being amortized over the remaining term of the related debt as a reduction to interest expense. No interest rate swap contracts were outstanding as at December 31, 2005 or 2004.

Note 28 to our consolidated financial statements provides more detail on our accounting for and types of derivatives.

Long-Term Fixed Price Contracts

Certain of our long-term raw materials agreements contain fixed price components. Our significant agreements, and the related obligations under such agreements, are discussed in Cash Requirements on Page 39.

MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS

Market risk is the potential for loss from adverse changes in the market value of financial instruments. The level of market risk to which we are exposed varies depending on the composition of our derivative instrument portfolio, as well as current and expected market conditions. The following discussion provides additional detail regarding our exposure to the risks of changing commodity prices, interest rates and foreign exchange rates. A discussion of enterprise-wide risk management can be found on Pages 20 to 22.

COMMODITY RISK

Our natural gas purchase strategy is based on diversification of price for our total gas requirements (which represents the forecast consumption of natural gas volumes by our manufacturing and mining facilities). The objective is to acquire a reliable supply of natural gas feedstock and fuel on a location-adjusted, cost-competitive basis in a manner that minimizes volatility without undue risk.

Our US nitrogen results are significantly affected by the price of natural gas. As discussed above, we employ derivative commodity instruments related to a portion of our natural gas requirements (primarily futures, swaps and options) for the purpose of managing our exposure to commodity price risk in the purchase of natural gas, not for speculative or trading purposes. Changes in the market value of these derivative instruments have a high correlation to changes in the spot price of natural gas.

A sensitivity analysis has been prepared to estimate our market risk exposure arising from derivative commodity instruments. The fair value of such instruments is calculated by valuing each position using quoted market prices. Market risk is estimated as the potential loss in fair value resulting from a hypothetical 10-percent adverse change in such prices. The results of this analysis indicate that as of December 31, 2005, our estimated derivative commodity instruments’ market risk exposure was $60.7 million (2004 — $46.2 million) based on our gas hedging contracts fair-valued at $277.1 million (2004 — $66.5 million). Actual results may differ from this estimate. Changes in the fair value of such derivative instruments, with maturities in 2006 through 2015, will generally relate to changes in the spot price of natural gas purchases.

INTEREST RATE RISK

We address interest rate risk by using a diversified portfolio of fixed and floating rate instruments. This exposure is also managed by aligning current and long-term assets with demand and fixed-term debt and by monitoring the effects of market changes in interest rates.

44      POTASHCORP 2005 ANNUAL REPORT | MD&A | Related Party Transactions/Critical Accounting Estimates

As at December 31, 2005, our short-term debt (comprised of commercial paper) was $252.2 million, our current portion of long-term debt was $1.2 million and our long-term portion was $1,257.6 million. Long-term debt is comprised primarily of $1,250.0 million of notes payable that were issued under our US shelf registration statements. At December 31, 2005 and 2004, we had no interest rate swap agreements outstanding. Since most of our outstanding borrowings have fixed interest rates, the primary market risk exposure is to changes in fair value. It is estimated that, all else constant, a hypothetical 10-percent change in interest rates would not materially impact our results of operations or financial position. If interest rates changed significantly, management would likely take actions to manage our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in our financial structure.

FOREIGN EXCHANGE RISK

We also enter into foreign currency forward contracts for the primary purpose of limiting exposure to exchange rate fluctuations relating to Canadian dollar operating and capital expenditures. These contracts are not designated as hedging instruments for accounting purposes. Gains or losses resulting from foreign exchange contracts are recognized in earnings in the period in which changes in fair value occur.

As at December 31, 2005, we had entered into foreign currency forward contracts to sell US dollars and receive Canadian dollars in the notional amount of $43.0 million (2004 — $54.1 million) at an average exchange rate of 1.1852 (2004 — 1.2306). We also had small forward contracts outstanding as at December 31, 2005 to reduce exposure to the euro. Maturity dates for all forward contracts are within 2006 and 2007.

RELATED PARTY TRANSACTIONS

The company sells potash from our Saskatchewan mines for use outside of North America exclusively to Canpotex. Sales for the year ended December 31, 2005 were $577.1 million (2004 — $421.9 million; 2003 — $260.6 million). Sales to Canpotex are at prevailing market prices and are settled on normal trade terms.

Potash purchases from SQM were $NIL (2004 — $7.0 million; 2003 — $13.1 million). Potassium nitrate sales to SQM were $NIL (2004 — $25.1 million; 2003 — $25.8 million). All transactions with SQM were settled on normal trade terms at negotiated prices that approximated market value.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with Canadian GAAP. These principles differ in certain significant respects from US GAAP, and these differences are described and quantified in Note 33 to the consolidated financial statements.

Our significant accounting policies are contained in Note 2 to the consolidated financial statements. Certain of these policies involve critical accounting estimates because they require us to make particularly subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts could be reported under different conditions or using different assumptions. 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 it has reviewed the disclosures described in this section.

The following section discusses the critical accounting estimates and assumptions that management has made and how they affect the amounts reported in the consolidated financial statements. We consider these estimates to be an important part of understanding our financial statements.

VARIABLE INTEREST ENTITIES

In the normal course of business, we may enter into arrangements that need to be examined to determine whether they fall under the variable interest entity (VIE) accounting guidance described in the following section. Management needs to exercise significant judgment to determine if VIE relationships are required to be consolidated. This process involves understanding the arrangements, determining whether the entity is considered a VIE under the accounting rules and determining our variable interests in the VIE. We use a variety of complex estimation processes involving both qualitative and quantitative factors that may involve the use of a number of assumptions about the business environment in which an entity operates to determine whether such entity is a VIE, and to analyze and calculate its expected losses and its expected residual returns. These processes involve estimating the future cash flows and performance of the entity, analyzing the variability in those cash flows and allocating the losses and returns among the identified parties holding variable interests. Our interests are then compared to those of the unrelated outside parties to identify the party that is the primary beneficiary, and thus should consolidate the entity. In addition, there is a significant amount of judgment exercised in interpreting the provisions of the accounting guidance and applying them to our specific transactions.

POTASHCORP 2005 ANNUAL REPORT | MD&A | Critical Accounting Estimates      45

PENSION AND OTHER POST-RETIREMENT COSTS

We sponsor plans that provide pensions and other retirement benefits for most of our employees. We believe the accounting estimates related to our employee benefit plan costs are critical accounting estimates because: (1) the amounts are based on complex actuarial calculations using several assumptions; and (2) given the magnitude of our estimated costs, differences in actual results or changes in assumptions could materially affect our consolidated financial statements.

Due to the long-term nature of these plans, the calculation of expenses and obligations depends on various assumptions such as discount rates, expected rates of return on assets, health-care cost trend rates, projected salary increases, retirement age, mortality and termination rates. These assumptions are determined by management and are reviewed annually by our actuaries. The discount rate reflects the weighted average interest rate at which the pension and other post-retirement liabilities could be effectively settled using high-quality bonds at the measurement date. The rate varies by country. We determine the discount rate using a yield curve approach. Based on the respective plans’ demographics, expected future pension benefit and medical claims, payments are measured and discounted to determine the present value of the expected future cash flows. The cash flows are discounted using yields on high-quality AA-rated non-callable bonds with cash flows of similar timing. The expected rate of return on plan assets assumption is based on expected returns for the various asset classes. Other assumptions are based on actual experience and our best estimates. Actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded obligation in future periods. We have included a table in Note 14 to the consolidated financial statements that quantifies the impact of these differences in each of the last three years. These differences relate primarily to: (1) actual versus expected return on plan assets; (2) actual actuarial gains/losses incurred on the benefit obligation versus those expected and recognized in the consolidated financial statements; and (3) actual past service costs incurred as a result of plan amendments versus those expected and recognized in the consolidated financial statements.

The following table provides the sensitivity of benefit obligations and expense for our major plans to changes in the discount rate, expected long-term return on plan assets, rate of compensation increase and medical trend rate assumptions. A lower discount rate results in a higher benefit obligation and a lower funded status. Similarly, poor fund performance results in a lower fair value of plan assets and a lower funded status. In either situation, we may have to increase cash contributions to the benefit plans. The sensitivity analysis should be used with caution as the changes are hypothetical and the impact of changes in each key assumption may not be linear. For further details on our annual expense and obligation, see Note 14 to the consolidated financial statements.

Impact of a 0.5% Change in Key Assumptions

Dollars (millions)

	Pension Plans						Other Plans
	Obligation			Expense			Obligation			Expense
Discount rate
Decrease in assumption	$	40.6		$	4.1		$	17.5		$	1.3
Increase in assumption		(36.9	)		(3.8	)		(15.7	)		(1.6	)
Expected long-term rate of return
Decrease in assumption		n/a			2.3			n/a			n/a
Increase in assumption		n/a			(2.3	)		n/a			n/a
Rate of compensation increase
Decrease in assumption		(8.5	)		(1.8	)		n/a			n/a
Increase in assumption		8.7			1.8			n/a			n/a
Medical trend rate
Decrease in assumption		n/a			n/a			(15.7	)		(3.1	)
Increase in assumption		n/a			n/a			16.2			2.2

n/a — not applicable

ASSET RETIREMENT OBLIGATIONS AND OTHER ENVIRONMENTAL COSTS

We have significant liabilities relating to asset retirement obligations and other environmental matters. The major categories of our asset retirement obligations include reclamation and restoration costs at our potash and phosphate mining operations (most particularly phosphate mining). Other environmental liabilities typically relate to regulatory compliance, environmental management associated with ongoing operations other than mining, and site assessment and remediation of contamination related to the activities of the company and its predecessors.

We believe the accounting estimates related to asset retirement obligations and other environmental costs are critical accounting estimates because: (1) we will not incur most of these costs for a number of years, requiring us to make estimates over a long period; (2) environmental laws and regulations and interpretations by regulatory authorities could change or circumstances affecting our operations could change, either of which could result in significant changes to our current plans; and (3) given the magnitude of our estimated costs, changes in any or all of these estimates could have a material impact on our consolidated financial statements.

Accruals for asset retirement obligations and other environmental matters totalled $109.6 million at December 31, 2005 (2004 — $100.7 million). In arriving at this amount, we considered the nature, extent and timing of current and proposed reclamation and closure techniques in view of present environmental laws and regulations. It is reasonably possible the ultimate costs could change in the future and that changes to these estimates could have a material effect on our consolidated financial statements.

INCOME TAXES

We operate in a specialized industry and in several tax jurisdictions. As such, our income is subject to various rates of taxation. The breadth of the company’s operations and the global complexity of tax regulations require assessments of uncertainties

46      POTASHCORP 2005 ANNUAL REPORT | MD&A | Critical Accounting Estimates

and judgments in estimating the ultimate taxes the company will pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, provincial, state and local tax audits. The resolution of these uncertainties and the associated final taxes may result in adjustments to our tax assets and tax liabilities.

We estimate future income taxes based upon temporary differences between the income and losses that we report in our consolidated financial statements and our taxable income and losses as determined under applicable tax laws. We record a valuation allowance against our future income tax assets when we believe, based on all available evidence, that it is not “more likely than not” that all of our future income tax assets recognized will be realized prior to their expiration. The amount of the future income tax asset recognized and considered realizable could, however, be reduced if projected income is not achieved.

ASSET IMPAIRMENT

We review long-lived assets and intangible assets with finite lives whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows, and measurement of an impairment loss is based on the fair value of the assets. We believe that the accounting estimate related to asset impairment is a critical accounting estimate because: (1) it is highly susceptible to change from period to period as it requires management to make assumptions about future sales, margins and market conditions over the long-term life of the assets; and (2) the impact that recognizing an impairment would have on our financial position and results of operations may be material. During 2003, we indefinitely shut down certain nitrogen operations, ceased operations at a phosphate feed plant and entered into an agreement to sell our shares of PCS Yumbes. In connection with these activities, we recognized various material impairment charges, as more fully described in Note 23 to the consolidated financial statements. As at December 31, 2005, we determined that there were no other triggering events requiring additional impairment analysis.

Goodwill is not amortized, but is assessed for impairment at the reporting unit level annually, or sooner if events or changes in circumstances indicate that the carrying amount could exceed fair value. Goodwill is assessed for impairment using a two-step approach, with the first step being to assess whether the fair value of the reporting unit to which the goodwill is associated is less than its carrying value. If this is the case, a second impairment test is performed which requires a comparison of the fair value of goodwill to its carrying amount. If fair value is less than carrying value, goodwill is considered impaired and an impairment charge must be recognized immediately. The fair value of our reporting units is determined from internally developed valuation models that consider various factors, such as normalized and projected earnings, present value of future cash flows and discount rates. In each of the last two years we tested goodwill for impairment, and in each year we determined that, based on our assumptions, the fair value of our reporting units exceeded their carrying amounts and therefore we did not recognize impairment.

Long-term investments that are carried at cost or accounted for using the equity method are also reviewed to determine whether fair value is below carrying value. An investment is considered impaired if any such decline is considered other than temporary. Factors and judgments we consider in determining whether a loss is temporary include the length of time and extent to which fair value has been below cost; financial condition and near-term prospects of the investee; and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For actively traded securities, we typically consider quoted market value to be fair value. For thinly traded securities where market quotes are either not available or not representative of fair value, we use estimation techniques such as market or income valuation approaches to determine fair value.

We cannot predict whether an event that triggers impairment will occur, when it will occur or how it will affect the asset amounts we have reported. Although we believe our estimates are reasonable and consistent with current conditions, internal planning and expected future operations, such estimates are subject to significant uncertainties and judgments. As a result, it is reasonably possible that the amounts reported for asset impairments could be different if we were to use different assumptions or if market and other conditions were to change. The changes could result in non-cash charges that could materially affect our consolidated financial statements.

STOCK-BASED COMPENSATION

We account for stock-based compensation in accordance with the fair value recognition provisions of Canadian GAAP. As such, stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as an expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of stock options, the expected volatility of our stock and expected dividends. In addition, judgment is required to estimate the number of stock-based awards that are expected to be forfeited.

For those awards with performance conditions that determine the number of options to which our employees will be entitled, measurement of compensation cost is based on our best estimate of the outcome of the performance conditions. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

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DEPRECIATION AND AMORTIZATION

We depreciate certain mining and milling assets using the units of production method based on the shorter of estimates of reserve or service lives. We have other assets that we depreciate on a straight-line basis over their estimated useful lives.

We perform assessments of our existing assets and depreciable lives in connection with the review of mine operating plans. When we determine that assigned asset lives do not reflect the expected remaining period of benefit, we make prospective changes to their depreciable lives. There are a number of uncertainties inherent in estimating reserve quantities, particularly as they relate to assumptions regarding future prices, the geology of our mines, the mining methods we use and the related costs we incur to develop and mine our reserves. Changes in these assumptions could result in material adjustments to our reserve estimates, which could result in changes to units of production depreciation expense in future periods. Although some degree of variability is expected, we believe the extent of our technical data and operating experience mitigates the potential for significant changes in reserve estimates.

As discussed on Page 46, we review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. We believe it is unlikely that revisions to our estimates of reserves would give rise to an impairment of our assets because of their significant size in relation to our asset-carrying values.

RECENT ACCOUNTING CHANGES

2005

Effective January 1, 2005, we changed certain of our accounting policies in response to a new Canadian accounting standard which provided direction for applying consolidation principles to certain entities that are subject to control on a basis other than ownership of voting interests, defined as variable interest entities (VIEs). The adoption of this guideline did not have a material impact on the company’s consolidated financial statements. For further information, see Note 3 to our consolidated financial statements.

2006

In November 2004, the US accounting standards for inventory were amended, requiring abnormal amounts of idle facility expense, freight, handling costs and spoilage to be recognized as current period charges. The guidance is effective for our 2006 fiscal year and we are currently assessing the potential impact, if any, on our consolidated financial statements.

In December 2004, US accounting requirements relating to share-based payments were revised. In 2005, the Financial Accounting Standards Board (“FASB”) released several related Staff Positions (“FSPs”) to help clarify and interpret this new guidance. With limited exceptions, compensation cost will now be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. We previously elected to expense employee stock-based compensation using the fair value method prospectively for all awards granted or modified on or after January 1, 2003. The new standard is effective for us in the first quarter of 2006. We are currently assessing the potential impact of adoption on our financial position and results of operations, but do not expect it to be material.

In January 2005, the Canadian Institute of Chartered Accountants (“CICA”) issued new guidance relating to comprehensive income, equity, financial instruments and hedges. Under the new standards: a new location for recognizing certain gains and losses — other comprehensive income — has been introduced, providing for certain gains and losses arising from changes in fair value to be temporarily recorded outside the income statement, but in a transparent manner; existing requirements for hedge accounting are extended; and all financial instruments, including derivatives, are to be included on a company’s balance sheet and measured (in most cases) at fair value. The guidance will apply for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006. Earlier adoption will be permitted only as of the beginning of a fiscal year. The impact of implementing these new standards is not yet determinable as it is highly dependent on fair values, outstanding positions and hedging strategies at the time of adoption.

In March 2005, the US accounting standards for accounting for stripping costs incurred during production in the mining industry were approved. Effective for 2006, stripping costs incurred during production are variable inventory costs that are to be attributed to ore produced in that period as a component of inventory and recognized in cost of sales in the same period as related revenue. The Canadian standard setters have reached a tentative conclusion on the accounting for stripping costs that differs from the US standards. They have suggested that the activity of removing overburden and other mine waste minerals in the production phase can represent either a component of inventory or a betterment to the mineral property, depending on the benefit received by the entity. We are monitoring the developments and will determine the potential impact, if any, on our consolidated financial statements if and when final Canadian guidance is released.

In October 2005, the CICA issued guidance to address whether a company has an implicit variable interest in a VIE or potential VIE when specific conditions exist. This guidance is very similar to rules issued in the US earlier in the year. An implicit variable interest acts the same as an explicit variable interest except that it involves the absorbing and/or receiving of variability indirectly from the

48      POTASHCORP 2005 ANNUAL REPORT | MD&A | Forward-Looking Statements

entity (rather than directly). The identification of an implicit variable interest is a matter of judgment that depends on the relevant facts and circumstances. This guidance will be effective for us in the first quarter of 2006. Implementation is not expected to have a material impact on our consolidated financial statements.

In November 2005, the CICA issued guidance to clarify the accounting treatment for a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Under this guidance, which is similar to that issued in the US earlier in the year, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The guidance is effective for our second quarter in 2006 and is to be applied retroactively, with restatement of prior periods. Implementation is not expected to have a material impact on our consolidated financial statements.

For further information relating to the impact of the release of recent accounting pronouncements in Canada and the US on our consolidated financial statements, see Notes 2 and 33 to our consolidated financial statements.

FORWARD-LOOKING STATEMENTS

Certain statements in this 2005 Annual Report (which consists of the Business Review and the Financial Review), including those in the “Outlook” section of Management’s Discussion & Analysis of Financial Condition and Results of Operations relating to the period after December 31, 2005, are forward-looking statements subject to risks and uncertainties. Statements containing words such as “could”, “expect”, “may”, “anticipate”, “believe”, “intend”, “estimate”, “plan” and similar expressions constitute forward-looking statements. These statements are based on certain factors and assumptions including foreign exchange rates, expected growth, results of operations, performance and business prospects and opportunities. While the company considers these factors and assumptions to be reasonable based on information currently available, they may prove to be incorrect. A number of factors could cause actual results to differ materially from those in the forward-looking statements, including, but not limited to: fluctuations in supply and demand in fertilizer, sulfur, natural gas, transportation and petrochemical markets; changes in competitive pressures, including pricing pressures; risks associated with natural gas and other hedging activities; changes in capital markets; changes in currency and exchange rates; unexpected geological or environmental conditions; and government policy changes. Additional risks and uncertainties can be found in filings with the U.S. Securities and Exchange Commission and the Canadian provincial securities commissions. Forward-looking statements are given only as at the date of this 2005 Annual Report (which consists of the Business Review and the Financial Review), and the company disclaims any obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Should subsequent events show that the forward-looking statements released herein may be materially off-target, the company will evaluate whether to issue, and, if appropriate following such review, issue a news release updating guidance or explaining reasons for the difference.

POTASHCORP 2005 ANNUAL REPORT | MD&A | 11 Year Report       49

11 YEAR REPORT

FINANCIAL DATA (in millions of US dollars except share and per-share amounts)

	2005			2004		2003			2002		2001		2000			1999			1998		19972		1996		19951
Sales
Potash		1,341.1			1,056.1		758.7			669.0		655.2		710.3			688.6			663.3		644.0		521.1		530.2
Nitrogen		1,368.8			1,210.4		1,156.4			841.4		993.5		964.5			744.7			844.2		939.3		111.3		23.8
Phosphate		1,137.3			977.9		883.9			714.0		732.1		868.1			922.3			1,099.5		1,036.7		972.5		448.8
Total sales		3,847.2			3,244.4		2,799.0			2,224.4		2,380.8		2,542.9			2,355.6			2,607.0		2,620.0		1,604.9		1,002.8
5-year CAGR4		10.1	%
10-year CAGR4		9.1	%
Gross margin
Potash		707.4			422.8		203.7			218.0		248.1		307.4			304.2			319.2		261.4		193.0		217.9
Nitrogen		318.7			242.8		193.2			47.4		94.7		104.7			(21.4	)		64.8		133.0		2.1		2.3
Phosphate		98.9			15.8		(16.5	)		41.9		64.5		76.8			130.5			230.1		196.6		196.2		87.1
Total gross margin		1,125.0			681.4		380.4			307.3		407.3		488.9			413.3			614.1		591.0		391.3		307.3
5-year CAGR4		22.5	%
10-year CAGR4		11.1	%
Depreciation and amortization
Potash		64.5			66.4		52.4			46.3		34.1		40.9			37.2			36.2		39.6		38.5		42.1
Nitrogen		72.2			79.7		86.4			88.0		72.8		66.1			83.5			86.7		69.0		—		—
Phosphate		95.4			84.4		78.9			76.8		72.0		68.1			61.8			59.1		55.1		51.6		28.9
Other		10.3			9.5		9.7			8.0		6.8		11.9			8.6			8.9		6.3		—		—
Total depreciation and amortization		242.4			240.0		227.4			219.1		185.7		187.0			191.1			190.9		170.0		90.1		71.0
Operating income (loss)		892.6			514.3		(55.6	)		166.9		269.7		326.8			(353.0	)		442.3		442.0		297.4		219.6
Net income (loss)*3		542.9			298.6		(126.3	)		53.6		121.2		198.0			(412.0	)		261.0		297.1		209.0		159.5
5-year CAGR4		35.0	%
10-year CAGR4		10.0	%
Net income (loss) per share — basic		5.00			2.77		(1.21	)		0.52		1.17		1.89			(3.80	)		2.41		2.84		2.29		1.84
Net income (loss) per share — diluted		4.89			2.70		(1.21	)		0.51		1.16		1.88			(3.80	)		2.39		2.81		2.27		1.82
Dividends per share		0.60			0.55		0.50			0.50		0.50		0.50			0.50			0.48		0.52		0.53		0.53
Cash provided by operating activities		865.1			658.3		385.5			316.4		75.7		480.4			343.6			578.0		467.8		296.2		233.5
Working capital		14.7			539.9		176.1			8.6		47.1		(148.7	)		(104.8	)		329.2		281.7		278.8		136.1
Total assets		5,357.9			5,126.8		4,567.3			4,685.6		4,597.3		4,145.7			3,916.8			4,534.3		4,427.6		2,494.4		2,581.8
Long-term debt		1,257.6			1,258.6		1,268.6			1,019.9		1,013.7		413.7			437.0			933.3		1,130.0		620.0		714.5
Shareholders’ equity		2,132.5			2,385.6		1,973.8			2,092.5		2,086.5		2,012.1			1,962.4			2,453.8		2,227.9		1,405.5		1,241.9
Shares outstanding at the end of the year (thousands)		103,594			110,631		106,224			104,156		103,904		103,682			107,388			108,488		107,792		91,164		90,880

OPERATING DATA (thousands)

	2005		2004		2003		2002		2001		2000		1999		1998		19972		1996		19951
Employees at year-end (actual #)		4,879		4,906		4,904		5,199		4,997		5,338		5,498		5,744		5,751		4,490		4,579
Potash production (KCl) tonnage		8,816		7,914		7,094		6,447		6,128		7,149		6,388		6,995		6,483		5,782		6,071
Nitrogen production (N) tonnage		2,600		2,558		2,619		2,990		3,032		2,706		3,138		3,121		2,349		—		—
Phosphate production (P2O5) tonnage		2,097		1,962		1,861		1,512		1,573		2,042		2,124		2,363		2,282		2,096		1,008
Potash sales — KCl tonnes		8,164		8,276		7,083		6,327		6,243		6,912		6,474		6,283		6,640		5,612		5,848
Nitrogen sales — product tonnes		5,220		5,350		6,080		6,391		6,381		6,760		6,705		6,596		5,851		535		115
Phosphate sales — product tonnes		3,971		3,793		3,647		2,863		3,045		3,893		4,016		4,627		4,434		4,305		2,206

1	Data for 1995 and thereafter reflect the acquisition of Texasgulf Inc. on April 10, 1995 and the acquisition of White Springs Agricultural Chemicals, Inc. on October 31, 1995.
2	Data for 1997 and thereafter reflect the acquisition of Arcadian Corporation on March 6, 1997.
3	There were no extraordinary items or discontinued operations in any of the accounting periods.
4	Compound annual growth rate expressed as a percentage.

The consolidated financial statements of the company have been prepared in accordance with Canadian generally accepted accounting principles. These principles differ in certain material respects from those applicable in the United States. (See Note 33 to the company’s consolidated financial statements.) Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

Additional Information

* The after-tax effects of asset impairment, plant shutdown, plant closure and office consolidation charges and the gain on sale of long-term investments and Moab Inc. are included (as applicable) in the data for 2004, 2003, 2000 and 1999 in the amounts of $(30.8) million, $203.2 million, $1.5 million and $547.1 million, respectively.

50       POTASHCORP 2005 ANNUAL REPORT | FINANCIAL PERFORMANCE INDICATORS

FINANCIAL PERFORMANCE INDICATORS

(in millions of US dollars except share, per-share and tonnage amounts)

SUMMARY

	2005			2004			2003			2002			2001			2000			1999			1998			1997			1996			1995
Net income (loss)1		542.9			298.6			(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0			159.5
Net income (loss) per diluted share		4.89			2.70			(1.21	)		0.51			1.16			1.88			(3.80	)		2.39			2.81			2.27			1.82
EBITDA2		1,135.0			754.3			171.8			386.0			455.4			513.8			(161.9	)		633.2			612.0			387.5			290.6
Cash flow prior to working capital changes3		860.3			538.3			368.5			289.2			345.8			405.1			319.6			556.2			489.3			321.7			242.1
Cash provided by operating activities		865.1			658.3			385.5			316.4			75.7			480.4			343.6			578.0			467.8			296.2			233.5
Return on assets		10.1	%		5.8	%		(2.8	%)		1.1	%		2.6	%		4.8	%		(10.5	%)		5.8	%		6.7	%		8.4	%		6.2	%
Cash flow return4		16.1	%		12.3	%		2.6	%		6.7	%		8.1	%		10.9	%		(3.5	%)		12.6	%		12.8	%		12.5	%		13.7	%
Weighted average cost of capital		8.3	%		8.4	%		7.3	%		7.3	%		7.7	%		8.7	%		8.7	%		8.3	%		8.8	%		9.7	%		8.5	%
Total shareholder return		(2.7	%)		93.4	%		37.5	%		5.2	%		(20.4	%)		64.6	%		(23.0	%)		(21.9	%)		(1.1	%)		21.4	%		111.6	%
Total debt to capital		41.5	%		36.4	%		42.3	%		41.7	%		42.1	%		31.1	%		31.9	%		29.5	%		35.7	%		30.9	%		41.5	%
Net debt to capital5		39.9	%		27.5	%		42.2	%		41.3	%		41.3	%		28.7	%		30.8	%		28.1	%		35.5	%		30.9	%		40.3	%

RECONCILIATIONS AND CALCULATIONS

	2005			2004			2003			2002			2001			2000			1999			1998			1997			1996			1995
Net income (loss)1		542.9			298.6			(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0			159.5
Income taxes		267.4			131.7			(20.6	)		30.2			68.2			67.2			7.5			117.5			69.1			43.7			22.9
Interest expense		82.3			84.0			91.3			83.1			80.3			61.6			51.5			63.8			75.8			44.7			37.2
Depreciation and amortization		242.4			240.0			227.4			219.1			185.7			187.0			191.1			190.9			170.0			90.1			71.0
EBITDA2		1,135.0			754.3			171.8			386.0			455.4			513.8			(161.9	)		633.2			612.0			387.5			290.6
5-year CAGR7		20.0	%
10-year CAGR7		11.3	%
Cash flow prior to working capital changes3		860.3			538.3			368.5			289.2			345.8			405.1			319.6			556.2			489.3			321.7			242.1
Accounts receivable		(107.6	)		(51.9	)		(39.5	)		(11.1	)		69.9			(52.2	)		33.8			48.8			23.5			(7.4	)		(48.8	)
Inventories		(119.9	)		(10.5	)		11.8			(18.2	)		(76.1	)		(27.4	)		(16.1	)		(7.9	)		19.9			2.5			9.3
Prepaid expenses and other current assets		(5.8	)		(6.3	)		11.4			(3.9	)		2.3			(3.1	)		3.2			(16.6	)		3.7			(1.9	)		2.5
Accounts payable and accrued charges		238.1			188.7			33.3			60.4			(266.2	)		158.0			3.1			(2.5	)		(68.6	)		(18.7	)		28.4
Changes in non-cash operating working capital		4.8			120.0			17.0			27.2			(270.1	)		75.3			24.0			21.8			(21.5	)		(25.5	)		(8.6	)
Cash provided by operating activities		865.1			658.3			385.5			316.4			75.7			480.4			343.6			578.0			467.8			296.2			233.5
Net income (loss)		542.9			298.6			(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0			159.5
Total assets		5,357.9			5,126.8			4,567.3			4,685.6			4,597.3			4,145.7			3,916.8			4,534.3			4,427.6			2,494.4			2,581.8
Return on assets		10.1	%		5.8	%		(2.8	%)		1.1	%		2.6	%		4.8	%		(10.5	%)		5.8	%		6.7	%		8.4	%		6.2	%
Net income (loss)		542.9			298.6			(126.3	)		53.6			121.2			198.0			(412.0	)		261.0			297.1			209.0			159.5
Income taxes		267.4			131.7			(20.6	)		30.2			68.2			67.2			7.5			117.5			69.1			43.7			22.9
Interest expense		82.3			84.0			91.3			83.1			80.3			61.6			51.5			63.8			75.8			44.7			37.2
Cash taxes paid		(141.6	)		(33.5	)		(22.8	)		(4.4	)		(41.5	)		(13.4	)		(5.8	)		(19.2	)		(41.3	)		(32.9	)		(6.2	)
Depreciation and amortization		242.4			240.0			227.4			219.1			185.7			187.0			191.1			190.9			170.0			90.1			71.0
Cash flow4		993.4			720.8			149.0			381.6			413.9			500.4			(167.7	)		614.0			570.7			354.6			284.4
Total assets		5,357.9			5,126.8			4,567.3			4,685.6			4,597.3			4,145.7			3,916.8			4,534.3			4,427.6			2,494.4			2,581.8
Cash and cash equivalents		(93.9	)		(458.9	)		(4.7	)		(24.5	)		(45.3	)		(100.0	)		(44.0	)		(68.0	)		(8.8	)		—			(40.5	)
Accumulated depreciation of property, plant and equipment		1,927.7			1,754.9			1,576.2			1,454.7			1,274.3			1,111.8			951.0			812.4			662.0			528.7			454.1
Accumulated amortization of other assets and intangible assets		66.4			65.1			70.1			59.1			42.0			38.0			42.0			49.2			17.7			11.8			9.8
Accumulated amortization of goodwill		7.3			7.3			7.3			7.3			7.3			4.3			1.4			27.4			12.7			0.4			—
Accounts payable and accrued charges		(842.7	)		(599.9	)		(380.3	)		(347.0	)		(271.4	)		(525.9	)		(349.1	)		(349.7	)		(348.1	)		(180.0	)		(199.2	)
Adjusted assets		6,422.7			5,895.3			5,835.9			5,835.2			5,604.2			4,673.9			4,518.1			5,005.6			4,763.1			2,855.3			2,806.0
Average adjusted assets		6,159.0			5,865.6			5,835.6			5,719.7			5,139.1			4,596.0			4,761.9			4,884.4			4,447.0			2,830.7			2,075.9
Cash flow return4		16.1	%		12.3	%		2.6	%		6.7	%		8.1	%		10.9	%		(3.5	%)		12.6	%		12.8	%		12.5	%		13.7	%

POTASHCORP 2005 ANNUAL REPORT | FINANCIAL PERFORMANCE INDICATORS       51

FINANCIAL PERFORMANCE INDICATORS

(in millions of US dollars except share, per-share and tonnage amounts)

RECONCILIATIONS AND CALCULATIONS (continued)

	2005			2004			2003			2002			2001			2000			1999			1998			1997			1996			1995
Weighted average cost of capital		8.3	%		8.4	%		7.3	%		7.3	%		7.7	%		8.7	%		8.7	%		8.3	%		8.8	%		9.7	%		8.5	%
End of year closing price (dollars)		80.22			83.06			43.24			31.80			30.69			39.16			24.10			31.94			41.50			42.50			35.44
Beginning of year opening price (dollars)		83.06			43.24			31.80			30.69			39.16			24.10			31.94			41.50			42.50			35.44			17.00
Change in share price (dollars)		(2.84	)		39.82			11.44			1.11			(8.47	)		15.06			(7.84	)		(9.56	)		(1.00	)		7.06			18.44
Dividends per share (dollars)		0.60			0.55			0.50			0.50			0.50			0.50			0.50			0.48			0.52			0.53			0.53
Total shareholder return		(2.7	%)		93.4	%		37.5	%		5.2	%		(20.4	%)		64.6	%		(23.0	%)		(21.9	%)		(1.1	%)		21.4	%		111.6	%
Short-term debt		252.2			93.5			176.2			473.0			501.1			488.8			474.5			94.9			101.9			6.3			—
Current portion of long-term debt		1.2			10.3			1.3			3.4			—			5.7			7.4			0.4			2.7			1.8			165.9
Long-term debt		1,257.6			1,258.6			1,268.6			1,019.9			1,013.7			413.7			437.0			933.3			1,130.0			620.0			714.5
Total debt		1,511.0			1,362.4			1,446.1			1,496.3			1,514.8			908.2			918.9			1,028.6			1,234.6			628.1			880.4
Cash and cash equivalents		(93.9	)		(458.9	)		(4.7	)		(24.5	)		(45.3	)		(100.0	)		(44.0	)		(68.0	)		(8.8	)		—			(40.5	)
Net debt5		1,417.1			903.5			1,441.4			1,471.8			1,469.5			808.2			874.9			960.6			1,225.8			628.1			839.9
Shareholders’ equity		2,132.5			2,385.6			1,973.8			2,092.5			2,086.5			2,012.1			1,962.4			2,453.8			2,227.9			1,405.5			1,241.9
Total debt to capital		41.5	%		36.4	%		42.3	%		41.7	%		42.1	%		31.1	%		31.9	%		29.5	%		35.7	%		30.9	%		41.5	%
Net debt to capital5		39.9	%		27.5	%		42.2	%		41.3	%		41.3	%		28.7	%		30.8	%		28.1	%		35.5	%		30.9	%		40.3	%
Current assets		1,110.8			1,243.6			733.9			832.0			819.6			871.7			726.2			774.2			734.5			467.0			501.1
Current liabilities		(1,096.1	)		(703.7	)		(557.8	)		(823.4	)		(772.5	)		(1,020.4	)		(831.0	)		(445.0	)		(452.8	)		(188.2	)		(365.0	)
Working capital		14.7			539.9			176.1			8.6			47.1			(148.7	)		(104.8	)		329.2			281.7			278.8			136.1
Cash and cash equivalents		(93.9	)		(458.9	)		(4.7	)		(24.5	)		(45.3	)		(100.0	)		(44.0	)		(68.0	)		(8.8	)		—			(40.5	)
Short-term debt		252.2			93.5			176.2			473.0			501.1			488.8			474.5			94.9			101.9			6.3			—
Current portion of long-term debt		1.2			10.3			1.3			3.4			—			5.7			7.4			0.4			2.7			1.8			165.9
Non-cash operating working capital		174.2			184.8			348.9			460.5			502.9			245.8			333.1			356.5			377.5			286.9			261.5
Sales		3,847.2			3,244.4			2,799.0			2,224.4			2,380.8			2,542.9			2,355.6			2,607.0			2,620.0			1,604.9			1,002.8
Freight		249.7			238.7			234.5			215.2			216.7			222.1			212.5			216.5			226.6			144.6			92.8
Transportation and distribution		121.9			104.3			98.7			80.5			83.3			83.1			77.0			77.9			61.7			49.1			53.5
Net sales6		3,475.6			2,901.4			2,465.8			1,928.7			2,080.8			2,237.7			2,066.1			2,312.6			2,331.7			1,411.2			856.5
Potash net sales
North American		495.6			347.5			230.6			215.3			232.1			237.8			237.4			227.6			210.2			157.6			146.1
Offshore		668.3			504.6			336.2			300.7			293.4			340.9			325.9			317.9			294.0			245.6			274.9
Miscellaneous		13.0			42.7			52.3			28.5			6.3			3.4			2.3			2.9			3.8			2.3			0.4
Total		1,176.9			894.8			619.1			544.5			531.8			582.1			565.6			548.4			508.0			405.5			421.4
Potash sales (thousands KCl tonnes)
North American		3,144			3,246			2,870			2,780			2,894			2,939			2,871			2,702			3,017			2,589			2,273
Offshore		5,020			5,030			4,213			3,547			3,349			3,973			3,603			3,581			3,623			3,023			3,575
Total		8,164			8,276			7,083			6,327			6,243			6,912			6,474			6,283			6,640			5,612			5,848
Weighted average shares outstanding
Basic (thousands)		108,568			107,967			104,460			104,042			103,758			104,820			108,460			108,354			104,550			91,074			86,704
Diluted (thousands)		111,078			110,739			104,460			104,632			104,372			105,406			108,460			109,003			105,642			92,119			87,729

Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

See footnotes on Page 52.

52      POTASHCORP 2005 ANNUAL REPORT | FINANCIAL PERFORMANCE INDICATORS

FINANCIAL PERFORMANCE INDICATORS

(in millions of US dollars except share, per-share and tonnage amounts)

NON-GAAP FINANCIAL MEASURES AND FOOTNOTES TO RECONCILIATIONS AND CALCULATIONS

The following information is included for convenience only. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). EBITDA, adjusted EBITDA, cash flow prior to working capital changes, cash flow, cash flow return, net debt, net debt to capital and consolidated net sales are not measures of financial performance (nor do they have standardized meanings) under either Canadian GAAP or US GAAP. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.

The company uses both GAAP and certain non-GAAP measures to assess performance. Management believes these non-GAAP measures provide useful supplemental information to investors in order that they may evaluate PotashCorp’s financial performance using the same measures as management. Management believes that, as a result, the investor is afforded greater transparency in assessing the financial performance of the company. These non-GAAP financial measures should not be considered as a substitute for, nor superior to, measures of financial performance prepared in accordance with GAAP.

1	The after-tax effects of asset impairment, plant shutdown, plant closure and office consolidation charges and the gain on sale of long-term investments and Moab Inc. are included (as applicable) in the data for 2004, 2003, 2000 and 1999 in the amounts of $(30.8) million, $203.2 million, $1.5 million and $547.1 million, respectively.
2	PotashCorp uses EBITDA and adjusted EBITDA as supplemental financial measures of its operational performance. Management believes EBITDA and adjusted EBITDA to be important measures as they exclude the effects of items which primarily reflect the impact of long-term investment decisions, rather than the performance of the company’s day-to-day operations. As compared to net income (loss) according to GAAP, these measures are limited in that they do not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the company’s business, or the non-cash charges associated with impairments and shutdown-related costs, or gain on sale of long-term investments. Management evaluates such items through other financial measures such as capital expenditures and cash flow provided by operating activities. The company believes that these measurements are useful to measure a company’s ability to service debt and to meet other payment obligations or as a valuation measurement.
	EBITDA has not been adjusted for the non-cash effects of asset impairment, plant shutdown, plant closure and office consolidation charges, nor the gain on sale of long-term investments or Moab Inc. The non-cash effects of these items applicable to 2004, 2003, 2000 and 1999 were $(30.8) million, $245.9 million, $(5.6) million and $563.7 million, respectively. Considering the effects of these non-cash items, adjusted EBITDA for 2004, 2003, 2000 and 1999 would have been $723.5 million, $417.7 million, $508.2 million and $401.8 million, respectively.
3	Cash flow prior to working capital changes is defined as the cash provided by operating activities, exclusive of changes in non-cash operating working capital. PotashCorp uses cash flow prior to working capital changes as a supplemental financial measure in its evaluation of liquidity. Management believes that adjusting principally for the swings in non-cash working capital items due to seasonality assists management in making long-term liquidity assessments. The company also believes that this measurement is useful as a measure of liquidity or as a valuation measurement.
4	PotashCorp uses cash flow and cash flow return as supplemental measures to evaluate the performance of the company’s assets in terms of the cash flow they have generated. Calculated on the total cost basis of the company’s assets rather than on the depreciated value, these measures reflect cash returned on the total investment outlay. The company believes these measures are one of the best predictors of shareholder value. As such, management believes this information to be useful to investors.
5	Management believes that net debt and net-debt-to-capital ratio are useful to investors because they are helpful in determining the company’s leverage. It also believes that, since the company has the ability to and may elect to use a portion of cash and cash equivalents to retire debt or to incur additional expenditures without increasing debt, it is appropriate to apply cash and cash equivalents to debt in calculating net debt and net debt to capital. PotashCorp believes that this measurement is useful as a financial leverage measure.
6	Management includes net sales in its segment disclosures in the consolidated financial statements pursuant to Canadian GAAP, which requires segmentation based upon the company’s internal organization and reporting of revenue and profit measures derived from internal accounting methods. Net sales (and related per-tonne amounts and other ratios) are primary revenue measures it uses and reviews 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. It also uses net sales (and related per-tonne amounts and other ratios) for business segment planning and monthly forecasting. Net sales are calculated as sales revenues less freight, transportation and distribution expenses. Net sales presented on a consolidated basis rather than by business segment is considered a non-GAAP financial measure.
7	Compound annual growth rate expressed as a percentage.

FINANCIAL TERMS

Total shareholder return = (change in market price per common share + dividends per share) / beginning market price per common share

Debt to capital = total debt / (total debt + total shareholders’ equity)

Net debt to capital = (total debt – cash and cash equivalents) / (total debt – cash and cash equivalents + total shareholders’ equity)

Cash flow = net income or loss + income taxes + interest – cash taxes paid + depreciation and amortization

Cash flow return = cash flow / average (total assets – cash and cash equivalents + accumulated depreciation and amortization – accounts payable and accrued charges)

EBITDA = earnings (net income or loss) before interest, taxes, depreciation and amortization

Adjusted EBITDA = EBITDA + impairment charges + non-cash shutdown / closure-related costs and office consolidation costs – gain on sale of long-term investments and Moab Inc.

Return on assets = net income or loss / total assets

Market value of total capital = market value of total debt – cash and cash equivalents + market value of equity

Weighted average cost of capital = simple quarterly average of ((market value of total debt – cash and cash equivalents) / market value of total capital x after-tax cost of debt + market value of equity / market value of total capital x cost of equity)

Average adjusted assets = simple average of the current year’s adjusted assets and the previous year’s adjusted assets, except when a material acquisition occurred, in which case the weighted average rather than the simple average is calculated; the last material acquisition was in 1997

POTASHCORP 2005 ANNUAL REPORT | MANAGEMENT’S RESPONSIBILITY       53

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS

The accompanying consolidated financial statements and related financial information are the responsibility of PotashCorp management and have been prepared in accordance with accounting principles generally accepted in Canada and include amounts based on estimates and judgments. Financial information included elsewhere in this report is consistent with the consolidated financial statements.

Our independent auditors, Deloitte & Touche LLP, provide an audit of the consolidated financial statements, as reflected in their report for 2005 included on Page 54.

The consolidated financial statements are approved by the Board of Directors on the recommendation of the audit committee.

The audit committee of the Board of Directors is composed of directors who are not officers or employees of PotashCorp. PotashCorp’s interim consolidated financial statements and MD&A are discussed and reviewed by the audit committee with management and the independent auditors before such information is approved by the committee and submitted to securities commissions or other regulatory authorities. The annual consolidated financial statements and MD&A are also reviewed by the audit committee together with management and the independent auditors and are approved by the board.

In addition, the audit committee has the duty to review critical accounting policies and significant estimates and judgments underlying the consolidated financial statements as presented by management, and to approve the fees of the independent auditors.

Deloitte & Touche LLP, the independent auditors, obtain an understanding of PotashCorp’s internal controls and procedures for financial reporting to plan and conduct such tests and other audit procedures as they consider necessary in the circumstances. The independent auditors have full and independent access to the audit committee to discuss their audit and related matters.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. During the past year, we have directed efforts to improve and document our internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of the company’s internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and concluded that the company’s internal control over financial reporting was effective as of December 31, 2005. Management’s assessment of the effectiveness of the company’s internal control over financial reporting as of December 31, 2005 has been audited by Deloitte & Touche LLP, as reflected in their report for 2005 included on Page 55.

W. Doyle	W. Brownlee
President and	Executive Vice President and
Chief Executive Officer	Chief Financial Officer
February 14, 2006

54       POTASHCORP 2005 ANNUAL REPORT | AUDITORS’ REPORTS

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC.

We have audited the consolidated statements of financial position of Potash Corporation of Saskatchewan Inc. (the Company) as at December 31, 2005 and 2004 and the consolidated statements of operations and retained earnings and cash flow for each of the years in the three-year period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Potash Corporation of Saskatchewan Inc. as at December 31, 2005 and 2004 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005, in accordance with Canadian generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada

February 14, 2006, except for Note 34 which is as of February 24, 2006.

COMMENTS BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
ON CANADA-UNITED STATES OF AMERICA REPORTING DIFFERENCES

The standards of the Public Company Accounting Oversight Board (United States) require the addition of an explanatory paragraph (following the opinion paragraph) when there are changes that have an effect on the comparability of the consolidated financial statements or changes that have been implemented in the financial statements, such as the changes described in Note 3 and Note 27 to Potash Corporation of Saskatchewan Inc.’s consolidated financial statements. Our report to the shareholders dated February 14, 2006 is expressed in accordance with Canadian reporting standards, which do not require a reference to such changes in accounting principles in the auditors’ report when the changes are properly accounted for and adequately disclosed in the consolidated financial statements.

Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada

February 14, 2006, except for Note 34 which is as of February 24, 2006.

POTASHCORP 2005 ANNUAL REPORT | AUDITORS’ REPORTS       55

REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

TO THE SHAREHOLDERS OF POTASH CORPORATION OF SASKATCHEWAN INC.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Potash Corporation of Saskatchewan Inc. (the Company) maintained effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Potash Corporation of Saskatchewan Inc. maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, Potash Corporation of Saskatchewan Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of Potash Corporation of Saskatchewan Inc. as at and for the year ended December 31, 2005 and our report dated February 14, 2006, except for Note 34 which is as of February 24, 2006, expressed an unqualified opinion on these financial statements and included a separate report titled Comments by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences referring to changes in accounting principles.

Independent Registered Chartered Accountants
Saskatoon, Saskatchewan, Canada

February 14, 2006

56       POTASHCORP 2005 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

as at December 31 in millions of US dollars except share amounts

	2005		2004
Assets
Current assets
Cash and cash equivalents	$	93.9	$	458.9
Accounts receivable(Note 5)		453.3		352.6
Inventories(Note 6)		522.5		396.8
Prepaid expenses and other current assets		41.1		35.3
		1,110.8		1,243.6
Property, plant and equipment(Note 7)		3,262.8		3,098.9
Other assets(Note 8)		852.8		650.2
Intangible assets(Note 8)		34.5		37.1
Goodwill(Note 9)		97.0		97.0
	$	5,357.9	$	5,126.8
Liabilities
Current liabilities
Short-term debt(Note 10)	$	252.2	$	93.5
Accounts payable and accrued charges(Note 11)		842.7		599.9
Current portion of long-term debt(Note 12)		1.2		10.3
		1,096.1		703.7
Long-term debt(Note 12)		1,257.6		1,258.6
Future income tax liability(Note 25)		543.3		499.4
Accrued pension and other post-retirement benefits(Note 14)		213.9		193.4
Accrued environmental costs and asset retirement obligations(Note 15)		97.3		81.2
Other non-current liabilities and deferred credits		17.2		4.9
		3,225.4		2,741.2
Commitments, Contingencies and Guarantees(Notes 13, 29 and 30, respectively)
Shareholders’ Equity
Share capital (Note 16)		1,379.3		1,408.4
Unlimited authorization of common shares without par value; issued and outstanding 103,593,792 and 110,630,503 shares at December 31, 2005 and 2004, respectively
Unlimited authorization of first preferred shares; none outstanding
Contributed surplus (Note 17)		36.3		275.7
Retained earnings		716.9		701.5
		2,132.5		2,385.6
	$	5,357.9	$	5,126.8

(See Notes to the Consolidated Financial Statements)

Approved by the Board of Directors,

Director
Director

POTASHCORP 2005 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS       57

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

for the years ended December 31	in millions of US dollars except per-share amounts
	2005			2004			2003
Sales (Note 18)	$	3,847.2		$	3,244.4		$	2,799.0
Less: Freight		249.7			238.7			234.5
Transportation and distribution		121.9			104.3			98.7
Cost of goods sold (Note 19)		2,350.6			2,220.0			2,085.4
Gross Margin		1,125.0			681.4			380.4
Selling and administrative (Note 20)		144.5			130.6			96.1
Provincial mining and other taxes(Note 21)		137.2			92.6			57.0
Foreign exchange loss		12.5			19.7			51.9
Other income (Note 22)		(61.8	)		(79.4	)		(33.2	)
Other expenses (Note 23)		—			3.6			264.2
		232.4			167.1			436.0
Operating Income (Loss)		892.6			514.3			(55.6	)
Interest Expense(Note 24)		82.3			84.0			91.3
Income (Loss) Before Income Taxes		810.3			430.3			(146.9	)
Income Taxes (Note 25)		267.4			131.7			(20.6	)
Net Income (Loss)		542.9			298.6			(126.3	)
Retained Earnings, Beginning of Year		701.5			462.8			641.4
Repurchase of Common Shares (Note 16)		(462.5	)		—			—
Dividends		(65.0	)		(59.9	)		(52.3	)
Retained Earnings, End of Year	$	716.9		$	701.5		$	462.8
Net Income (Loss) per Share — Basic (Note 26)	$	5.00		$	2.77		$	(1.21	)
Net Income (Loss) per Share — Diluted (Note 26)	$	4.89		$	2.70		$	(1.21	)
Dividends per Share	$	0.60		$	0.55		$	0.50

(See Notes to the Consolidated Financial Statements)

58       POTASHCORP 2005 ANNUAL REPORT | CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOW

for the years ended December 31 in millions of US dollars

			2005					2004					2003
Operating Activities
Net income (loss)			$	542.9				$	298.6				$	(126.3	)
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization	242.4					240.0					227.4
Stock-based compensation	27.5					11.1					1.0
Loss (gain) on disposal of property, plant and equipment	11.8					(0.7	)				1.0
Gain on sale of long-term investments (Note 4)	—					(34.4	)				—
Provisions for nitrogen and phosphate plant shutdowns and PCS Yumbes S.C.M. (Note 23)	—					3.6					245.9
Foreign exchange on future income tax	8.9					17.2					35.9
Provision for (recovery of) future income tax	40.1					26.3					(20.6	)
Undistributed earnings of equity investees	(33.5	)				(22.2	)				(8.4	)
Other long-term liabilities	20.2					(1.2	)				12.6
Subtotal of adjustments				317.4					239.7					494.8
Changes in non-cash operating working capital
Accounts receivable	(107.6	)				(51.9	)				(39.5	)
Inventories	(119.9	)				(10.5	)				11.8
Prepaid expenses and other current assets	(5.8	)				(6.3	)				11.4
Accounts payable and accrued charges	238.1					188.7					33.3
Subtotal of changes in non-cash operating working capital				4.8					120.0					17.0
Cash provided by operating activities				865.1					658.3					385.5
Investing Activities
Additions to property, plant and equipment				(382.7	)				(220.5	)				(150.7	)
Purchase of long-term investments				(190.9	)				(105.5	)				(178.3	)
Proceeds from disposal of property, plant and equipment				7.2					2.5					—
Proceeds from sale of long-term investments (Notes 4 and 23)				5.2					100.8					—
Other assets and intangible assets				5.9					(2.8	)				(32.7	)
Cash used in investing activities				(555.3	)				(225.5	)				(361.7	)
Cash before financing activities				309.8					432.8					23.8
Financing Activities
Proceeds from long-term debt obligations				—					—					250.0
Repayment of long-term debt obligations				(10.1	)				(1.0	)				(3.4	)
Proceeds from (repayment of) short-term debt obligations				158.7					(82.7	)				(296.8	)
Dividends				(65.4	)				(56.1	)				(52.3	)
Repurchase of common shares				(851.9	)				—					—
Issuance of common shares				93.9					161.2					58.9
Cash (used in) provided by financing activities				(674.8	)				21.4					(43.6	)
(Decrease) Increase in Cash and Cash Equivalents				(365.0	)				454.2					(19.8	)
Cash and Cash Equivalents, Beginning of Year				458.9					4.7					24.5
Cash and Cash Equivalents, End of Year			$	93.9				$	458.9				$	4.7
Supplemental cash flow disclosure
Interest paid			$	86.3				$	83.3				$	83.8
Income taxes paid			$	141.6				$	33.5				$	22.8

(See Notes to the Consolidated Financial Statements)

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 59

Notes to the Consolidated Financial Statements

1. DESCRIPTION OF BUSINESS

With its subsidiaries, Potash Corporation of Saskatchewan Inc. (“PCS”) — together known as “PotashCorp” or “the company” except to the extent the context otherwise requires — forms an integrated fertilizer and related industrial and feed products company. The company has producing assets in the following locations:

• Potash

— five mines and mills and mining rights to potash reserves at a sixth location, all in the province of Saskatchewan

— one mine and mill in the province of New Brunswick

• Phosphate

— a mine and processing plant in the state of North Carolina

— a mine and two processing plants in the state of Florida

— a processing plant in the state of Louisiana

— phosphate feed plants in five states and one in Brazil

— two industrial phosphoric acid plants in the states of North Carolina and Ohio

• Nitrogen

— four plants in the states of Georgia, Louisiana, Ohio and Tennessee

— large-scale operations in Trinidad

The company owns or leases approximately 175 terminal and warehouse facilities strategically located in Canada and the United States, and services customers with a fleet of approximately 7,300 railcars.

PotashCorp sells potash from its Saskatchewan mines for use outside North America exclusively to Canpotex Limited (“Canpotex”). Canpotex, a potash export, sales and marketing company owned in equal shares by the three potash producers in the province of Saskatchewan (including the company), resells potash to offshore customers. PCS Sales (Canada) Inc. and PCS Sales (USA), Inc., wholly owned subsidiaries of PCS, execute marketing and sales for the company’s potash, nitrogen and phosphate products in North America. PCS Sales (Canada) Inc. executes offshore marketing and sales for the company’s New Brunswick potash. PCS Sales (USA), Inc. generally executes offshore marketing and sales for the company’s nitrogen products. Phosphate Chemicals Export Association, Inc. (“PhosChem”), an unrelated phosphate export association established under United States law, is the principal vehicle through which the company executes offshore marketing and sales for its phosphate fertilizers.

2. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The company’s accounting policies are in accordance with Canadian generally accepted accounting principles (“Canadian GAAP”). These policies are consistent with accounting principles generally accepted in the United States (“US GAAP”) in all material respects except as outlined in Note 33.

The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

Key areas where management has made complex or subjective judgments (often as a result of matters that are inherently uncertain) include, among others, the fair value of certain assets; recoverability of investments, long-lived assets and goodwill; variable interest entities; litigation; environmental and asset retirement obligations; pensions and other post-retirement benefits; stock-based compensation; and income taxes. Actual results could differ from these and other estimates, the impact of which would be recorded in future periods.

The following accounting policies are considered to be significant:

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of PotashCorp and its subsidiaries, and any variable interest entities (“VIEs”) for which the company is the primary beneficiary. Principal operating subsidiaries include:

• PCS Sales (Canada) Inc.

— PCS Joint Venture, Ltd. (“PCS Joint Venture”)

• PCS Sales (USA), Inc.

• PCS Phosphate Company, Inc.

— PCS Purified Phosphates

• White Springs Agricultural Chemicals, Inc. (“White Springs”)

• PCS Nitrogen, Inc. (“PCS Nitrogen”)

— PCS Nitrogen Fertilizer, L.P.

— PCS Nitrogen Ohio, L.P.

— PCS Nitrogen Trinidad Limited

• PCS Cassidy Lake Company (“PCS Cassidy Lake”)

• PCS Yumbes S.C.M. (“PCS Yumbes”) — sold in 2004 (see Note 23)

• PCS Fosfatos do Brasil Ltda.

All significant intercompany balances and transactions have been eliminated.

CASH EQUIVALENTS

Highly liquid investments with an original maturity of three months or less are considered to be cash equivalents.

INVENTORIES

Inventories of finished product, raw materials and intermediate products are valued at the lower of cost and market. Cost for substantially all finished and intermediate product inventories is determined using the weighted average cost method. Cost for substantially all raw materials is determined using the first in, first out (“FIFO”) method. Certain inventories of materials and supplies are valued at the lower of average cost and replacement cost and certain inventories of materials and supplies are valued at the lower of cost and market.

60 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PREPAID EXPENSES

Prepaid expenses include prepaid freight relating to product inventory stored at warehouse and terminal facilities.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment (which includes mine development costs) are carried at cost. Costs of additions, betterments, renewals and interest during construction are capitalized.

Maintenance and repair expenditures, which do not improve or extend productive life, are expensed in the year incurred.

DEPRECIATION AND AMORTIZATION

Certain mining and milling assets are depreciated using the units of production method based on the shorter of estimates of reserves or service lives. Other asset classes are depreciated or amortized on a straight-line basis as follows: land improvements 5 to 30 years, buildings and improvements 6 to 30 years and machinery and equipment (comprised primarily of plant equipment) 20 to 25 years.

GOODWILL

All business combinations are accounted for using the purchase method. Identifiable intangible assets are recognized separately from goodwill. Goodwill is carried at cost, is not amortized and represents the excess of the purchase price and related costs over the fair value assigned to the net identifiable assets of a business acquired.

OTHER ASSETS AND INTANGIBLES

Issue costs of long-term obligations are capitalized to deferred charges and are amortized to expense over the term of the related liability.

Preproduction costs are capitalized to deferred charges and represent costs incurred prior to obtaining commercial production at new facilities, net of revenue earned, and are amortized on either a straight-line or units of production basis over a maximum of 10 years.

The costs of constructing bases for gypsum stacks and settling ponds are capitalized to deferred charges and are amortized on a straight-line basis over their estimated useful lives of 3 to 5 years.

Investments in which the company exercises significant influence (but does not control) are accounted for using the equity method. Other investments are stated at cost. An investment is considered impaired if its fair value falls below its cost and the decline is considered other than temporary. Factors the company considers in determining whether a decline is temporary include the length of time and extent to which fair value has been below cost, the financial condition and near-term prospects of the investee, and the company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For actively traded securities, the company typically considers quoted market value to be fair value. For thinly traded securities where market quotes are either not available or not representative of fair value, it uses estimation techniques such as those described under Asset Impairment. When there has been a decline in value that is other than temporary, the carrying value of the investment is appropriately reduced.

Finite-lived intangible assets are amortized over their estimated useful lives as follows: production and technology rights 25 to 30 years and computer software 5 years.

ASSET IMPAIRMENT

The company reviews both long-lived assets to be held and used and identifiable intangible assets with finite lives whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the assets, whereas such assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. During 2004 and 2003, the company recognized material asset impairment charges as described in Note 23. As at December 31, 2005, the company determined that there were no other triggering events requiring impairment analysis.

Goodwill impairment is assessed at the reporting unit level at least annually (in April), or more frequently if events or circumstances indicate there may be an impairment. Reporting units comprise business operations with similar economic characteristics and strategies and may represent either a business segment or a business unit within a business segment. Potential impairment is identified when the carrying value of a reporting unit, including the allocated goodwill, exceeds its fair value. Goodwill impairment is measured as the excess of the carrying amount of the reporting unit’s allocated goodwill over the implied fair value of the goodwill, based on the fair value of the assets and liabilities of the reporting unit.

The fair values are estimated using accepted valuation methodologies such as discounted future net cash flows, earnings multiples or prices for similar assets, whichever is most appropriate under the circumstances.

LEASES

Leases entered into are classified as either capital or operating leases. Leases that transfer substantially all of the benefits and risks of ownership of property to the company are accounted for as capital leases. Equipment acquired under capital leases is depreciated over the period of expected use on the same basis as other similar property, plant and equipment. Gains or losses resulting from sale/leaseback transactions are deferred and amortized in proportion to the amortization of the leased asset. Rental payments under operating leases are expensed as incurred.

PENSION AND OTHER POST-RETIREMENT BENEFITS

The company offers a number of benefit plans that provide pension and other benefits to qualified employees. These plans include defined benefit pension plans, supplemental pension plans, defined contribution plans and health, disability, dental and life insurance plans.

The company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The cost of pensions and other retirement benefits earned by employees is generally actuarially determined using the projected benefit method prorated on service and management’s best estimate of expected plan

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 61

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

investment performance, salary escalation, retirement ages of employees and expected health-care costs. For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. Prior service costs from plan amendments are deferred and amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment. Actuarial gains (losses) arise from the difference between actual long-term rate of return on plan assets for a period and the expected long-term rate of return on plan assets for that period, or from changes in actuarial assumptions used to determine the accrued benefit obligation. The excess of the net accumulated actuarial gain (loss) over 10 percent of the greater of the benefit obligation and the fair value of plan assets is amortized over the average remaining service period of active employees. The average remaining service period of the active employees covered by the company’s pension plans is 10.3 years (2004 — 13.3). The average remaining service period of the active employees covered by the company’s other benefits plans is 13.7 years (2004 — 13.7). When the restructuring of a benefit plan gives rise to both a curtailment and a settlement of obligations, the curtailment is accounted for prior to the settlement. Actuaries perform valuations on a regular basis to determine the actuarial present value of the accrued pension and other post-retirement benefits.

Pension and other post-retirement benefit expense includes, as applicable, the net of management’s best estimate of the cost of benefits provided, interest cost of projected benefits, return on plan assets, amortization of experience gains or losses and plan amendments, and changes in the valuation allowance.

Defined contribution plan costs are recognized in earnings for services rendered by employees during the period.

ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS

Environmental costs that relate to current operations are expensed or capitalized as appropriate. Environmental costs are capitalized if the costs extend the life of the property, increase its capacity, mitigate or prevent contamination from future operations, or relate to legal asset retirement obligations. Costs that relate to existing conditions caused by past operations and that do not contribute to current or future revenue generation are expensed. Provisions for estimated costs are recorded when environmental remedial efforts are likely and the costs can be reasonably estimated. In determining the provisions, the company uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements.

The company recognizes its obligations to retire certain tangible long-lived assets. The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated useful life. In subsequent periods, the asset retirement obligation is adjusted for the passage of time and any changes in the amount or timing of the underlying future cash flows through charges to earnings. A gain or loss may be incurred upon settlement of the liability.

STOCK-BASED COMPENSATION PLANS

The company has five stock-based compensation plans, which are described in Note 27. The company accounts for its grants under those plans in accordance with the fair value-based method of accounting for stock-based compensation. For stock option plans, the fair value of stock options is determined on their grant date and recorded as compensation expense over the period that the stock options vest, with a corresponding increase to contributed surplus. When stock options are exercised, the proceeds, together with the amount recorded in contributed surplus, are recorded in share capital.

FOREIGN EXCHANGE TRANSACTIONS

The company’s functional currency is the US dollar.

Canadian dollar operating transactions are translated to US dollars at the average exchange rate for the previous month. Trinidad dollar operating transactions are translated to US dollars at the average exchange rate for the period. Monetary assets and liabilities are translated at period-end exchange rates. Non-monetary assets owned at December 31, 1994 have been translated under the translation of convenience method at the December 31, 1994 year-end exchange rate of US $1.00 = Cdn $1.4028. Additions subsequent to December 31, 1994 are translated at the exchange rate prevailing at the time of the transaction. Translation exchange gains and losses of integrated foreign operations are reflected in earnings.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial instruments are used by the company to manage its exposure to exchange rate, interest rate and commodity price fluctuations. The company’s policy is not to utilize derivative financial instruments for trading or speculative purposes. The company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction. This process includes linking derivatives to specific assets and liabilities or to specific firm commitments or forecast transactions. The company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values of hedged items. When derivative instruments have been designated within a hedge relationship and are highly effective in offsetting the identified risk characteristics of specific financial assets and liabilities, or groups of financial assets and liabilities, hedge accounting is applied to these derivative instruments. Hedge accounting requires that gains, losses, revenue and expenses of a hedging item be recognized in the same period that the associated gains, losses, revenue and expenses of the hedged item are recognized. A hedging relationship is terminated if the hedge ceases to be effective; if the underlying asset or liability being hedged is derecognized or if it is no longer probable that the anticipated transaction will occur and the derivative instrument is still outstanding; or if the derivative instrument is no longer designated as a hedging instrument. If a hedging relationship is terminated, the difference between the fair value and the accrued value of the hedging derivatives upon termination is deferred and recognized into earnings on the same basis as gains, losses, revenue and expenses of the previously hedged item are recognized.

62 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The company enters into natural gas futures, swaps and option agreements to manage the cost of natural gas. Gains or losses resulting from changes in the fair value of natural gas hedging transactions which have not yet been settled are not recognized, as they generally relate to changes in the spot price of anticipated natural gas purchases. Gains or losses arising from gas hedging transactions that have been settled, terminated or cease to be effective prior to maturity are deferred as a component of inventory until the product containing the hedged item is sold, at which time both the natural gas purchase cost and the related hedging deferral are recorded as cost of sales. The company regularly evaluates its unrecognized or deferred gains and losses on these derivatives from a net realizable value of inventory perspective and establishes appropriate provisions, if necessary.

The company periodically uses interest rate swaps to manage the interest rate mix of its total debt portfolio and related overall cost of borrowing. Hedge accounting treatment for interest rate swaps results in interest expense on the related debt being reflected at hedged rates rather than original contractual interest rates.

The company enters into foreign currency forward contracts in respect of its Canadian dollar requirements for operating and capital expenditures. These contracts are not designated as hedging instruments for accounting purposes. Accordingly, they are marked-to-market and carried at fair value as assets or liabilities, as appropriate, with changes in fair value recognized in earnings.

REVENUE RECOGNITION

Sales revenue is recognized when the product is shipped, the sales price is determinable and collectability is reasonably assured. Revenue is recorded based on the FOB mine, plant, warehouse or terminal price, except for certain vessel sales which are shipped on a delivered basis. Transportation costs are recovered from the customer through sales pricing.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2005, the Canadian Institute of Chartered Accountants (“CICA”) issued Section 1530, “Comprehensive Income”, Section 3251, “Equity”, Section 3855, “Financial Instruments — Recognition and Measurement” and Section 3865, “Hedges”. The new standards increase harmonization with US GAAP and will require the following:

• Financial assets will be classified as either held-to-maturity, held-for-trading or available-for-sale. Held-to-maturity classification will be restricted to fixed maturity instruments that the company intends and is able to hold to maturity and will be accounted for at amortized cost. Held-for-trading instruments will be recorded at fair value with realized and unrealized gains and losses reported in net income. The remaining financial assets will be classified as available-for-sale. These will be recorded at fair value with unrealized gains and losses reported in a new category of the Consolidated Statement of Financial Position under shareholders’ equity called other comprehensive income (“OCI”); and

• Derivatives will be classified as held-for-trading unless designated as hedging instruments. All derivatives, including embedded derivatives that must be separately accounted for, will be recorded at fair value on the Consolidated Statement of Financial Position. For derivatives that hedge the changes in fair value of an asset or liability, changes in the derivatives’ fair value will be reported in net income and be substantially offset by changes in the fair value of the hedged asset or liability attributable to the risk being hedged. For derivatives that hedge variability in cash flows, the effective portion of the changes in the derivatives’ fair value will be initially recognized in OCI and the ineffective portion will be recorded in net income. The amounts temporarily recorded in OCI will subsequently be reclassified to net income in the periods when net income is affected by the variability in the cash flows of the hedged item.

The above guidance will apply for interim and annual financial statements relating to fiscal years beginning on or after October 1, 2006. Earlier adoption will be permitted only as of the beginning of a fiscal year. The impact of implementing these new standards is not yet determinable as it is highly dependent on fair values, outstanding positions and hedging strategies at the time of adoption.

In October 2005, the Emerging Issues Committee of the CICA (the “EIC”) issued Abstract No. 157, “Implicit Variable Interests Under AcG-15” (“EIC-157”), to address whether a company has an implicit variable interest in a VIE or potential VIE when specific conditions exist. An implicit variable interest acts the same as an explicit variable interest except that it involves the absorbing and/or receiving of variability indirectly from the entity (rather than directly). The identification of an implicit variable interest is a matter of judgment that depends on the relevant facts and circumstances. EIC-157 will be effective in the first quarter of 2006. The implementation of this EIC is not expected to have a material impact on the company’s consolidated financial statements.

In November 2005, the EIC issued Abstract No. 159, “Conditional Asset Retirement Obligations”, to clarify the accounting treatment for a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Under this EIC, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The guidance is effective for the second quarter of 2006 and is to be applied retroactively, with restatement of prior periods. The implementation of this EIC is not expected to have a material impact on the company’s consolidated financial statements.

3. CHANGE IN ACCOUNTING POLICY

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

Effective January 1, 2005, the company adopted revised CICA Accounting Guideline 15 (“AcG-15”), “Consolidation of Variable Interest Entities”. AcG-15 is harmonized in all material respects with US GAAP and provides guidance for applying consolidation principles to certain entities (called variable interest entities or VIEs) that are subject to control on a basis other than ownership of voting interests. An entity is a VIE when, by design, one or both of the following conditions exist: (1) total equity investment at risk is insufficient to permit that entity to finance its activities without additional subordinated support from other parties; (2) as a group, the holders of the equity investment at risk lack certain essential characteristics

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 63

3. CHANGE IN ACCOUNTING POLICY (CONTINUED)

of a controlling financial interest. AcG-15 requires consolidation by a business of VIEs in which it is the primary beneficiary. The primary beneficiary is defined as the party that has exposure to the majority of the expected losses and/or expected residual returns of the VIE. The adoption of this guideline did not have a material impact on the company’s consolidated financial statements.

Accounting standard-setters continue to deliberate issues associated with AcG-15. As these issues are addressed and revisions to the accounting guidance are made, the effects of this new guideline may change.

4. BUSINESS ACQUISITIONS

2005

The company did not have any significant business acquisitions in 2005.

2004

On December 21, 2004, the company acquired all the outstanding shares of RAC Investments Ltd. (“RAC Investments”), an indirect subsidiary of Israel Chemicals Ltd. (“ICL”), for $100.7, including acquisition costs. RAC Investments is an investment holding company which indirectly owns 19,200,242 Series A shares and 2,699,773 Series B shares in Sociedad Quimica y Minera de Chile S.A. (“SQM”). RAC Investments’ earnings have been included in the consolidated financial statements since the acquisition date.

The fair value of the net assets acquired at the date of acquisition was $100.7, comprised of cash of $3.5 and an investment in SQM of $97.2. No liabilities were assumed. Cash consideration paid was $97.2.

Prior to execution of the above-noted transaction, the company (through a subsidiary) sold 8,500,000 Series A shares of SQM via public auction on the Santiago Stock Exchange (the “Exchange”) and 1,301,724 Series A shares in other Exchange transactions. Proceeds on sale were $66.3, resulting in a non-taxable gain recorded in other income of $34.4, net of selling costs (see Note 22).

5. ACCOUNTS RECEIVABLE

	2005			2004
Trade accounts — Canpotex	$	71.6		$	55.7
— Other		343.0			260.0
Non-trade accounts		43.8			41.5
		458.4			357.2
Less allowance for doubtful accounts		(5.1	)		(4.6	)
	$	453.3		$	352.6

6. INVENTORIES

	2005		2004
Finished product	$	268.5	$	181.8
Intermediate products		94.9		67.0
Raw materials		59.9		50.3
Materials and supplies		99.2		97.7
	$	522.5	$	396.8

7. PROPERTY, PLANT AND EQUIPMENT

	2005
			Accumulated
			Depreciation and		Net Book
	Cost		Amortization		Value
Land and improvements	$	224.4	$	47.0	$	177.4
Buildings and improvements		521.1		194.2		326.9
Machinery and equipment		4,289.6		1,622.8		2,666.8
Mine development costs		155.4		63.7		91.7
	$	5,190.5	$	1,927.7	$	3,262.8

	2004
			Accumulated
			Depreciation and		Net Book
	Cost		Amortization		Value
Land and improvements	$	223.7	$	42.5	$	181.2
Buildings and improvements		481.0		177.6		303.4
Machinery and equipment		4,011.1		1,474.9		2,536.2
Mine development costs		138.0		59.9		78.1
	$	4,853.8	$	1,754.9	$	3,098.9

Depreciation and amortization of property, plant and equipment included in cost of goods sold and in selling and administrative expenses was $227.4 (2004 — $210.9; 2003 — $193.9). The net carrying amount of property, plant and equipment not being amortized at December 31, 2005 because it was under construction or development was $332.8 (2004 — $234.9).

During the year, the company recorded an impairment charge of $NIL (2004 — $6.2; 2003 — $117.6) relating to certain assets (see Note 23). Interest capitalized to property, plant and equipment during the year was $5.7 (2004 — $2.5; 2003 — $1.5).

Acquiring or constructing property, plant and equipment by incurring a liability does not result in a cash outflow for the company until the liability is paid. In the period the related liability is incurred, the change in operating accounts payable on the Consolidated Statement of Cash Flow is typically reduced by such amount. In the period the liability is paid, the amount is reflected as a cash outflow for investing activities. The applicable net change in operating accounts payable that was reclassified from investing activities on the Consolidated Statement of Cash Flow in 2005 was $26.0. The net change in accounts payable in 2004 and 2003 was not significant.

64 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

8. OTHER ASSETS AND INTANGIBLE ASSETS

	2005		2004
Other assets
Investments at equity
Arab Potash Company (“APC”) — 28-percent ownership; quoted market value of $422.9	$	224.6	$	202.0
SQM — 25-percent ownership; quoted market value of $705.1		261.0		240.2
Other		19.6		20.4
Investments at cost
ICL — 10-percent ownership; quoted market value of $512.6		167.7		92.8
Sinochem Hong Kong Holdings Limited (“Sinofert”) — 10-percent ownership; quoted market value of $107.7		97.4		—
Deferred charges — net of accumulated amortization of $50.7 (2004 — $39.8)		30.1		34.8
Accrued pension benefit asset		25.4		25.6
Other		27.0		34.4
	$	852.8	$	650.2
Intangible assets — net of accumulated amortization of $15.7 (2004 — $11.6)	$	34.5	$	37.1

During 2005, the company acquired: (1) 1,000,000 additional shares in APC for $18.6; and (2) 21,000,000 additional shares in ICL for $74.9. The company also acquired a 10-percent interest in the ordinary shares of Sinofert for cash consideration of $97.4. Pursuant to a strategic investment agreement, the company also holds an option to acquire an additional 10-percent interest within three years of the acquisition (see Note 34). The price for the shares subject to the option will be determined by the prevailing market price at the time of exercise. Sinofert, a vertically integrated fertilizer enterprise in the People’s Republic of China, is a subsidiary of Sinochem Corporation and is listed on The Hong Kong Stock Exchange.

As noted in the above table, certain of the company’s investments in international entities are accounted for under the equity method. Accounting principles generally accepted in those foreign jurisdictions may vary in certain important respects from Canadian GAAP. The company’s share of earnings of these equity investees under the applicable foreign GAAP has been adjusted for the significant effects of conforming to Canadian GAAP. The company’s share of earnings of equity investees of $52.1 (2004 — $30.9; 2003 — $12.4) is included in other income (see Note 22). Dividends received from equity investees were $18.6 (2004 — $8.7; 2003 — $4.0).

During the year, the company recorded an impairment charge of $NIL (2004 — $NIL; 2003 — $65.4) relating to certain deferred charges. Amortization of deferred charges included in cost of goods sold and in selling and administrative expenses was $10.9 (2004 — $25.6; 2003 — $28.5).

Intangible assets relate primarily to production and technology rights and computer software. Other than goodwill (see Note 9), the company has not recognized any intangible assets with indefinite useful lives. Total amortization expense relating to finite-lived intangible assets for 2005 was $4.1 (2004 — $3.5; 2003 — $5.0).

Amortization expense in each of the next five years calculated upon such assets held as at December 31, 2005 is estimated to be $6.3 for 2006, $5.4 for 2007, $3.9 for 2008, $3.4 for 2009 and $2.9 for 2010.

9. GOODWILL

	2005		2004
Cost	$	104.3	$	104.3
Accumulated amortization		7.3		7.3
	$	97.0	$	97.0

Substantially all of the company’s recorded goodwill relates to the nitrogen segment.

10. SHORT-TERM DEBT

Short-term debt was $252.2 at December 31, 2005 (2004 — $93.5). The weighted average interest rate on this debt was 3.54 percent (2004 — 1.42 percent; 2003 — 1.43 percent). The company had an unsecured line of credit available for short-term financing (net of letters of credit of $18.7 and direct borrowings of $NIL) in the amount of $56.3 at December 31, 2005 (2004 — $59.9). In addition, the company is authorized to borrow a further $247.8 under its commercial paper program. Subsequent to year-end, the company increased its borrowing capacity under its commercial paper program to $750.0.

The line of credit is subject to financial tests and other covenants. The principal covenants require a debt-to-capital ratio of less than or equal to 0.55:1, a long-term debt-to-EBITDA (defined in the agreement as earnings before interest, income taxes, provincial mining and other taxes, depreciation, amortization and other non-cash expenses) ratio of less than or equal to 3.5:1, tangible net worth in an amount greater than or equal to $1,250.0 and debt of subsidiaries not to exceed $590.0. The line of credit is subject to other customary covenants and events of default, including an event of default for non-payment of other debt in excess of Cdn $40.0. Non-compliance with such covenants could result in accelerated payment of amounts due under the line of credit, and its termination. The company was in compliance with the above-mentioned covenants at December 31, 2005.

11. ACCOUNTS PAYABLE AND ACCRUED CHARGES

	2005		2004
Income and other taxes	$	239.4	$	143.6
Trade accounts		194.6		193.0
Margin deposits		173.7		28.5
Accrued compensation		71.0		58.8
Accrued interest		18.5		16.8
Dividends		16.1		16.7
Current portion accrued environmental costs and asset retirement obligations		12.3		19.5
Current portion pension and other post-retirement benefits		8.5		23.8
Other payables		108.6		99.2
	$	842.7	$	599.9

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 65

12. LONG-TERM DEBT

	2005		2004
Industrial Revenue and Pollution Control Obligations	$	—	$	9.0
Adjustable Rate Industrial Revenue and Pollution Control Obligations that matured in 2005
Notes Payable
7.125% notes payable June 15, 2007		400.0		400.0
7.750% notes payable May 31, 2011		600.0		600.0
4.875% notes payable March 1, 2013		250.0		250.0
There are no sinking fund requirements prior to maturity. These notes were issued under US shelf registration statements covering up to $2,000.0 of debt securities. The notes are unsecured. The 2011 and 2013 notes are redeemable, in whole or in part, at the company’s option at any time prior to maturity for a price at least equal to the principal amount of the notes to be redeemed, plus accrued interest
Other		8.8		9.9
		1,258.8		1,268.9
Less current maturities		1.2		10.3
	$	1,257.6	$	1,258.6

The company has entered into back-to-back loan arrangements involving certain financial assets and financial liabilities. The company has presented financial assets of $310.1 and financial liabilities of $316.0 on a net basis because a legal right to set-off exists, and it intends to settle with the same party on a net basis. Other long-term debt in the above table includes a net financial liability of $5.9 (2004 — $5.9) pursuant to these arrangements.

The company has a syndicated revolving credit facility, renewed in September 2005 for a five-year term, which provides for unsecured advances of up to $750.0 (less the amount of direct borrowings and commercial paper outstanding). As at December 31, 2005, no amounts were outstanding and $497.8 was available under the facility. Principal covenants and events of default under the credit facility requirements are the same as the line of credit as described in Note 10. The notes payable are not subject to any financial test covenants but are subject to certain customary covenants (including limitations on liens and sale and leaseback transactions) and events of default, including an event of default for acceleration of other debt in excess of $50.0. The other long-term debt instruments are not subject to any financial test covenants but are subject to certain customary covenants and events of default, including, for other long-term debt, an event of default for non-payment of other debt in excess of $25.0. Non-compliance with such covenants could result in accelerated payment of the related debt. The company was in compliance with the above-mentioned covenants at December 31, 2005.

Long-term debt at December 31, 2005 will mature as follows:

2006	$	1.2
2007		400.5
2008		0.2
2009		0.3
2010		0.3
Subsequent years		856.3
	$	1,258.8

13. COMMITMENTS

LEASE COMMITMENTS

The company has various long-term operating lease agreements for buildings, port facilities, equipment, ocean-going transportation vessels, mineral leases and railcars, the latest of which expires in 2025. Rental expense for operating leases for the years ended December 31, 2005, 2004 and 2003 was $78.9, $69.6 and $39.9, respectively.

PURCHASE COMMITMENTS

The company has long-term agreements for the purchase of sulfur for use in the production of phosphoric acid. These agreements provide for minimum purchase quantities and certain prices are based on market rates at the time of delivery. The commitments included in the table below are based on contract prices as at December 31, 2005.

The company has entered into long-term natural gas contracts with the National Gas Company of Trinidad, the latest of which expires in 2018. The contracts provide for prices that vary with ammonia market prices, escalating floor prices and minimum purchase quantities. The commitments included in the table below are based on floor prices and minimum purchase quantities.

The company also has long-term agreements for the purchase of phosphate rock used at its Geismar facility and limestone used in Brazil. The commitments included in the table below are based on the expected purchase quantity and current base prices (less applicable discounts).

OTHER COMMITMENTS

Other operating commitments consist principally of various rail freight contracts, the latest of which expires in 2010.

Minimum future commitments under these contractual arrangements for the next five years and thereafter are shown below.

	Operating		Purchase		Other
	Leases		Commitments		Commitments
2006	$	80.3	$	122.4	$	13.6
2007		74.5		124.0		8.4
2008		63.1		99.7		8.4
2009		58.8		94.8		8.4
2010		54.9		96.3		4.2
Thereafter		229.0		406.5		—
Total	$	560.6	$	943.7	$	43.0

66 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

14. PENSION AND OTHER POST-RETIREMENT BENEFITS

PENSION PLANS

Canada

Substantially all employees of the company are participants in either a defined contribution or a defined benefit pension plan.

The company has established a supplemental defined benefit retirement income plan for senior management which is unfunded, non-contributory and provides a supplementary pension benefit. The plan is provided for by charges to earnings sufficient to meet the projected benefit obligation.

United States

The company has defined benefit pension plans that cover a substantial majority of its employees. Benefits are based on a combination of years of service and compensation levels, depending on the plan. Contributions to the US plans are made to meet or exceed minimum funding requirements of the Employee Retirement Income Security Act of 1974 (“ERISA”).

Trinidad

The company has contributory defined benefit pension plans that cover a substantial majority of its employees. Benefits are based on service. The plans’ assets consist mainly of local government and other bonds, local mortgage and mortgage-backed securities, fixed income deposits and cash.

OTHER POST-RETIREMENT PLANS

The company provides certain contributory health-care plans and non-contributory life insurance benefits for retired employees. These plans contain certain cost-sharing features such as deductibles and coinsurance, and are unfunded, with benefits subject to change.

DEFINED BENEFIT PLANS

The components of net expense for the company’s pension and other post-retirement benefit plans, computed actuarially, were as follows:

	Pension											Other
	2005			2004			2003			2005			2004			2003
Costs arising in the period
Service cost for benefits earned during the year	$	13.8		$	12.9		$	12.2		$	5.7		$	5.2		$	5.5
Interest cost on projected benefit obligations		31.1			30.2			29.6			13.3			13.2			12.9
Actual return on plan assets		(34.3	)		(47.1	)		(73.3	)		—			—			—
Actuarial loss (gain)		27.9			23.3			27.3			(12.7	)		(6.8	)		25.7
Plan amendments		3.5			—			2.3			11.5			—			(12.6	)
Plan curtailments		0.4			—			—			—			—			—
Change in valuation allowance		2.4			(2.2	)		2.0			—			—			—
Costs arising in the period		44.8			17.1			0.1			17.8			11.6			31.5
Difference between costs arising in the period and costs recognized in the period in respect of:
Return on plan assets		(2.7	)		13.6			42.9			—			—			—
Actuarial (gain) loss		(23.6	)		(20.2	)		(27.4	)		15.4			9.5			(13.6	)
Plan amendments		(2.3	)		0.4			(2.2	)		(13.0	)		(1.9	)		2.5
Transitional obligation		1.4			1.5			5.1			0.3			—			—
Net expense	$	17.6		$	12.4		$	18.5		$	20.5		$	19.2		$	20.4

The assumptions used to determine the benefit obligation and expense for the company’s significant plans were as follows (weighted average as of December 31):

	Pension									Other
	2005			2004			2003			2005			2004			2003
Discount rate — obligation		5.70	%		5.75	%		6.10	%		5.70	%		5.75	%		6.10	%
Discount rate — expense		5.75	%		6.10	%		6.50	%		5.75	%		6.10	%1		6.50	%
Long-term rate of return on assets		8.50	%		8.50	%		8.50	%		n/a			n/a			n/a
Rate of increase in compensation levels		4.00	%		4.00	%		4.00	%		n/a			n/a			n/a

¹ Discount rate changed to 6.25% effective July 1, 2004, upon recognition of Medicare Part D.

The assumed health-care cost trend rates are as follows:

	2005			2004			2003
Health-care cost trend rates assumed for next year		6.00	%		6.00	%		6.00	%
Ultimate health-care cost trend rate assumed		6.00	%		6.00	%		6.00	%
Year that the rate reaches the ultimate trend rate		2005			2004			2003

Effective January 1, 2004, the company’s largest retiree medical plan limits the company’s share of annual medical cost increases to 4.5 percent for recent and future retirees. Any cost increases in excess of this amount are funded by increased retiree contributions.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 67

14. PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)

The company’s discount rate assumption reflects the weighted average interest rate at which the pension and other post-retirement liabilities could be effectively settled using high-quality bonds at the measurement date. The rate varies by country. The company determines the discount rate using a yield curve approach. Based on the plan’s demographics, expected future pension benefit and medical claims, payments are measured and discounted to determine the present value of the expected future cash flows. The cash flows are discounted using yields on high-quality AA-rated non-callable bonds with cash flows of similar timing. The equivalent level discount rate is then used as input by the company to determine the final discount rate. The rate selected for the December 31, 2005 measurement date will be used to determine expense for fiscal 2006.

The expected long-term rate of return on assets assumption is determined using a building block approach. The expected real rate of return for each individual asset class is determined based on expected future performance. These rates are weighted based on the current asset portfolio. A separate determination is made of the underlying impact of expenses, inflation, rebalancing, diversification and the actively managed portfolio premium. The resulting total expected asset return is compared to the historic returns achieved by the portfolio. Based on these input items, a final rate is selected by the company.

The company uses a December 31 measurement date. The most recent actuarial valuations of the majority of the pension plans for funding purposes were as of January 1, 2005, and the next required valuations will be as of January 1, 2006. The change in benefit obligations and change in plan assets for the above pension and other post-retirement plans were as follows:

	Pension						Other						Total
	2005			2004			2005			2004			2005			2004
Change in benefit obligations
Balance, beginning of year	$	548.6		$	502.4		$	235.4		$	230.7
Service cost		13.8			12.9			5.7			5.2
Interest cost		31.1			30.2			13.3			13.2
Participants’ contributions		0.2			0.2			3.1			2.8
Actuarial loss (gain)		27.9			23.9			(12.7	)		(6.8	)
Foreign exchange rate changes		(3.4	)		3.1			0.7			1.1
Plan amendments		3.5			—			(11.5	)		—
Benefits paid		(26.4	)		(24.1	)		(11.4	)		(10.8	)
Balance, end of year		595.3			548.6			222.6			235.4		$	817.9		$	784.0
Change in plan assets
Fair value, beginning of year		452.9			406.1			—			—
Actual return on plan assets		34.3			47.1			—			—
Employer contributions		24.2			20.5			8.3			8.0
Participants’ contributions		0.2			0.2			3.1			2.8
Foreign exchange rate changes		(4.4	)		3.1			—			—
Benefits paid		(26.4	)		(24.1	)		(11.4	)		(10.8	)
Fair value, end of year		480.8			452.9			—			—			480.8			452.9
Funded status		(114.5	)		(95.7	)		(222.6	)		(235.4	)		(337.1	)		(331.1	)
Valuation allowance		(14.1	)		(11.7	)		—			—			(14.1	)		(11.7	)
Unamortized net actuarial loss		118.4			93.1			41.6			55.3			160.0			148.4
Unamortized prior service cost		6.0			3.8			(19.5	)		(9.1	)		(13.5	)		(5.3	)
Unamortized transitional obligation		6.7			6.7			1.0			1.4			7.7			8.1
Accrued pension and other post-retirement benefit asset (liability)	$	2.5		$	(3.8	)	$	(199.5	)	$	(187.8	)	$	(197.0	)	$	(191.6	)
Amounts included in:
Other assets (Note 8)	$	25.0		$	16.8		$	0.4		$	8.8		$	25.4		$	25.6
Liabilities
Current (Note 11)		(0.4	)		(16.0	)		(8.1	)		(7.8	)		(8.5	)		(23.8	)
Long-term		(22.1	)		(4.6	)		(191.8	)		(188.8	)		(213.9	)		(193.4	)
	$	2.5		$	(3.8	)	$	(199.5	)	$	(187.8	)	$	(197.0	)	$	(191.6	)

Letters of credit secured certain of the unfunded defined benefit plans as at December 31, 2005 and 2004.

The company is a sponsor of certain US post-retirement health-care plans that were impacted by the US Medicare Prescription Drug, Improvement and Modernization Act of 2003. This legislation expanded Medicare to include (for the first time) coverage for prescription drugs and introduced a prescription drug benefit and federal subsidy to sponsors of retiree health-care benefit plans that provide benefits at least “actuarially equivalent” to Medicare Part D. The company accounted for the impact of the legislation prospectively as of July 1, 2004. The federal subsidy had the effect of reducing the company’s accumulated post-retirement benefit obligation by $23.2 and reducing the net periodic post-retirement benefit cost for the year by $3.7 (2004 — $1.7).

68 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

14. PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)

The accumulated benefit obligation for all defined benefit pension plans was $534.7 and $484.7 at December 31, 2005 and 2004, respectively. The aggregate projected benefit obligation, accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets were as follows:

	2005		2004
Projected benefit obligation	$	568.4	$	520.4
Accumulated benefit obligation		521.0		467.9
Fair value of plan assets		419.0		391.1

SENSITIVITY OF ASSUMPTIONS

The effect of a change in the health-care cost trend rate on the other post-retirement benefit obligation and the aggregate of service and interest cost would have been as follows:

	2005			2004			2003
As reported:
Benefit obligation	$	222.6		$	235.4		$	230.7
Aggregate of service and interest cost		19.0			18.4			18.4
Impact of increase of 1.0 percentage point:
Benefit obligation		31.4			34.4			36.3
Aggregate of service and interest cost		3.2			3.3			3.8
Impact of decrease of 1.0 percentage point:
Benefit obligation		(27.8	)		(35.3	)		(31.7	)
Aggregate of service and interest cost		(2.9	)		(3.4	)		(3.1	)

The above sensitivities are hypothetical and should be used with caution. Changes in amounts based on a 1.0 percentage point variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in amounts may not be linear. The sensitivities have been calculated independently of changes in other key variables. Changes in one factor may result in changes in another, which could amplify or reduce certain sensitivities.

PLAN ASSETS

Approximate asset allocations, by asset category, of the company’s significant pension plans were as follows at December 31:

Asset Category	Target			2005			2004
Equity securities		65	%		67	%		67	%
Debt securities		35	%		33	%		32	%
Real estate		—			—			—
Other		—			—			1	%
Total		100	%		100	%		100	%

The company employs a total return on investment approach whereby a mix of equities and fixed income investments is used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and corporate financial condition.

The investment portfolio contains a diversified blend of equity and fixed income investments.

Furthermore, equity investments are diversified across US and non-US stocks, as well as growth, value and small and large capitalizations. US equities are also diversified across actively managed and passively invested portfolios. Other assets such as private equity, real estate and hedge funds are not used at this time. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The investment strategy in Trinidad is largely dictated by local investment restrictions (maximum of 50 percent in equities and 20 percent foreign) and asset availability since the local equity market is small and there is little secondary market activity in debt securities.

DEFINED CONTRIBUTION PLANS

All of the company’s US employees may participate in defined contribution savings plans. These plans are subject to US federal tax limitations and provide for voluntary employee salary deduction contributions. The company suspended its contributions of up to 5 percent of salary in July 2003. Contributions were reinstated in August 2004, providing a minimum of 3 percent (to a maximum of 6 percent) of salary based on company performance. The company’s 2005 contributions were $6.1 (2004 — $2.9; 2003 — $3.4).

All of the company’s Canadian salaried employees and certain hourly employees participate in the PCS Inc. Savings Plan and may make voluntary contributions. The company suspended its contributions to this plan in July 2003. Contributions were reinstated in August 2004, providing a minimum of 3 percent (to a maximum of 6 percent) of salary based on company performance. The company’s contributions in 2005 were $4.4 (2004 — $1.3; 2003 — $2.0).

Certain of the company’s Canadian employees participate in the contributory PCS Inc. Pension Plan. The member contributes to the plan at the rate of 5.5 percent of the member’s earnings, or such other percentage amount as may be established by a collective agreement, and the company contributes for each member at the same rate. The member may also elect to make voluntary additional contributions. The company’s contributions in 2005 were $4.5 (2004 - - $3.9; 2003 — $3.4).

CASH PAYMENTS

Total cash payments for pensions and other post-retirement benefits for 2005, consisting of cash contributed by the company to its funded pension plans, cash payments directly to beneficiaries for its unfunded other benefit plans and cash contributed to its defined contribution plans, were $47.5. Approximately $49.1 is expected to be contributed by the company to all plans during 2006.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 69

14. PENSION AND OTHER POST-RETIREMENT BENEFITS (CONTINUED)

ESTIMATED FUTURE BENEFIT PAYMENTS

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid from either corporate assets or the qualified pension trusts:

			Other
					Reduction due
					to Medicare
	Pension		Gross		Part D Subsidy		Net
2006	$	25.2	$	9.4	$	0.5	$	8.9
2007		26.6		10.1		0.5		9.6
2008		28.7		10.8		0.6		10.2
2009		29.0		11.4		0.6		10.8
2010		30.7		12.1		0.7		11.4
2011-2015		184.8		70.2		4.2		66.0

15. ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS

The company records an asset and related retirement obligation for the costs associated with the retirement of long-lived tangible assets when a legal liability to retire such assets exists. The major categories of asset retirement obligations include: reclamation and restoration costs at the company’s potash and phosphate mining operations (most particularly phosphate mining), including management of mining byproducts such as gypsum and various mine tailings; land reclamation and revegetation programs; decommissioning of underground and surface operating facilities; general clean-up activities aimed at returning the areas to an environmentally acceptable condition; and post-closure care and maintenance. The asset retirement obligations are generally incurred over an extended period of time.

The estimation of asset retirement obligation costs depends on the development of environmentally acceptable closure and post-closure plans. In some cases, this may require significant research and development to identify preferred methods for such plans which are economically sound and which, in most cases, may not be implemented for several decades. The company has continued to utilize appropriate technical resources, including outside consultants, to develop specific site closure and post-closure plans in accordance with the requirements of the various jurisdictions in which it operates. The company estimates that the undiscounted cash flows required to settle the asset retirement obligations approximate $3,800.0. The estimated cash flows have been discounted at credit-adjusted risk-free rates ranging from 5.00 percent to 6.75 percent. Other than certain land reclamation programs, settlement of the obligations is typically correlated with mine life estimates. Cash flow payments are expected to occur principally over the next 100 years for the company’s phosphate operations. Payments relating to certain potash operations are not expected to occur until after that time. The present value of the company’s asset retirement obligations at December 31, 2005 totalled $91.8 (2004 — $85.0), as set out in the table below. The current portion totalled $6.6 (2004 — $4.8).

Other environmental liabilities typically relate to regulatory compliance, environmental management practices associated with ongoing operations other than mining, site assessment and remediation of environmental contamination related to the activities of the company and its predecessors, including waste disposal practices and ownership and operations of real property and facilities.

SITE ASSESSMENT AND REMEDIATION COSTS

The company has accrued assessment costs, including legal and consulting fees, and remediation costs related to the clean-up of contaminated sites currently or formerly associated with the company or its predecessors’ business in the amount of $14.1 (2004 — $14.4) for certain PCS Joint Venture facilities, $0.3 (2004 — $0.3) for various sulfur facilities and $3.4 (2004 — $1.0) for other matters in the phosphate and nitrogen businesses. The current portion of these costs totalled $5.7 (2004 — $14.7).

ENVIRONMENTAL OPERATING COSTS AND CAPITAL EXPENDITURES

The company’s operating expenses, other than costs associated with asset retirement obligations, relating to compliance with environmental laws and regulations governing ongoing operations were approximately $87.2 (2004 — $68.9; 2003 — $59.0). These amounts include environmental operating expenses related primarily to the production of phosphoric acid, fertilizer, feed and other products.

The company routinely undertakes environmental capital projects. In 2005, capital expenditures of $10.0 (2004 — $7.6) were incurred to meet pollution prevention and control objectives and $0.6 (2004 —$0.3) were incurred to meet other environmental objectives.

Following is a reconciliation of asset retirement and other environmental obligations as at December 31:

	2005			2004
Asset retirement obligations, beginning of year	$	85.0		$	81.6
Liabilities incurred		8.5			15.7
Liabilities settled		(6.0	)		(16.0	)
Accretion expense		4.4			5.2
Revisions in estimated cash flows		(0.1	)		(1.5	)
Asset retirement obligations, end of year		91.8			85.0
Other environmental liabilities		17.8			15.7
Less current portion (Note 11)		(12.3	)		(19.5	)
	$	97.3		$	81.2

16. SHARE CAPITAL

AUTHORIZED

The company is authorized to issue an unlimited number of common shares without par value and an unlimited number of first preferred shares. The common shares are not redeemable or convertible. The first preferred shares may be issued in one or more series with rights and conditions to be determined by the PCS Board of Directors.

70 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

16. SHARE CAPITAL (CONTINUED)

ISSUED	2005			2004		2003
	Consideration			Consideration		Consideration
Issued, beginning of year	$	1,408.4		$	1,245.8	$	1,186.9
Shares issued under option plans		95.7			162.1		58.7
Shares issued for dividend reinvestment plan		0.3			0.5		0.2
Shares repurchased		(125.1	)		—		—
Issued, end of year	$	1,379.3		$	1,408.4	$	1,245.8

ISSUED	2005			2004		2003
	Number of			Number of		Number of
	Common Shares			Common Shares		Common Shares
Issued, beginning of year		110,630,503			106,224,432		104,155,296
Shares issued under option plans		2,459,594			4,397,324		2,061,700
Shares issued for dividend reinvestment plan		3,695			8,747		7,436
Shares repurchased		(9,500,000	)		—		—
Issued, end of year		103,593,792			110,630,503		106,224,432

NORMAL COURSE ISSUER BID

On January 25, 2005, the Board of Directors of PCS authorized a share repurchase program of up to 5,500,000 common shares (approximately 5 percent of the company’s issued and outstanding common shares) through a normal course issuer bid. On September 22, 2005, the Board of Directors authorized an increase in the number of common shares sought under the share repurchase program. This amendment allowed PotashCorp to repurchase up to 4,000,000 additional common shares. Shares could be repurchased from time to time on the open market through February 14, 2006 at prevailing market prices. The timing and amount of purchases, if any, under the program were dependent upon the availability and alternative uses of capital, market conditions and other factors. The company completed the repurchase program by December 31, 2005.

During 2005, the company repurchased for cancellation 9,500,000 common shares under the program, at a net cost of $851.9 and an average price per share of $89.67. The repurchase resulted in a reduction of share capital of $125.1, and the excess net cost over the average book value of the shares has been recorded as a reduction of contributed surplus of $264.3 and a reduction of retained earnings of $462.5.

17. CONTRIBUTED SURPLUS

	2005			2004		2003
Balance, beginning of year	$	275.7		$	265.2	$	264.2
Stock-based compensation		24.9			10.5		1.0
Share repurchases (Note 16)		(264.3	)		—		—
Balance, end of year	$	36.3		$	275.7	$	265.2

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 71

18. SEGMENT INFORMATION

The company has three reportable business segments: potash, nitrogen and phosphate. These business segments are differentiated by the chemical nutrient contained in the product that each produces. Inter-segment sales are made under terms that approximate market value. The accounting policies of the segments are the same as those described in Note 2.

2005

	Potash		Nitrogen		Phosphate		All others		Consolidated
Sales	$	1,341.1	$	1,368.8	$	1,137.3	$	—	$	3,847.2
Freight		129.7		39.9		80.1		—		249.7
Transportation and distribution		34.5		49.5		37.9		—		121.9
Net sales — third party		1,176.9		1,279.4		1,019.3		—
Cost of goods sold		469.5		960.7		920.4		—		2,350.6
Gross Margin		707.4		318.7		98.9		—		1,125.0
Inter-segment sales		5.8		100.7		14.0		—		—
Depreciation and amortization		64.5		72.2		95.4		10.3		242.4
Goodwill		—		96.6		—		0.4		97.0
Assets		1,236.8		1,526.5		1,723.0		871.6		5,357.9
Additions to property, plant and equipment		165.5		99.3		109.5		8.4		382.7

2004

	Potash		Nitrogen		Phosphate		All others		Consolidated
Sales	$	1,056.1	$	1,210.4	$	977.9	$	—	$	3,244.4
Freight		128.7		38.1		71.9		—		238.7
Transportation and distribution		32.6		42.3		29.4		—		104.3
Net sales — third party		894.8		1,130.0		876.6		—
Cost of goods sold		472.0		887.2		860.8		—		2,220.0
Gross Margin		422.8		242.8		15.8		—		681.4
Inter-segment sales		5.9		92.9		12.1		—		—
Depreciation and amortization		66.4		79.7		84.4		9.5		240.0
Goodwill		—		96.6		—		0.4		97.0
Assets		1,374.9		1,428.4		1,615.6		707.9		5,126.8
Additions to property, plant and equipment		92.2		62.1		56.8		9.4		220.5

2003

	Potash		Nitrogen		Phosphate			All others		Consolidated
Sales	$	758.7	$	1,156.4	$	883.9		$	—	$	2,799.0
Freight		109.9		48.8		75.8			—		234.5
Transportation and distribution		29.7		42.8		26.2			—		98.7
Net sales — third party		619.1		1,064.8		781.9			—
Cost of goods sold		415.4		871.6		798.4			—		2,085.4
Gross Margin		203.7		193.2		(16.5	)		—		380.4
Inter-segment sales		6.0		67.8		9.4			—		—
Depreciation and amortization		52.4		86.4		78.9			9.7		227.4
Goodwill		—		96.6		—			0.4		97.0
Assets		1,058.6		1,386.0		1,634.4			488.3		4,567.3
Additions to property, plant and equipment		50.9		39.8		55.3			4.7		150.7

72 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

18. SEGMENT INFORMATION (CONTINUED)

As described in Note 1, PhosChem and Canpotex execute offshore marketing, sales and distribution functions for certain of the company’s products. Financial information by geographic area is summarized in the following table:

	Country of Origin
	Canada		United States		Trinidad		Other		Consolidated
2005
Sales to customers outside the company
Canada	$	69.3	$	105.9	$	—	$	—	$	175.2
United States		576.6		1,470.9		545.5		—		2,593.0
PhosChem		—		166.7		—		—		166.7
Canpotex		577.1		—		—		—		577.1
Other		118.2		106.7		86.6		23.7		335.2
	$	1,341.2	$	1,850.2	$	632.1	$	23.7	$	3,847.2
Operating income	$	464.1	$	170.2	$	199.3	$	59.0	$	892.6
Capital assets and goodwill	$	954.6	$	1,751.1	$	612.4	$	41.7	$	3,359.8

	Country of Origin
	Canada		United States		Trinidad		Other		Consolidated
2004
Sales to customers outside the company
Canada	$	48.3	$	87.5	$	—	$	—	$	135.8
United States		443.0		1,383.7		413.1		2.8		2,242.6
PhosChem		—		140.4		—		—		140.4
Canpotex		421.9		—		—		—		421.9
Other		114.9		57.3		86.1		45.4		303.7
	$	1,028.1	$	1,668.9	$	499.2	$	48.2	$	3,244.4
Operating income	$	250.0	$	67.8	$	139.8	$	56.7	$	514.3
Capital assets and goodwill	$	831.2	$	1,722.6	$	601.4	$	40.7	$	3,195.9

	Country of Origin
	Canada		United States			Trinidad		Other			Consolidated
2003
Sales to customers outside the company
Canada	$	41.1	$	91.4		$	—	$	—		$	132.5
United States		314.9		1,392.4			350.6		11.7			2,069.6
PhosChem		—		87.0			—		—			87.0
Canpotex		260.6		—			—		—			260.6
Other		96.8		58.9			49.0		44.6			249.3
	$	713.4	$	1,629.7		$	399.6	$	56.3		$	2,799.0
Operating income (loss)	$	97.8	$	(82.7	)	$	91.4	$	(162.1	)	$	(55.6	)
Capital assets and goodwill	$	786.2	$	1,745.6		$	604.7	$	68.6		$	3,205.1

19. COST OF GOODS SOLD

The primary components of cost of goods sold are labor, employee benefits, services, raw materials (including inbound freight and purchasing and receiving costs), operating supplies, energy costs, property and miscellaneous taxes, and depreciation and amortization.

20. SELLING AND ADMINISTRATIVE

The primary components of selling and administrative are compensation, employee benefits, supplies, communications, travel, professional services, and depreciation and amortization.

21. PROVINCIAL MINING AND OTHER TAXES

Provincial mining and other taxes consist of:

	2005		2004		2003
Potash Production Tax	$	94.8	$	63.7	$	35.8
Saskatchewan corporate capital taxes and other		42.4		28.9		21.2
	$	137.2	$	92.6	$	57.0

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 73

22. OTHER INCOME

	2005		2004		2003
Share of earnings of equity investees	$	52.1	$	30.9	$	12.4
Dividend income		9.2		8.2		5.6
Gain on sale of long-term investments (Note 4)		—		34.4		—
Other		0.5		5.9		15.2
	$	61.8	$	79.4	$	33.2

23. OTHER EXPENSES

	2005		2004		2003
Provision for nitrogen and phosphate plant shutdowns	$	—	$	—	$	123.7
Provision for PCS Yumbes S.C.M.		—		3.6		140.5
	$	—	$	3.6	$	264.2

PROVISION FOR NITROGEN AND PHOSPHATE PLANT SHUTDOWNS

2003

In June 2003, the company indefinitely shut down its Memphis, Tennessee nitrogen plant and suspended production of certain nitrogen products at its Geismar, Louisiana facilities due to high US natural gas costs and low product margins. The company determined that all employee positions pertaining to the affected operations would be eliminated, and recorded $4.8 in connection with costs of special termination benefits in 2003. No significant payments relating to the terminations remain to be made.

In connection with the shutdowns, management had determined that the carrying amounts of the long-lived assets at the Memphis and Geismar nitrogen facilities were not fully recoverable, and an impairment loss of $101.6, equal to the amount by which the carrying amount of the facilities’ asset groups exceeded their respective fair values, was recognized. Of the total impairment charge, $100.6 related to property, plant and equipment and $1.0 related to other assets. As part of its review, management also wrote down certain parts inventories at these plants in the amount of $12.4.

Management expects to incur other shutdown-related costs of approximately $10.3 should applicable facilities be dismantled, and nominal annual expenditures for site security and other maintenance costs. The other shutdown-related costs have not been recorded in the consolidated financial statements as of December 31, 2005. Such costs will be recognized and recorded in the period in which they are incurred.

The phosphate feed plant at Kinston, North Carolina ceased operations in 2003. In that year, the company recorded $0.6 for costs of special termination benefits, $0.3 for parts inventory writedowns and $4.0 for long-lived asset impairment charges. The Kinston property was sold in 2004 for nominal proceeds. There was no significant gain or loss on sale.

No additional significant costs were incurred in 2005 or 2004 in connection with the plant shutdowns as described above.

Fair value for purposes of all impairment measurements was determined based on discounted expected future net cash flows.

PROVISION FOR PCS YUMBES S.C.M.

2004

In December 2004, the company concluded the sale of 100 percent of its shares of PCS Yumbes, which was included in its potash segment, to SQM. The company received proceeds of $34.5 in 2004 and $5.2 in 2005 in respect of the sale. The total gain was $3.5, of which $2.6 was recognized in 2004. The deferred portion of the gain will be recognized in earnings in proportion to any future dilution or sale of part or all of the company’s interest in SQM.

During 2004, the company recorded a writedown of $6.2, relating primarily to certain mining machinery and equipment that were not transferred to SQM under the terms of the agreement. For measurement purposes, fair value was determined in reference to market prices for similar assets. The machinery and equipment were sold in 2005 for nominal proceeds.

2003

In 2003, in connection with entering into the share purchase (and related) agreement with SQM, management conducted an assessment of the recoverability of the long-lived assets of the PCS Yumbes operations. As a result of its review, management determined that the carrying amounts of PCS Yumbes’ long-lived assets were not recoverable and recorded an impairment charge of $77.4, equal to the amount by which the carrying amount of the asset group exceeded fair value. Of the total impairment charge, $13.0 related to property, plant and equipment, $63.9 related to deferred preproduction costs and $0.5 related to deferred acquisition costs. For purposes of the impairment measurement, fair value was determined in reference to the commercial sale agreement referred to above. As part of the review, management also wrote down certain non-parts inventory by $50.2 due to the need to liquidate all inventories that would not be transferred to SQM under the agreement. The company recorded a provision of $1.8 in 2003 pertaining to contractual termination benefits to be paid to employees, primarily under Chilean law. The company had also incurred early termination penalties in respect of certain PCS Yumbes contractual arrangements and recorded a provision of $11.1 in 2003 for these contract termination costs. No significant payments remain to be made.

74 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

24. INTEREST EXPENSE

	2005			2004			2003
Interest expense on
Short-term debt	$	7.0		$	3.4		$	5.1
Long-term debt		88.4			86.5			88.7
Interest income		(13.1	)		(5.9	)		(2.5	)
	$	82.3		$	84.0		$	91.3

25. INCOME TAXES

As the company operates in a specialized industry and in several tax jurisdictions, its income is subject to various rates of taxation.

The provision for income taxes differs from the amount that would have resulted from applying the Canadian statutory income tax rates to income (loss) before income taxes as follows:

	2005			2004			2003
Income (loss) before income taxes
Canada	$	381.5		$	175.0		$	16.3
United States		170.0			69.1			(86.3	)
Trinidad		175.6			118.5			80.6
Other		83.2			67.7			(157.5	)
	$	810.3		$	430.3		$	(146.9	)
Federal and provincial statutory tax rates		42.52	%		43.36	%		44.36	%
Tax at statutory rates	$	344.5		$	186.6		$	(65.2	)
Adjusted for the effect of:
Writedown of PCS Yumbes		—			1.4			50.8
Gain on sale of long-term investments		—			(14.9	)		—
Net non-deductible provincial taxes and royalties and resource allowances		(1.2	)		8.1			7.5
Stock-based compensation deduction		(13.2	)		(17.1	)		(5.4	)
Additional tax deductions		(14.8	)		(11.0	)		(11.8	)
Difference between Canadian rate and rates applicable to subsidiaries in other countries		(48.9	)		(26.7	)		4.4
Other		1.0			5.3			(0.9	)
Income tax expense (recovery)	$	267.4		$	131.7		$	(20.6	)

Details of income tax expense (recovery) are as follows:

	2005			2004			2003
Canada
Current	$	170.5		$	69.4		$	14.9
Future		12.6			11.5			20.6
United States — Federal
Current		0.8			14.7			(16.4	)
Future		30.8			(19.4	)		(40.7	)
United States — State
Current		2.2			2.2			(0.6	)
Future		(12.8	)		12.5			(8.5	)
Trinidad and other
Current		53.8			19.1			2.1
Future		9.5			21.7			8.0
Income tax expense (recovery)	$	267.4		$	131.7		$	(20.6	)

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 75

25. INCOME TAXES (CONTINUED)

The tax effects of temporary differences that give rise to significant portions of the net future income tax liability are:

	2005		2004
Future income tax assets:
Loss and credit carryforwards	$	266.2	$	294.2
Accrued pension and other post-retirement benefits		80.3		78.3
Accrued environmental costs and asset retirement obligations		0.1		0.9
Other		44.4		31.8
Total future income tax assets		391.0		405.2
Future income tax liabilities:
Basis difference in fixed assets		833.6		814.3
Basis difference in investments		27.6		27.6
Other		73.1		62.7
Total future income tax liabilities		934.3		904.6
Net future income tax liability	$	543.3	$	499.4

The company has determined that it is more likely than not that the future income tax assets will be realized through a combination of future reversals of temporary differences and taxable income.

At December 31, 2005, the company has income tax losses carried forward of approximately $531.0 that will begin to expire in 2018. In addition, the company has alternative minimum tax credits of approximately $19.9 that carry forward indefinitely. The benefit relating to these amounts has been recognized by reducing future income tax liabilities.

26. NET INCOME (LOSS) PER SHARE

	2005		2004		2003
Basic net income (loss) per share1
Net income (loss) available to common shareholders	$	542.9	$	298.6	$	(126.3	)
Weighted average number of common shares		108,568,000		107,967,000		104,460,000
Basic net income (loss) per share	$	5.00	$	2.77	$	(1.21	)
Diluted net income (loss) per share1
Net income (loss) available to common shareholders	$	542.9	$	298.6	$	(126.3	)
Weighted average number of common shares		108,568,000		107,967,000		104,460,000
Dilutive effect of stock options		2,510,000		2,772,000		—
Weighted average number of diluted common shares		111,078,000		110,739,000		104,460,000
Diluted net income (loss) per share	$	4.89	$	2.70	$	(1.21	)

¹ Net income (loss) per share calculations are based on full dollar and share amounts.

Diluted net income (loss) per share is calculated based on the weighted average number of shares issued and outstanding during the year. The denominator is: (1) increased by the total of the additional common shares that would have been issued assuming exercise of all stock options with exercise prices at or below the average market price for the year; and (2) decreased by the number of shares that the company could have repurchased if it had used the assumed proceeds from the exercise of stock options to repurchase them on the open market at the average share price for the year. For performance-based stock option plans, the number of contingently issuable potential common shares included in the calculation is based on the number of shares that would be issuable based on period-to-date (rather than anticipated) performance, if the effect is dilutive. For years in which there was a loss applicable to common shares, stock options with exercise prices at or below the average market price for the year were excluded from the calculations of diluted net loss per share, as inclusion of these securities would have been anti-dilutive to the net loss per share.

Excluded from the calculation of diluted net income (loss) per share were average options outstanding of NIL (2004 — NIL; 2003 —2,239,861) as the options’ exercise price was greater than the average market price of the common shares for the year.

27. STOCK-BASED COMPENSATION

The company has five stock-based compensation plans, which are described below. The company accounts for its grants under those plans in accordance with the fair value-based method of accounting for stock-based compensation. The compensation cost that has been charged against income for those plans was $37.3 (2004 — $35.3; 2003 — $6.6).

STOCK OPTION PLANS

The company has three stock option plans. Under the Officers and Employees Plan, the company may, after February 3, 1998, issue up to 13,852,250 common shares pursuant to the exercise of options.

76 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

27. STOCK-BASED COMPENSATION (CONTINUED)

Under the Directors Plan, the company may, after January 24, 1995, issue up to 912,000 common shares pursuant to the exercise of options. No stock options have been granted under the Directors Plan since November 2002, and the PCS Board of Directors determined in 2003 to discontinue granting stock options to directors. Under both plans, the exercise price is the quoted market closing price of the company’s common shares on the last trading day immediately preceding the date of the grant and an option’s maximum term is 10 years. All options granted to date have provided that one-half of the options granted in a year will vest one year from the date of the grant, with the other half vesting the following year.

On May 5, 2005, the company’s shareholders approved the 2005 Performance Option Plan under which the company may, after February 28, 2005 and before January 1, 2006, issue options to acquire up to 1,200,000 common shares. Under the plan, the exercise price is the quoted market closing price of the company’s common shares on the last trading day immediately preceding the date of the grant and an option’s maximum term is 10 years. The key design difference between the 2005 Performance Option Plan and the company’s other stock option plans is the performance-based vesting feature. In general, options will vest, if at all, according to a schedule based on the three-year average excess of the company’s consolidated cash flow return on investment over weighted average cost of capital.

A summary of the status of the plans as of December 31, 2005, 2004 and 2003 and changes during the years ending on those dates is presented as follows:

Number of Shares Subject to Option

	Performance Option Plan			Officers and Employees and Directors Plans
	2005			2005			2004			2003
Outstanding, beginning of year		—			6,400,730			10,876,022			11,638,750
Granted		1,188,500			—			—			1,399,072
Exercised		—			(2,459,594	)		(4,397,324	)		(2,061,700	)
Cancelled		(2,500	)		(45,380	)		(77,968	)		(100,100	)
Outstanding, end of year		1,186,000			3,895,756			6,400,730			10,876,022

The company did not grant any stock options in 2004.

Weighted Average Exercise Price

	Performance Option Plan		Officers and Employees and Directors Plans
	2005		2005		2004		2003
Outstanding, beginning of year	$	—	$	38.14	$	36.64	$	31.95
Granted		88.25		—		—		39.50
Exercised		—		38.14		36.67		28.56
Cancelled		90.38		41.03		38.59		35.29
Outstanding, end of year		90.08		38.41		38.14		36.64

The weighted average grant-date fair value of options granted during the year was $34.5 (2004 — $NIL; 2003 — $15.7).

The following table summarizes information about stock options outstanding at December 31, 2005:

	Options Outstanding					Options Exercisable
Range of	Number		Weighted Average	Weighted Average				Weighted Average
Exercise Prices	Outstanding		Remaining Life	Exercise Price		Number		Exercise Price
Officers and Employees and Directors Plans
$21.84 to $31.50		828,000	5 years	$	30.05		828,000	$	30.05
$33.01 to $42.85		1,977,059	7 years	$	38.20		1,977,059	$	38.20
$43.38 to $52.11		1,090,697	6 years	$	45.13		1,090,697	$	45.13
		3,895,756	6 years	$	38.41		3,895,756	$	38.41
Performance Option Plan
$88.23 to $94.28		1,186,000	9 years	$	90.08		—	$	—
		5,081,756	7 years	$	50.46		3,895,756	$	38.41

The foregoing options have expiry dates ranging from November 2006 to May 2015.

Prior to 2003, the company applied the intrinsic value-based method of accounting for the plans. Effective December 15, 2003, the company adopted the fair value-based method of accounting for stock options prospectively to all employee awards granted, modified or settled after January 1, 2003. Since the company’s stock option awards at that time vested over two years, the compensation cost included in the determination of net income (loss) for years ended December 31, 2004 and 2003 is less than that which would have been recognized if the fair value-based method had been applied to all awards since the original effective date of CICA Section 3870, “Stock-based Compensation and Other Stock-based Payments”. The following table illustrates the effect on net income (loss) and the related per-share amount if the fair value-based method had been applied to all outstanding and unvested awards in each period.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 77

27. STOCK-BASED COMPENSATION (CONTINUED)

	2005			2004			2003
Net income (loss) — as reported	$	542.9		$	298.6		$	(126.3	)
Add:     Stock-based employee compensation expense included in reported net income (loss), net of related tax effects		18.4			8.8			0.8
Less:    Total stock-based employee compensation expense determined under fair value-based method for all option awards, net of related tax effects		(18.4	)		(12.8	)		(14.8	)
Net income (loss) — pro forma1	$	542.9		$	294.6		$	(140.3	)

¹ Compensation expense under the fair value-based method is recognized over the vesting period of the related stock options. Accordingly, the pro forma results of applying this method may not be indicative of future results.

	2005		2004		2003
Basic net income (loss) per share
As reported	$	5.00	$	2.77	$	(1.21	)
Pro forma		5.00		2.73		(1.34	)
Diluted net income (loss) per share
As reported	$	4.89	$	2.70	$	(1.21	)
Pro forma		4.89		2.66		(1.34	)

In calculating the foregoing pro forma amounts, the fair value of each option grant was estimated as of the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted-average assumptions:

	Year of Grant
	2005			2003			2002
Expected dividend	$	0.60		$	0.50		$	0.50
Expected volatility		28	%		27	%		32	%
Risk-free interest rate		3.86	%		4.06	%		4.13	%
Expected life of options	6.5 years			8 years			8 years

DEFERRED SHARE UNIT AND OTHER PLANS

The company offers a deferred share unit plan to non-employee directors, which entitles those directors to receive discretionary grants of deferred share units (“DSUs”), each of which has a value equal to the market value of a common share at the time of its grant. The plan also allows each director to choose to receive, in the form of DSUs, all or a percentage of the director’s fee, which would otherwise be payable in cash. Each DSU fully vests upon award, but is distributed only when the director has ceased to be a member of the Board of Directors of the company. Vested units are settled in cash based on the common share price at that time. As of December 31, 2005, the total DSUs held by participating directors was 63,635 (2004 — 50,999; 2003 — 35,906).

The company offers a performance unit incentive plan to senior executives and other key employees. The performance objectives under the plan are designed to further align the interests of executives and key employees with those of shareholders by linking the vesting of awards to the total return to shareholders over the three-year performance period ending December 31, 2005. Total shareholder return measures the capital appreciation in the company’s common shares, including dividends paid over the performance period. Vesting of one-half of the awards is based on increases in the total shareholder return over the three-year performance period. Vesting of the remaining one-half of the awards is based on the extent to which the total shareholder return matches or exceeds the total shareholder return of the common shares of a pre-defined peer group. Vested units are settled in cash based on the common share price generally at the end of the performance period. Compensation expense for this program is recorded over the three-year performance cycle of the program. The amount of compensation expense is adjusted over the three-year performance cycle to reflect the current market value of common shares and the number of shares vested in accordance with the vesting schedule based upon total shareholder return and such return compared to the company’s peer group.

28. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Derivative financial instruments are financial contracts whose value is derived from a foreign exchange rate, interest rate or commodity index. The company uses derivative financial instruments, including foreign currency forward contracts, futures, swaps and option agreements, to manage foreign exchange, interest rate and commodity price risk. Any derivative transactions that are specifically designated (and qualify) for hedge accounting are considered by the company to be off-balance sheet items since they are not recorded at fair value on the Consolidated Statements of Financial Position. The notional amounts of the company’s financial instruments described below represent the amount to which a rate or price is applied in order to calculate the amount of cash that must be exchanged under the contract. These notional amounts do not represent assets or liabilities and therefore are not reflected in the Consolidated Statements of Financial Position.

The company manages interest rate exposures by using a diversified portfolio of fixed and floating rate instruments. The company’s sensitivity to fluctuations in interest rates is substantially limited to certain of its cash and cash equivalents, short-term debt and long-term debt. During the year, the company terminated its interest rate swap contracts that effectively converted a notional amount of $225.0 (2004 — $300.0) of fixed rate debt (due 2011) into floating rate debt for cash proceeds of $1.8 (2004 — $3.0) and a gain of $1.6 (2004 — $0.8). Hedge accounting on all terminated interest rate swap contracts was discontinued prospectively. The associated gains are being amortized over the remaining term of the related debt as a reduction to interest expense. No interest rate swap contracts were outstanding as at December 31, 2005 or 2004.

In addition to physical spot and term purchases, the company at times employs futures, swaps and option agreements to establish the cost on a portion of its natural gas requirements. These instruments are intended to hedge the future cost of the committed

78 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

28. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

and anticipated natural gas purchases for its US nitrogen and phosphate plants. Under these arrangements, the company receives or makes payments based on the differential between a specified price and the actual spot price of natural gas. The company has certain available lines of credit which are utilized to reduce cash margin requirements to maintain the derivatives. At December 31, 2005, it had collected cash margin requirements of $173.7 (2004 — $28.5) which were included in accounts payable and accrued charges (see Note 11).

As at December 31, 2005, the company had derivatives qualifying for hedge accounting in the form of swaps which represented a notional amount of 82.3 MMBtu with maturities in 2006 through 2015. As at December 31, 2005, deferred losses from settled hedging transactions were $7.2 (2004 — $3.0).

As at December 31, 2005, the company had entered into foreign currency forward contracts to sell US dollars and receive Canadian dollars in the notional amount of $43.0 (2004 — $54.1) at an average exchange rate of 1.1852 (2004 — 1.2306). The company also had small forward contracts outstanding as at December 31, 2005 to reduce exposure to the euro. Maturity dates for all forward contracts are within 2006 and 2007.

The company is exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. It anticipates, however, that counterparties will be able to fully satisfy their obligations under the contracts.

The major concentration of credit risk arises from the company’s receivables. A majority of its sales are in North America and are primarily for use in the agricultural industry. The company seeks to manage the credit risk relating to these sales through a credit management program. Internationally, the company’s products are sold primarily through two export associations whose accounts receivable are substantially insured or secured by letters of credit.

FAIR VALUE

Fair value represents point-in-time estimates that may change in subsequent reporting periods due to market conditions or other factors. The estimated fair values disclosed below are designed to approximate amounts at which the financial instruments could be exchanged in a current transaction between willing parties. However, some financial instruments lack an available trading market and therefore certain fair values are based on estimates using net present value and other valuation techniques, which are significantly affected by assumptions as to the amount and timing of estimated future cash flows and discount rates, all of which reflect varying degrees of risk.

Due to their short-term nature, the fair value of cash and cash equivalents, accounts receivable, short-term debt, and accounts payable and accrued charges is assumed to approximate carrying value. The fair value of the company’s gas hedging contracts at December 31, 2005 approximated $277.1 (2004 — $66.5). Futures contracts are exchange-traded and fair value was determined based on exchange prices. Swaps and option agreements are traded in the over-the-counter market and fair value was calculated based on a price that was converted to an exchange-equivalent price. The fair value of the company’s notes payable at December 31, 2005 approximated $1,324.9 (2004 — $1,383.2) and reflects a current yield valuation based on observed market prices. The fair value of the company’s other long-term debt instruments approximated carrying value.

29. CONTINGENCIES

CANPOTEX

PCS is a shareholder in Canpotex, which markets potash offshore. Should any operating losses or other liabilities be incurred by Canpotex, the shareholders have contractually agreed to reimburse it for such losses or liabilities in proportion to their productive capacity. There were no such operating losses or other liabilities in 2005, 2004 or 2003.

MINING RISK

In common with other companies in the industry, the company is unable to acquire insurance for underground assets.

INVESTMENT IN APC

The company is party to a shareholders agreement with Jordan Investment Company (“JIC”) with respect to its investment in APC. The terms of the shareholders agreement provide that, from October 17, 2006 to October 16, 2009, JIC may seek to exercise a put option (the “Put”) to require the company to purchase JIC’s remaining common shares in APC. If the Put were exercised, the company’s purchase price would be calculated in accordance with a specified formula based, in part, on future earnings of APC. The amount, if any, which the company may have to pay for JIC’s remaining common shares if there was to be a valid exercise of the Put is not presently determinable.

LEGAL AND OTHER MATTERS

In 1994, PCS Joint Venture responded to information requests from the US Environmental Protection Agency (“USEPA”) and the Georgia Department of Natural Resources, Environmental Protection Division (“GEPD”) regarding conditions at its Moultrie, Georgia location. PCS Joint Venture believes that the lead-contaminated soil and groundwater found at the site are attributable to former operations at the site prior to PCS Joint Venture’s ownership. In 2005, the GEPD approved a Corrective Action Plan to address environmental conditions at this location. As anticipated, the approved remedy requires some excavation and off-site disposal of impacted soil and installation of a groundwater recovery and treatment system. PCS Joint Venture began the remediation in November 2005. No significant change to management’s estimate of accrued costs was required as of December 31, 2005 as a result of approval of the remedial action plan.

In 1998, the company, along with other parties, was notified by the USEPA of potential liability under the US federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) with respect to certain soil and groundwater conditions at a PCS Joint Venture blending facility in Lakeland, Florida and certain adjoining property. In 1999, PCS Joint Venture signed an Administrative Order and Consent with the USEPA pursuant to which PCS Joint Venture agreed to conduct a Remedial Investigation and Feasibility Study (“RI/FS”) of these conditions. PCS Joint Venture

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 79

29. CONTINGENCIES (CONTINUED)

and another party are sharing the costs of the RI/FS. The draft feasibility study has been submitted for review and approval. The parties are reviewing comments of the USEPA and Florida Department of Environment on the draft feasibility study and will respond to such comments in the first quarter of 2006. No final determination has yet been made of the nature, timing or cost of remedial action that may be needed, nor to what extent costs incurred may be recoverable from third parties.

In 2003, the USEPA notified PCS Nitrogen that it considers PCS Nitrogen to be a potentially responsible party with respect to a former fertilizer blending operation in Charleston, South Carolina, known as the Planters Property or Columbia Nitrogen site, formerly owned by a company from whom PCS Nitrogen acquired certain other assets. In March 2005, the USEPA released for public comment a range of remedial alternatives and a proposed remedy for this site. In September 2005, Ashley II of Charleston, L.L.C., the current owner of the site, filed a petition in the United States District Court for the District of South Carolina seeking a declaratory judgment that PCS Nitrogen is liable to pay environmental response costs at the site and reimbursement of environmental response and other costs incurred and to be incurred by Ashley II of Charleston, L.L.C. In December 2005, PCS Nitrogen filed a motion to dismiss the petition filed by Ashley II of Charleston, L.L.C. PCS Nitrogen expects that the United States District Court will issue a decision on the motion to dismiss in early 2006. In February 2006, PCS Nitrogen and other potentially responsible parties received a notice from the USEPA requesting reimbursement of previously incurred response costs of approximately $3.0 plus interest, and the performance or financing of future site investigation and response. PCS Nitrogen will continue to monitor these and other developments with respect to the site. PCS Nitrogen intends to vigorously defend its interests in these actions. It will also continue to assert its position that it is not a responsible party and to work to identify former site owners and operators that would be responsible parties with respect to the site.

The USEPA announced an initiative to evaluate implementation within the phosphate industry of a particular exemption for mineral processing wastes under the hazardous waste program. In connection with this industry-wide initiative, the USEPA conducted hazardous waste compliance evaluation inspections at numerous phosphate operations, including the company’s plants in Aurora, North Carolina, Geismar, Louisiana and White Springs, Florida. In September 2005 and December 2005 respectively, the USEPA notified the company of various alleged violations of the Resource Conservation and Recovery Act at its Aurora and White Springs plants. The company is currently reviewing these notices. At this early stage, it is unable to evaluate the extent of any exposure that it may have in these matters.

The company is also engaged in ongoing site assessment and/or remediation activities at a number of other facilities and sites. Based on current information, it believes that its future obligations with respect to these facilities and sites are not reasonably likely to have a material adverse effect on the company’s consolidated financial position or results of operations.

The breadth of the company’s operations and the global complexity of tax regulations require assessments of uncertainties and judgments in estimating the ultimate taxes the company will pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal, provincial, state and local tax audits. The resolution of these uncertainties and the associated final taxes may result in adjustments to the company’s tax assets and tax liabilities.

Various other claims and lawsuits are pending against the company in the ordinary course of business. While it is not possible to determine the ultimate outcome of such actions at this time, and there exist inherent uncertainties in predicting such outcomes, it is management’s belief that the ultimate resolution of such actions is not reasonably likely to have a material adverse effect on the company’s consolidated financial position or results of operations.

30. GUARANTEES

In the normal course of operations, the company provides indemnifications that are often standard contractual terms to counterparties in transactions such as purchase and sale contracts, service agreements, director/officer contracts and leasing transactions. These indemnification agreements may require the company to compensate the counterparties for costs incurred as a result of various events, including environmental liabilities and changes in (or in the interpretation of) laws and regulations, or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements will vary based upon the contract, the nature of which prevents the company from making a reasonable estimate of the maximum potential amount that it could be required to pay to counterparties. Historically, the company has not made any significant payments under such indemnifications and no amounts have been accrued in the accompanying consolidated financial statements with respect to these indemnification guarantees.

The company enters into agreements in the normal course of business that may contain features which meet the definition of a guarantee. Various debt obligations (such as overdrafts, lines of credit with counterparties for derivatives, and back-to-back loan arrangements) and other commitments (such as railcar leases) related to certain subsidiaries have been directly guaranteed by the company under such agreements with third parties. The company would be required to perform on these guarantees in the event of default by the guaranteed parties. No material loss is anticipated by reason of such agreements and guarantees. At December 31, 2005, the maximum potential amount of future (undiscounted)  payments under significant guarantees provided to third parties approximated $236.8. As many of these guarantees will not be drawn upon and the maximum potential amount of future payments does not consider the possibility of recovery under recourse or collateral provisions, this amount is not indicative of future cash requirements or the company’s expected losses from these arrangements. At December 31, 2005, no subsidiary balances subject to guarantees were outstanding in connection with the company’s cash management facilities, and it had no liabilities recorded for other

80 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

30. GUARANTEES (CONTINUED)

obligations other than subsidiary bank borrowings of approximately $5.9, which are reflected in other long-term debt in Note 12, and the cash margin requirements to maintain derivatives as disclosed in Note 28.

The company has guaranteed the gypsum stack capping, closure and post-closure obligations of White Springs and PCS Nitrogen in Florida and Louisiana, respectively, pursuant to the financial assurance regulatory requirements in those states. In February 2005, the Florida Environmental Regulation Commission approved certain modifications to the financial assurance requirements designed to ensure that responsible parties have sufficient resources to cover all closure and post-closure costs and liabilities associated with gypsum stacks in the state. The new requirements became effective in July 2005 and include financial strength tests that are more stringent than under previous law and a requirement that gypsum stack closure cost estimates include the cost of treating process water. The company has met its financial assurance responsibilities as of December 31, 2005. Costs associated with the retirement of long-lived tangible assets have been accrued in the accompanying consolidated financial statements to the extent that a legal liability to retire such assets exists (see Note 15).

The environmental regulations of the Province of Saskatchewan require each potash mine to have decommissioning and reclamation (“D&R”) plans. In 2001, agreement was reached with the provincial government on the financial assurances for the D&R plan to cover an interim period to July 1, 2005. In October 2004, this interim period was extended to July 1, 2006. A government/industry task force has been established to assess decommissioning options for all Saskatchewan potash producers and to produce mutually acceptable revisions to the plans. The company has posted an irrevocable Cdn $2.0 letter of credit as collateral.

During the year, the company entered into various other commercial letters of credit in the normal course of operations. As at December 31, 2005, $18.7 of letters of credit were outstanding (2004 — $15.1).

The company expects that it will be able to satisfy all applicable credit support requirements without disrupting normal business operations.

31. RELATED PARTY TRANSACTIONS

Sales to Canpotex are at prevailing market prices. Sales for the year ended December 31, 2005 were $577.1 (2004 — $421.9; 2003 — $260.6). Account balances resulting from the Canpotex transactions are included in the Consolidated Statements of Financial Position and settled on normal trade terms (see Note 5).

Potash purchases from SQM in 2005 were $NIL (2004 — $7.0; 2003 — $13.1). Potassium nitrate sales to SQM for 2005 were $NIL (2004 — $25.1; 2003 — $25.8). All transactions with SQM were settled on normal trade terms at negotiated prices that approximated market value.

32. COMPARATIVE FIGURES

Certain of the prior years’ figures have been reclassified to conform with the current year’s presentation.

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Canadian GAAP varies in certain significant respects from US GAAP. As required by the United States Securities and Exchange Commission, the effect of these principal differences on the company’s consolidated financial statements is described and quantified below:

(a) Long-term investments: The company’s investments in ICL and Sinofert are stated at cost. US GAAP requires that these investments be classified as available-for-sale and be stated at market value with the difference between market value and cost reported as a component of Other Comprehensive Income (“OCI”).

Certain of the company’s investments in international entities are accounted for under the equity method. Accounting principles generally accepted in those foreign jurisdictions may vary in certain important respects from Canadian GAAP and in certain other respects from US GAAP. The company’s share of earnings of these equity investees under Canadian GAAP has been adjusted for the significant effects of conforming to US GAAP.

(b) Property, plant and equipment and goodwill: The net book value of property, plant and equipment and goodwill under Canadian GAAP is higher than under US GAAP, as past provisions for asset impairment under Canadian GAAP were measured based on the undiscounted cash flow from use together with the residual value of the assets. Under US GAAP they were measured based on fair value, which was lower than the undiscounted cash flow from use together with the residual value of the assets. Fair value for this purpose was determined based on discounted expected future net cash flows.

(c) Depreciation and amortization: Depreciation and amortization under Canadian GAAP is higher than under US GAAP, as a result of differences in the carrying amounts of property, plant and equipment under Canadian and US GAAP.

(d) Exploration costs: Under Canadian GAAP, capitalized exploration costs are classified under property, plant and equipment. For US GAAP, these costs are generally expensed until such time as a final feasibility study has confirmed the existence of a commercially mineable deposit.

(e) Pre-operating costs: Operating costs incurred during the start-up phase of new projects are deferred under Canadian GAAP until commercial production levels are reached, at which time they are amortized over the estimated life of the project. US GAAP requires that these costs be expensed as incurred.

(f) Asset retirement obligations: The company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations”, for US GAAP purposes effective January 1, 2003. A GAAP difference arises because the equivalent Canadian standard was not adopted until January 1, 2004.

(g) Pension and other post-retirement benefits: Under Canadian GAAP, when a defined benefit plan gives rise to an accrued benefit asset, a company must recognize a valuation allowance for the excess of the adjusted benefit asset over the expected future benefit to be realized from the plan asset. Changes in the pension valuation

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 81

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

allowance are recognized in income. US GAAP does not specifically address pension valuation allowances, and the US regulators have interpreted this to be a difference between Canadian and US GAAP. In light of this, a difference between Canadian and US GAAP has been recorded for the effects of recognizing a pension valuation allowance and the changes therein under Canadian GAAP.

The company’s accumulated benefit obligation for its US pension plans exceeds the fair value of plan assets. US GAAP requires the recognition of an additional minimum pension liability in the amount of the excess of the unfunded accumulated benefit obligation over the recorded pension benefits liability. An offsetting intangible asset is recorded equal to the unrecognized prior service costs, with any difference recorded as a reduction of accumulated OCI. No similar requirement exists under Canadian GAAP.

(h) Foreign currency translation adjustment: The company adopted the US dollar as its functional and reporting currency on January 1, 1995. At that time, the consolidated financial statements were translated into US dollars at the December 31, 1994 year-end exchange rate using the translation of convenience method under Canadian GAAP. This translation method was not permitted under US GAAP. US GAAP required the comparative Consolidated Statements of Operations and Consolidated Statements of Cash Flow to be translated at applicable weighted-average exchange rates; whereas the Consolidated Statements of Financial Position were permitted to be translated at the December 31, 1994 year-end exchange rate. The use of disparate exchange rates under US GAAP gave rise to a foreign currency translation adjustment. Under US GAAP, this adjustment is reported as a component of accumulated OCI.

(i) Derivative instruments and hedging activities: Under Canadian GAAP, effective January 1, 2004, derivatives used for non-trading purposes that do not qualify for hedge accounting are carried at fair value on the Consolidated Statements of Financial Position, with changes in fair value reflected in earnings. Derivatives embedded within hybrid instruments are generally not separately accounted for except for those related to equity-linked deposit contracts, which are not applicable to the company. Gains and losses on derivative instruments held within an effective hedge relationship are recognized in earnings on the same basis and in the same period as the underlying hedged items. There is no difference in accounting between Canadian and US GAAP in respect of derivatives that do not qualify for hedge accounting. Unlike Canadian GAAP, however, the company recognizes all of its derivative instruments (whether designated in hedging relationships or not, or embedded within hybrid instruments) at fair value on the Consolidated Statements of Financial Position for US GAAP purposes. Under US GAAP, the accounting for changes in the fair value (i.e. gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship. For strategies designated as fair value hedges, the effective portion of the change in the fair value of the derivative is offset in income against the change in fair value, attributed to the risk being hedged, of the underlying hedged asset, liability or firm commitment. For cash flow hedges, the effective portion of the changes in the fair value of the derivative is accumulated in OCI until the variability in cash flows being hedged is recognized in earnings in future accounting periods. For both fair value and cash flow hedges, if a derivative instrument is designated as a hedge and meets the criteria for hedge effectiveness, earnings offset is available, but only to the extent that the hedge is effective. Ineffective portions of fair value or cash flow hedges are recorded in earnings in the current period.

(j) Provision for plant shutdowns: The 2003 provision for plant shutdowns included as a component of other expenses under Canadian GAAP includes $12.7 for writedowns of parts inventory. US GAAP requires that these writedowns be presented as a component of cost of goods sold.

(k) Provision for PCS Yumbes S.C.M.: The 2003 provision for PCS Yumbes included as a component of other expenses under Canadian GAAP includes $50.2 for writedowns of non-parts inventory. US GAAP requires that these writedowns be presented as a component of cost of goods sold.

(l) Comprehensive income: Comprehensive income is recognized and measured under US GAAP pursuant to SFAS No. 130, “Reporting Comprehensive Income”. This standard defines comprehensive income as all changes in equity other than those resulting from investments by owners and distributions to owners. Comprehensive income is comprised of two components, net income and OCI. OCI refers to amounts that are recorded as an element of shareholders’ equity but are excluded from net income because these transactions or events were attributed to changes from non-owner sources. As described in Note 2, Canadian standards relating to comprehensive income are not effective until fiscal years beginning on or after October 1, 2006.

(m) Income taxes related to the above adjustments: The income tax adjustment reflects the impact on income taxes of the US GAAP adjustments described above. Accounting for income taxes under Canadian and US GAAP is similar, except that income tax rates of enacted or substantively enacted tax law must be used to calculate future income tax assets and liabilities under Canadian GAAP, whereas only income tax rates of enacted tax law can be used under US GAAP.

(n) Income tax consequences of stock-based employee compensation: Under Canadian GAAP, the income tax benefit attributable to stock-based compensation that is deductible in computing taxable income but is not recorded in the consolidated financial statements as an expense of any period (the “excess benefit”) is considered to be a permanent difference. Accordingly, such amount is treated as an item that reconciles the statutory income tax rate to the company’s effective income tax rate. Under US GAAP, the excess benefit is recognized as additional paid-in capital.

The application of US GAAP, as described above, would have had the following effects on net income (loss), net income (loss) per share, total assets and shareholders’ equity.

82 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

	2005			2004			2003
Net income (loss) as reported — Canadian GAAP	$	542.9		$	298.6		$	(126.3	)
Items increasing or decreasing reported net income (loss)
Cash flow hedge ineffectiveness		2.3			2.6			—
Pre-operating costs		—			—			63.0
Depreciation and amortization		8.4			8.4			8.5
Exploration costs		(6.4	)		—			—
Accretion of asset retirement obligations		—			3.3			(3.3	)
Share of earnings of equity investees		3.7			—			—
Pension and other post-retirement benefits		2.4			(2.2	)		2.0
Deferred income taxes relating to the above adjustments		(3.4	)		(4.3	)		(23.7	)
Income taxes related to stock-based compensation		(17.2	)		(15.9	)		(4.4	)
Net income (loss) — US GAAP	$	532.7		$	290.5		$	(84.2	)
Basic weighted average shares outstanding — US GAAP		108,568,000			107,967,000			104,460,000
Diluted weighted average shares outstanding — US GAAP		111,078,000			110,739,000			104,460,000
Basic net income (loss) per share — US GAAP	$	4.91		$	2.69		$	(0.81	)
Diluted net income (loss) per share — US GAAP	$	4.80		$	2.62		$	(0.81	)
Total assets as reported — Canadian GAAP	$	5,357.9		$	5,126.8		$	4,567.3
Items increasing (decreasing) reported total assets
Inventory and other current assets		(7.2	)		(0.4	)		(2.7	)
Available-for-sale securities (unrealized holding gain)		355.2			161.7			60.6
Fair value of derivative instruments		277.1			66.5			59.8
Property, plant and equipment		(118.1	)		(126.5	)		(134.9	)
Exploration costs		(6.4	)		—			—
Pension and other post-retirement benefits		14.1			11.7			13.9
Intangible asset relating to additional minimum pension liability		11.1			9.6			2.7
Investment in equity investees		4.8			—			—
Goodwill		(46.7	)		(46.7	)		(46.7	)
Total assets — US GAAP	$	5,841.8		$	5,202.7		$	4,520.0
Total shareholders’ equity as reported — Canadian GAAP	$	2,132.5		$	2,385.6		$	1,973.8
Items increasing (decreasing) reported shareholders’ equity
Accumulated other comprehensive income (loss), net of related income taxes		343.2			96.8			31.2
Foreign currency translation adjustment		20.9			20.9			20.9
Accretion of asset retirement obligations		—			—			(3.3	)
Provision for asset impairment		(218.0	)		(218.0	)		(218.0	)
Depreciation and amortization		53.2			44.8			36.4
Exploration costs		(6.4	)		—			—
Cash flow hedge ineffectiveness		4.9			2.6			—
Pension and other post-retirement benefits		14.1			11.7			13.9
Share of earnings of equity investees		3.7			—			—
Deferred income taxes relating to the above adjustments		27.0			30.4			34.7
Shareholders’ equity — US GAAP	$	2,375.1		$	2,374.8		$	1,889.6

SUPPLEMENTAL US GAAP DISCLOSURE

Recent Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151,“Inventory Costs”, to clarify that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current-period charges, and to require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during 2006. Earlier application is permitted. The company is reviewing the guidance to determine the potential impact, if any, on its consolidated financial statements.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 83

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment”, which requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense in the consolidated financial statements based on their fair values. In 2005, the FASB released several related Staff Positions (“FSPs”) to help clarify and interpret this new guidance. The new rules modify certain measurement and expense recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, including the requirement to estimate employee forfeitures each period when recognizing compensation expense and requiring that the initial and subsequent measurement of the cost of liability-based awards each period be based on the fair value (instead of the intrinsic value) of the award. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. As described below, the company previously elected to expense employee stock-based compensation using the fair value method prospectively for all awards granted or modified on or after January 1, 2003. The new standard is effective January 1, 2006. The company is assessing the impact of adoption on its consolidated financial position and results of operation, but does not expect it to be material.

In March 2005, the FASB issued FSP FIN 46(R)-5, “Implicit Variable Interests under FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities”, to address whether a company has an implicit variable interest in a VIE or potential VIE when specific conditions exist. The guidance describes an implicit variable interest as an implied financial interest in an entity that changes with changes in the fair value of the entity’s net assets exclusive of variable interests. An implicit variable interest acts the same as an explicit variable interest except that it involves the absorbing and/or receiving of variability indirectly from the entity (rather than directly). The guidance did not have a material impact on the company’s consolidated financial statements.

In March 2005, the FASB issued FIN No. 47, “Accounting for Conditional Asset Retirement Obligations”. FIN No. 47 clarifies that the term Conditional Asset Retirement Obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The guidance did not have a material effect on the company’s consolidated financial statements.

In March 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force (“EITF”) on Issue No.04-6, “Accounting for Stripping Costs Incurred During Production in the Mining Industry”, that stripping costs incurred during production are variable inventory costs that should be attributed to ore produced in that period as a component of inventory and recognized in cost of sales in the same period as related revenue. The consensus will be effective for the company in 2006. The company is reviewing the guidance to determine the potential impact, if any, on its consolidated financial statements. The EIC in Canada has reached a tentative conclusion on this issue that differs from the EITF consensus. Specifically, it has suggested that the activity of removing overburden and other mine waste minerals in the production phase represents either a component of inventory or a betterment to the mineral property, depending on the benefit received by the entity. The company is monitoring the developments and will determine the potential impact, if any, on its consolidated financial statements if and when related Canadian guidance is released.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”, which requires that changes in accounting principle be retrospectively applied as of the beginning of the first period presented as if that principle had always been used, with the cumulative effect reflected in the carrying value of assets and liabilities as of the first period presented and the offsetting adjustments recorded to opening retained earnings. SFAS No.154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, with early adoption permitted. The company is reviewing the guidance to determine the potential impact, if any, on its consolidated financial statements.

In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, which nullified 2004 guidance issued by the EITF on determining whether an impairment is other-than-temporary, and effectively reverted back to previous guidance in this area. The FSP generally encompasses guidance for determining when an investment is impaired, how to measure the impairment loss and what disclosures should be made regarding impaired securities. This FSP is effective for the first quarter of 2006 and is not expected to have a material impact on the company’s consolidated financial statements.

Available-for-Sale Security

The company’s investments in ICL and Sinofert are classified as available-for-sale. The fair market value of these investments at December 31, 2005 was $620.3 and the unrealized holding gain was $355.2.

Deferred Income Taxes

The total valuation allowance recognized for deferred income tax assets in 2005 was $45.5 (2004 — $29.4). The company has determined that it is more likely than not that the deferred income tax assets net of the valuation allowance will be realized through a combination of future reversals of temporary differences and taxable income.

84 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

Stock-Based Compensation

Prior to 2003, the company applied the intrinsic value-based method of accounting for its stock option plans under US GAAP. Effective December 15, 2003, the company adopted the fair value-based method of accounting for stock options prospectively to all employee awards granted, modified or settled after January 1, 2003 pursuant to the transitional provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”. Since the company’s stock option awards at that time vested over two years, the compensation cost included in the determination of net income (loss) for years ended December 31, 2004 and 2003 is less than that which would have been recognized if the fair value-based method had been applied to all awards since the original effective date of SFAS No. 123, “Accounting for Stock-Based Compensation”. The following table illustrates the effect on net income (loss) and net income (loss) per share under US GAAP if the fair value-based method had been applied to all outstanding and unvested awards in each period.

	2005			2004			2003
Net income (loss) — as reported under US GAAP	$	532.7		$	290.5		$	(84.2	)
Add:      Stock-based employee compensation expense included in reported net income (loss), net of related tax effects		18.4			8.8			0.8
Less:    Total stock-based employee compensation expense determined under fair value-based method for all option awards, net of related tax effects		(18.4	)		(12.8	)		(14.8	)
Net income (loss) — pro forma under US GAAP 1	$	532.7		$	286.5		$	(98.2	)

¹ Compensation expense under the fair value-based method is recognized over the vesting period of the related stock options. Accordingly, the pro forma results of applying this method may not be indicative of future results.

	2005		2004		2003
Basic net income (loss) per share
As reported	$	4.91	$	2.69	$	(0.81	)
Pro forma		4.91		2.65		(0.94	)
Diluted net income (loss) per share
As reported	$	4.80	$	2.62	$	(0.81	)
Pro forma		4.80		2.59		(0.94	)

Derivative Instruments and Hedging Activities

The company has designated its natural gas derivative instruments as cash flow hedges.

The portion of gain or loss on derivative instruments designated as cash flow hedges that are effective at offsetting changes in the hedged item is reported as a component of accumulated OCI and then is reclassified into cost of goods sold when the product containing the hedged item is sold. Any hedge ineffectiveness is recorded in cost of goods sold in the current period. During the year, a gain of $48.6 was recognized in cost of goods sold (2004 — $43.0; 2003 — $89.9). Of the deferred gains at year-end, approximately $103.9 will be reclassified to cost of goods sold within the next 12 months.

Pensions and Other Post-Retirement Benefits

Amounts recognized in the Supplemental Schedule of Consolidated Financial Position for US GAAP purposes consist of:

	Pension						Other						Total
	2005			2004			2005			2004			2005			2004
Prepaid pension costs	$	39.1		$	28.5		$	0.4		$	8.8		$	39.5		$	37.3
Other intangible asset		11.1			9.6			—			—			11.1			9.6
Current liabilities		(0.4	)		(16.0	)		(8.1	)		(7.8	)		(8.5	)		(23.8	)
Long-term liabilities		(116.5	)		(69.1	)		(191.8	)		(188.8	)		(308.3	)		(257.9	)
Accumulated other comprehensive income		83.3			54.9			—			—			83.3			54.9
Net amount recognized	$	16.6		$	7.9		$	(199.5	)	$	(187.8	)	$	(182.9	)	$	(179.9	)

Related Party Transactions

During the year, sales to a company associated with the immediate family of a member of the PCS Board of Directors totalled $12.6 (2004 — $16.2). These transactions were conducted in the normal course of business at the prevailing market prices and on normal trade terms.

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 85

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

SUPPLEMENTAL SCHEDULES

The following supplemental schedules present the consolidated Financial Position, Operations and Retained Earnings, Comprehensive Income (Loss), Accumulated Other Comprehensive Income (Loss), and Cash Flow in accordance with US GAAP as adjusted for the GAAP differences described in this note.

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED FINANCIAL POSITION
As at December 31

	2005		2004
Assets
Current assets
Cash and cash equivalents	$	93.9	$	458.9
Accounts receivable		453.3		352.6
Inventories		515.3		393.8
Prepaid expenses and other current assets		41.1		37.9
Current portion of derivative instruments		103.9		38.2
		1,207.5		1,281.4
Derivative instruments		173.2		28.3
Property, plant and equipment		3,138.4		2,972.4
Other assets		1,226.8		823.6
Intangible assets		45.6		46.7
Goodwill		50.3		50.3
	$	5,841.8	$	5,202.7
Liabilities
Current liabilities
Short-term debt	$	252.2	$	93.5
Accounts payable and accrued charges		842.7		599.9
Current portion of long-term debt		1.2		10.3
		1,096.1		703.7
Long-term debt		1,257.6		1,258.6
Deferred income tax liability		690.2		521.6
Accrued pension and other post-retirement benefits		308.3		257.9
Accrued environmental costs and asset retirement obligations		97.3		81.2
Other non-current liabilities and deferred credits		17.2		4.9
		3,466.7		2,827.9
Shareholders’ Equity
Share capital		1,379.3		1,408.4
Additional paid-in capital		75.1		297.3
Retained earnings		577.5		572.3
Accumulated other comprehensive income		343.2		96.8
		2,375.1		2,374.8
	$	5,841.8	$	5,202.7

86 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS
For the Years Ended December 31

	2005			2004			2003
Sales	$	3,847.2		$	3,244.4		$	2,799.0
Less:  Freight		249.7			238.7			234.5
Transportation and distribution		121.9			104.3			98.7
Cost of goods sold		2,337.5			2,207.9			2,141.2
Gross Margin		1,138.1			693.5			324.6
Selling and administrative		144.5			130.6			96.1
Provincial mining and other taxes		137.2			92.6			57.0
Foreign exchange loss		12.5			19.7			51.9
Share of earnings of equity investees		(55.8	)		(30.9	)		(12.4	)
Other income		(9.7	)		(48.5	)		(20.8	)
Other expenses		6.4			3.6			138.3
		235.1			167.1			310.1
Operating Income		903.0			526.4			14.5
Interest Expense		82.3			84.0			91.3
Income (Loss) Before Income Taxes		820.7			442.4			(76.8	)
Income Taxes		288.0			151.9			7.4
Net Income (Loss)		532.7			290.5			(84.2	)
Retained Earnings, Beginning of Year		572.3			341.7			478.2
Repurchase of Common Shares		(462.5	)		—			—
Dividends		(65.0	)		(59.9	)		(52.3	)
Retained Earnings, End of Year	$	577.5		$	572.3		$	341.7
Net Income (Loss) per Share — Basic	$	4.91		$	2.69		$	(0.81	)
Net Income (Loss) per Share — Diluted	$	4.80		$	2.62		$	(0.81	)
Dividends per Share	$	0.60		$	0.55		$	0.50

NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts 87

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31

	2005			2004			2003
Net income (loss)	$	532.7		$	290.5		$	(84.2	)
Other comprehensive income
Change in unrealized holding gains and losses on available-for-sale securities		193.5			101.2			42.7
Change in gains and losses on derivatives designated as cash flow hedges		255.0			49.3			98.3
Reclassification to income of gains and losses on cash flow hedges		(53.5	)		(43.0	)		(89.9	)
Adjustment to additional minimum pension liability		(28.4	)		(9.6	)		23.4
Share of other comprehensive income of equity investees		1.1			—			—
Deferred income taxes related to other comprehensive income		(121.3	)		(32.3	)		(29.7	)
Other comprehensive income, net of related income taxes		246.4			65.6			44.8
Comprehensive income (loss)	$	779.1		$	356.1		$	(39.4	)

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31

	2005		2004		2003
Accumulated other comprehensive income (loss), beginning of year	$	96.8	$	31.2	$	(13.6	)
Other comprehensive income, net of related income taxes		246.4		65.6		44.8
Accumulated other comprehensive income, end of year	$	343.2	$	96.8	$	31.2

The balances related to each component of accumulated other comprehensive income, net of related income taxes, are as follows:

	2005			2004			2003
Unrealized gains and losses on available-for-sale securities	$	236.3		$	106.7		$	39.0
Gains and losses on derivatives designated as cash flow hedges		182.4			47.4			43.1
Additional minimum pension liability		(55.4	)		(36.4	)		(30.0	)
Share of other comprehensive income of equity investees		0.8			—			—
Foreign currency translation adjustment		(20.9	)		(20.9	)		(20.9	)
Accumulated other comprehensive income, end of year	$	343.2		$	96.8		$	31.2

88 NOTES TO THE POTASHCORP CONSOLIDATED FINANCIAL STATEMENTS |
in millions of US dollars except share and per-share amounts

33. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED CASH FLOW
For the Years Ended December 31

	2005			2004			2003
Operating Activities
Net income (loss)	$	532.7		$	290.5		$	(84.2	)
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization		234.0			231.6			218.9
Stock-based compensation		27.5			11.1			1.0
Loss (gain) on disposal of property, plant and equipment		11.8			(0.7	)		1.0
Gain on sale of long-term investments		—			(34.4	)		—
Provisions for nitrogen and phosphate plant shutdowns and PCS Yumbes		—			3.6			120.1
Writedown of inventories		—			—			62.9
Foreign exchange on deferred income tax		8.9			17.2			35.9
Provision for deferred income tax		43.5			30.6			3.0
Income taxes related to stock-based compensation		17.2			15.9			4.4
Undistributed earnings of equity investees		(37.2	)		(22.2	)		(8.4	)
Other long-term liabilities		20.2			(2.3	)		15.9
Changes in non-cash operating working capital
Accounts receivable		(107.6	)		(51.9	)		(39.5	)
Inventories		(122.2	)		(10.5	)		14.5
Prepaid expenses and other current assets		(8.2	)		(8.9	)		9.4
Accounts payable and accrued charges		238.1			188.7			30.6
Cash provided by operating activities		858.7			658.3			385.5
Investing Activities
Additions to property, plant and equipment		(376.3	)		(220.5	)		(150.7	)
Purchase of long-term investments		(190.9	)		(105.5	)		(178.3	)
Proceeds from disposal of property, plant and equipment		7.2			2.5			—
Proceeds from sale of long-term investments		5.2			100.8			—
Other assets and intangible assets		5.9			(2.8	)		(32.7	)
Cash used in investing activities		(548.9	)		(225.5	)		(361.7	)
Financing Activities
Proceeds from long-term debt obligations		—			—			250.0
Repayment of long-term debt obligations		(10.1	)		(1.0	)		(3.4	)
Proceeds from (repayment of) short-term debt obligations		158.7			(82.7	)		(296.8	)
Dividends		(65.4	)		(56.1	)		(52.3	)
Repurchase of common shares		(851.9	)		—			—
Issuance of common shares		93.9			161.2			58.9
Cash (used in) provided by financing activities		(674.8	)		21.4			(43.6	)
(Decrease) Increase in Cash and Cash Equivalents		(365.0	)		454.2			(19.8	)
Cash and Cash Equivalents, Beginning of Period		458.9			4.7			24.5
Cash and Cash Equivalents, End of Period	$	93.9		$	458.9		$	4.7

34. SUBSEQUENT EVENT

In February 2006, the company exercised its option to acquire an additional 10-percent interest in the ordinary shares of Sinofert for cash consideration of $126.0, plus transaction costs. The additional investment increases the company’s interest to 20 percent.

POTASHCORP 2005 ANNUAL REPORT | APPENDIX       89

MARKET AND INDUSTRY DATA STATEMENT

Some of the market and industry data contained in this annual report and this Management’s Discussion & Analysis of Financial Condition and Results of Operations are based on internal surveys, market research, independent industry publications or other publicly available information. Although we believe that the independent sources used by us are reliable, we have not independently verified and cannot guarantee the accuracy or completeness of this information. Similarly, we believe our internal research is reliable, but such research has not been verified by any independent sources.

Information in the preparation of this annual report is based on statistical data and other material available at February 27, 2006.

FOOTNOTES, SOURCES, ABBREVIATIONS, TERMS AND MEASURES

FOOTNOTES
1	Geographic Availability of Raw Materials	Source: Fertecon, EIA
2	Cost of New Capacity	Source: Fertecon
3	Greenfield	Definition: New operation built on undeveloped site
4	Greenfield Development Time	Source: Fertecon
5	Producing Countries	Source: Fertecon
6	State- or Subsidy-	Source: Fertecon, British Sulphur, PotashCorp
	Controlled Production
7	Industry Operating Rate	Source: Fertecon, PotashCorp
8	PotashCorp Capacity	Source: Fertecon, PotashCorp
9	PotashCorp World	Source: Fertecon; Blue, Johnson; Agrium;
	Position by Capacity	PotashCorp
10	Total World Demand	Source: Fertecon
11	PotashCorp Share of	Source: Fertecon; Blue, Johnson; Agrium;
	World Production	PotashCorp

ABBREVIATED COMPANY NAMES AND SOURCES*
Agrium	Agrium Inc. (TSX and NYSE: AGU), Canada
APC	Arab Potash Company Ltd. (Amman: ARPT), Jordan
BASF	BASF Group (Xetra: BAS, NYSE: BF), USA
Belaruskali	PA Belaruskali, Belarus
Blue, Johnson	Blue, Johnson & Associates, USA
BPC	Belarusian Potash Company, Belarus
British Sulphur	British Sulphur Consultants, UK
Canpotex	Canpotex Limited, Canada
CF Industries	CF Industries, Inc., USA
Cherokee Chem	Cherokee Nitrogen Co., USA
Christensen	Christensen, USA
CNC	Caribbean Nitrogen Company, Trinidad
Coastal	Coastal Catalyst and Chemical Co., USA
Coronet	Coronet Industries, Incorporated, USA
CVRD	Companhia Vale do Rio Doce, Brazil
DJUSBM	Dow Jones U.S. Basic Materials Index, USA
DSM	DSM Chemicals North America Inc. (XAMS: DSMA, NYSE: DSMKY), USA
Dyno	Dyno Nobel Limited, Norway
FAO	Food and Agriculture Organization of the United Nations, USA
Fertecon	Fertecon Limited and Fertecon Research Centre Limited, UK
ICL	Israel Chemicals Ltd. (Tel Aviv: CHIM), Israel
IFA	International Fertilizer Industry Association, France
IFDC	International Fertilizer Development Center, USA
IMC	IMC Global Inc. (now Mosaic), USA
IMF	International Monetary Fund, USA
Innovene	Innovene USA LLC, USA
Intrepid	Intrepid Potash, USA
Kali & Salz (K&S)	Kali und Salz GmbH (Xetra: SDF), Germany
Koch	Koch Industries, Inc., USA
Marsoft	Marsoft Inc., USA
Mosaic	The Mosaic Company (NYSE: MOS), USA
NCPC	North Carolina Phosphate Company, USA
NOLA	New Orleans, Louisiana, USA
NYMEX	New York Mercantile Exchange, USA
OCP	Office Cherifien des Phosphates, Morocco
OMS	Overseas Marine Services, USA
Oswal	Oswal Chemicals & Fertilizers Limited, India
Pemex	Petroleos Mexicanos, Mexico
PhosChem	Phosphate Chemical Export Association, Inc., USA
PPI	Potash & Phosphate Institute, USA
PPIC	Potash & Phosphate Institute of Canada, Canada
Silvinit	JSC Silvinit, Russia
Sinofert	Sinochem Hong Kong Holdings Limited (HKSE, 0297.HK), China
SQM	Sociedad Quimica y Minera de Chile S.A. (Santiago Bolsa de Comercio Exchange, NYSE: SQM), Chile
Terra	Terra Industries, Inc. (NYSE: TRA), USA
TFI	The Fertilizer Institute, USA
Thomson Financial	Thomson Financial Inc., USA
Tringen	Trinidad Nitrogen Co., Limited, Trinidad
TSX	Toronto Stock Exchange, Canada
Uralkali	JSC Uralkali, Russia
US Chem	U.S. Agri-Chemicals Corporation, USA
USDA	US Department of Agriculture, USA
Yara	Yara International (Formerly Hydro Agri and Hydro Gas and Chemicals) (Oslo: YAR), Norway

GLOSSARY OF TERMS
Canpotex	An export company owned by all Saskatchewan producers of potash (PotashCorp, Mosaic and Agrium).
Consumption vs Demand	Product applied vs product purchased
North America	The North American market includes Canada and the United States.
Offshore	Offshore markets include all markets except Canada and the United States.
PhosChem	An association formed under the Webb-Pomerene Act for US exports of phosphate fertilizer products. Members are PotashCorp, Mosaic and Mississippi Phosphates Corporation. PCS Sales is responsible for export sales of liquid fertilizers for all PhosChem members while Mosaic is responsible for sales of solid fertilizers for members.
State- or Subsidy-	State-controlled: Operational control in the hands of the state
Controlled Production	Subsidy-controlled: The state provides subsidies which control the economic viability of the operation

SCIENTIFIC TERMS
Nitrogen	NH3	ammonia (anhydrous), 82.2% N
	HNO3	nitric acid, 22% N (liquid)
	UAN	nitrogen solutions, 28-32% N (liquid)
Phosphate	P2O5	phosphoric acid (liquid)
	MGA	merchant grade acid, 54% P2O5 (liquid)
	DAP	diammonium phosphate, 46% P2O5 (solid)
	MAP	monoammonium phosphate, 52% P2O5 (solid)
	SPA	superphosphoric acid, 70% P2O5(liquid)
	MCP	monocalcium phosphate, 48.1% P2O5 (solid)
	DCP	dicalcium phosphate, 42.4% P2O5 (solid)
	DFP	defluorinated phosphate, 41.2%P2O5 (solid)
Potash	KCl	potassium chloride, 60-63.2% (solid)

FERTILIZER MEASURES
P2O5 tonne	Measures the phosphorus content of fertilizers having different chemical analyses
N tonne	Measures the nitrogen content of fertilizers having different chemical analyses
Product tonne	Standard measure of the weights of all types of potash, phosphate and nitrogen products

* Where PotashCorp is listed as a source in conjunction with external sources, we have supplemented the external data with internal analysis.

ANYTIME

At PotashCorp

our commitment to transparent disclosure is evident in all our communications — but the most recent information can always be found on our award-winning website. Visit our Investor Relations section for market overviews, web-exclusive features, management videos, the latest news releases, dividend notices and more — all before your coffee gets cold.

www.potashcorp.com/investor_relations

EX-21

Exhibit 21

SUBSIDIARIES OF
POTASH CORPORATION OF SASKATCHEWAN INC.

	Jurisdiction of
	Incorporation or
Name of Entity	Formation
101070338 Saskatchewan Ltd.	Saskatchewan
175360 Canada Inc.	Canada
609430 Saskatchewan Ltd.	Saskatchewan
628550 Saskatchewan Ltd.	Saskatchewan
AA Sulfuric Corporation	Louisiana
Augusta Service Company, Inc.	Delaware
Canpotex Bulk Terminals Limited	Canada
Chilkap Resources Ltd.	Yukon
El Boldo Limitada	Chile
El Roble Limitada	Chile
Inversiones PCS Chile Limitada	Chile
Inversiones RAC Chile Limitada	Chile
Minera Saskatchewan Limitada	Chile
PCS Administration (USA), Inc.	Delaware
PCS (Barbados) Holdings SRL	Barbados
PCS (Barbados) Investment Company Ltd.	Barbados
PCS (Barbados) Shipping Ltd.	Barbados
PCS Cassidy Lake Company	Ontario
PCS Cassidy Lake Limited	Canada
PCS Chesapeake LLC	Delaware
PCS Chile I LLC	Delaware
PCS Chile II LLC	Delaware
PCS Fosfatos do Brasil Ltda.	Brazil
PCS Hungary Holding Limited	Hungary
PCS Industrial Products Inc.	Delaware
PCS Joint Venture, Ltd.	Florida
PCS Jordan LLC	Delaware
PCS L.P. Inc.	Delaware
PCS Nitrogen Ammonia Terminal Corporation I	Texas
PCS Nitrogen Ammonia Terminal Corporation II	Delaware
PCS Nitrogen Delaware LLC	Delaware
PCS Nitrogen Fertilizer, L.P.	Delaware
PCS Nitrogen Fertilizer Limited	Trinidad
PCS Nitrogen Fertilizer Operations, Inc.	Delaware
PCS Nitrogen, Inc.	Delaware
PCS Nitrogen LCD Corporation	Delaware
PCS Nitrogen Limited	Trinidad
PCS Nitrogen Ohio, L.P.	Delaware
PCS Nitrogen Payroll Corporation	Delaware
PCS Nitrogen Trinidad Corporation	Delaware
PCS Nitrogen Trinidad Limited	Trinidad
PCS Phosphate Company, Inc.	Delaware
PCS Purified Phosphates	Virginia
PCS Sales (Canada) Inc.	Saskatchewan
PCS Sales (Indiana), Inc.	Indiana
PCS Sales (Iowa), Inc.	Iowa
PCS Sales (USA), Inc.	Delaware
PCS USA LLC	Delaware

	Jurisdiction of
	Incorporation or
Name of Entity	Formation
Phosphate Holding Company, Inc.	Delaware
Potash Corporation of Saskatchewan (Florida) Inc.	Florida
Potash Corporation of Saskatchewan Transport Limited	Saskatchewan
PotashCorp Finance (Barbados) Limited	Barbados
Potash Holding Company, Inc.	Delaware
RAC Investments Ltd.	Cayman
Texasgulf Aircraft Inc.	Delaware
TG Corporation	Delaware
White Springs Agricultural Chemicals, Inc.	Delaware

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

POTASH CORPORATION OF SASKATCHEWAN INC.

We consent to the incorporation in the following Registration Statements of Potash Corporation of Saskatchewan Inc.:

• Registration Statement No. 33-37855 on Form S-8;

• Registration Statement No. 333-19215 on Form S-8;

• Registration Statement No. 333-93773 on Form S-8;

• Registration Statement No. 333-53531 on Form S-8;

• Registration Statement No. 333-75742 on Form S-8;

• Registration Statement No. 333-75744 on Form S-8;

• Registration Statement No. 333-113945 on Form S-8;

• Registration Statement No. 333-124677 on Form S-8;

• Registration Statement No. 333-89350 on Form S-3; and

• Registration Statement No. 33-57920 on Form S-3

of our reports dated February 14, 2006 (except for Note 34 of the consolidated financial statements which is as of February 24, 2006) (which audit report on the consolidated financial statements expresses an unqualified opinion and includes a separate report titled Comments by Independent Registered Chartered Accountants on Canada-United States of America Reporting Differences referring to changes in accounting principles), relating to the financial statements and financial statement schedule of Potash Corporation of Saskatchewan Inc., and management’s report on the effectiveness of internal control over financial reporting, appearing in the Annual Report on Form 10-K of Potash Corporation of Saskatchewan Inc. for the year ended December 31, 2005.

/s/ Deloitte & Touche LLP

Independent Registered Chartered Accountants

Saskatoon, Saskatchewan, Canada
March 9, 2006

EX-31.A

Exhibit 31(a)

CERTIFICATION

I, William J. Doyle, certify that:

1. I have reviewed this Annual Report on Form 10-K of Potash Corporation of Saskatchewan Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 9, 2006

By:	/s/ WILLIAM J. DOYLE
	William J. Doyle
	President and Chief Executive Officer

EX-31.B

Exhibit 31(b)

CERTIFICATION

I, Wayne R. Brownlee, certify that:

1. I have reviewed this Annual Report on Form 10-K of Potash Corporation of Saskatchewan Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 9, 2006

By:	/s/ WAYNE R. BROWNLEE
	Wayne R. Brownlee Executive Vice President, Treasurer and Chief Financial Officer

EX-32

Exhibit 32

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Potash Corporation of Saskatchewan Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 10-K for the year ended December 31, 2005 (the “Form 10-K”), of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 9, 2006

By:	/s/ WILLIAM J. DOYLE
	William J. Doyle
	President and Chief Executive Officer

Date: March 9, 2006

By:	/s/ WAYNE R. BROWNLEE
	Wayne R. Brownlee
	Executive Vice President, Treasurer and Chief Financial Officer

The foregoing certification is being furnished as an exhibit to the Form 10-K pursuant to Item 601(6)(32) of Regulation S-K, section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-K.

EX-99

Exhibit 99

Table of Contents

			Page
Letter to Shareholders				1
Notice of Annual and Special Meeting of Shareholders				2
Management Proxy Circular				3
	Questions and Answers on Voting and Proxies			3
	Business of the Meeting			6
	Nominees for Election to the Board of Directors			7
		Director Independence and Other Relationships		10
		Compensation/Attendance of Directors		12
	Appointment of Auditors			15
	Adoption of 2006 Performance Option Plan			16
	Corporate Governance			19
		Report of the Audit Committee		19
		Report of the Compensation Committee and Compensation Discussion and Analysis		20
		Report on Corporate Governance and Nominating Matters		26
	Ownership of Shares			29
	Executive Compensation			30
	Performance Graphs			35
	Directors’ and Officers’ Liability Insurance			36
	Voting Shares			36
	Normal Course Issuer Bid			36
	2006 Shareholder Proposals			36
	Additional Information			36
	Directors’ Approval			36
	Appendix A – Statement of Corporate Governance Practices			37
	Appendix B – Resolution of Shareholders			47
	Appendix C – 2006 Performance Option Plan			48
	Appendix D – Board of Directors Charter			53
	Appendix E – Audit Committee Charter			56

Potash Corporation of Saskatchewan Inc.

February 27, 2006

Dear Shareholder:

We are pleased to invite you to join our Board of Directors and senior management team at our 2006 Annual and Special Meeting of Shareholders. The meeting will be held on:

May 4, 2006

10:30 a.m. (local time)

Adam Ballroom

Delta Bessborough

601 Spadina Crescent East

Saskatoon, Saskatchewan, Canada

The items of business to be considered and voted upon at this meeting are set out in the Notice of Annual and Special Meeting and the accompanying Management Proxy Circular. In addition, this meeting provides you, the shareholder, with an opportunity to meet, listen to and ask questions of the people who are responsible for the performance of the Corporation.

Your vote and participation are very important. If you are unable to attend the meeting in person, you can vote by telephone, via the Internet or by completing and returning the enclosed proxy. Please refer to the “Questions and Answers on Voting and Proxies” section of the accompanying Management Proxy Circular for further information.

We will also webcast the meeting at www.potashcorp.com. We encourage you to visit our website at any time before the meeting as it provides useful information about our company.

We look forward to seeing you on May 4, 2006.

Sincerely,
D. J. HOWE	W. J. DOYLE
Board Chair	President and Chief Executive Officer

PCS Tower, Suite 500, 122 – 1st Avenue South, Saskatoon, Saskatchewan Canada    S7K 7G3

LETTER TO SHAREHOLDERS

Page 1

Notice of Annual and Special Meeting of Shareholders

NOTICE IS HEREBY GIVEN that the Annual and Special Meeting (the “Meeting”) of shareholders of Potash Corporation of Saskatchewan Inc. (the “Corporation”), a corporation organized under the laws of Canada, will be held on:

May 4, 2006

10:30 a.m. (local time)

Adam Ballroom

Delta Bessborough

601 Spadina Crescent East

Saskatoon, Saskatchewan, Canada

for the following purposes:

1.	to receive the consolidated financial statements of the Corporation for the fiscal year ended December 31, 2005 and the report of the auditors thereon;
2.	to elect the Board of Directors for 2006;
3.	to appoint auditors for 2006;
4.	to consider and, if deemed appropriate, adopt, with or without variation, a resolution (the full text of which is reproduced as Appendix B to the accompanying Management Proxy Circular) authorizing the Corporation to implement a new performance option plan, which is attached as Appendix C to the accompanying Management Proxy Circular; and
5.	to transact such other business as may properly come before the Meeting or any adjournments thereof.

DATED at Saskatoon, Saskatchewan this 27^th day of February, 2006.

BY ORDER OF THE BOARD OF DIRECTORS

JOSEPH A. PODWIKA

Secretary

POTASH CORPORATION OF SASKATCHEWAN INC.

SUITE 500, 122 – 1^ST AVENUE SOUTH, SASKATOON, SK   CANADA S7K 7G3

NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS

Page 2

Management Proxy Circular

Questions and Answers on Voting and Proxies

1. Who can I call if I have questions about the information contained in this Management Proxy Circular or require assistance in completing my proxy form?

Georgeson Shareholder Communication Canada, Inc., the Corporation’s proxy solicitation agent, at 1-866-699-2833, for service in English and in French.

2.   Who is soliciting my proxy?

The management of the Corporation. Solicitation of proxies will be primarily by mail, supplemented by telephone or other contact by employees of the Corporation (who will receive no additional compensation), and all such costs will be borne by the Corporation. We have retained the services of Georgeson for the solicitation of proxies in Canada and in the United States. Georgeson’s services are estimated to cost $24,000.

3.   On what am I voting?

Three items:

(1)	the election of directors;
(2)	the appointment of auditors; and
(3)	a resolution authorizing the Corporation to implement a new performance option plan.

The Corporation’s Board of Directors and management recommend that you vote FOR items (1), (2) and (3).

4.   Who is entitled to vote?

Common shareholders as at the close of business on March 13, 2006 (the “Record Date”) or their duly appointed representatives will be entitled to cast a vote.

As at February 27, 2006, 103,651,326 common shares in the capital of the Corporation (the “Shares”) are entitled to be voted at the Meeting.

5.   By when must I vote?

This will depend on the way in which you will be voting:

(1)	If you are a Registered Shareholder planning to attend the Meeting and wish to vote your Shares in person at the Meeting, your vote will be taken and counted at the Meeting.
(2)	If you are a Registered Shareholder and voting using the proxy form, your proxy form should be received at the Toronto office of CIBC Mellon Trust Company by mail or facsimile prior to the commencement of the Meeting, or hand-delivered at the registration table on the day of the Meeting prior to the commencement of the Meeting.
(3)	If you are a Registered Shareholder and voting your proxy by telephone or Internet, your vote should be received by CIBC Mellon Trust Company no later than 11:00 p.m. (Saskatoon time) on Tuesday May 2, 2006.
(4)	If you are a Non-Registered Shareholder and wish to attend the Meeting or vote by proxy, you should refer to Item 11.

Please note that Items 6 to 10 below are only applicable to Registered Shareholders. Non-Registered Shareholders should refer to Item 11 for further information on voting.

6.   How do I vote if I am a Registered Shareholder?

You are a Registered Shareholder if your name appears on your share certificate. The enclosed proxy form indicates whether you are a Registered Shareholder.

You can vote your Shares by proxy or in person at the Meeting if you are a Registered Shareholder:

(1) By Proxy

There are four ways that you can vote by proxy:

(a) By Telephone

Call 1-866-271-1207 from your touch-tone phone and follow the instructions (only available to Registered Shareholders resident in Canada or the United States).

You will need the control number located on the enclosed proxy form. You do not need to return your proxy form.

MANAGEMENT PROXY CIRCULAR │ Questions and Answers on Voting and Proxies

Page 3

(b) On the Internet

Go to www.eproxyvoting.com/potash and follow the instructions on screen.

You will need the control number located on the enclosed proxy form. You do not need to return your proxy form.

At any time, CIBC Mellon may cease to provide telephone and Internet voting, in which case shareholders can elect to vote by mail, by fax or by attending the Meeting in person, as described below.

(c) By Mail

By completing, dating and signing the enclosed proxy form and returning same in the envelope provided.

(d) By Fax

By completing, dating and signing the enclosed proxy form and forwarding same by fax to 1-866-781-3111 (toll-free within Canada and the United States) or 1-416-368-2502 (from any country other than Canada and the United States).

If your Shares are not registered in your name (e.g. if they are held through a bank, trust company, securities broker or other nominee), do not use the above fax number as it is reserved for Registered Shareholders. Instead, use the fax numbers, if any, provided by your nominee. See Item 11(1).

(2) By Attending the Meeting in Person

If you wish to vote in person at the Meeting, do not complete or return the proxy form.

7. What if I sign the proxy form as described in this Management Proxy Circular?

Signing the proxy form gives authority to Mr. Dallas J. Howe, Mr. William J. Doyle, Mr. Wayne R. Brownlee or Mr. Joseph A. Podwika, all of whom are either directors or officers of the Corporation, to vote your Shares at the Meeting in accordance with your voting instructions.

A proxy must be in writing and must be executed by you or by your attorney authorized in writing or, if the shareholder is a corporation or other legal entity, by an officer or attorney thereof duly authorized. A proxy may also be completed over the telephone or over the Internet. See Items 6(1)(a) and (b).

8. Can I appoint someone other than these people to vote my Shares?

Yes. You have the right to appoint some other person of your choice, who need not be a shareholder, to attend and act on your behalf at the Meeting. If you wish to do so, please strike out those four printed names appearing on the proxy form, and insert the name of your chosen proxyholder in the space provided thereon.

You cannot appoint a person to vote your Shares other than our directors or officers whose printed names appear on the proxy form if you decide to vote by telephone or Internet.

It is important to ensure that any other person you appoint is attending the Meeting and is aware that his or her appointment has been made to vote your Shares.

9. How will my Shares be voted if I vote by proxy?

The persons named in the proxy form must vote or withhold from voting your Shares in accordance with your instructions on the proxy form. In the absence of such instructions, however, your Shares will be voted FOR the election to the Corporation’s Board of Directors of the nominees as described in this Management Proxy Circular and on the proxy form, FOR the appointment of Deloitte & Touche LLP as auditors until the close of the next annual meeting, FOR the resolution authorizing the Corporation to implement a new performance option plan and FOR management’s proposals generally.

10. If I change my mind, can I take back my proxy once I have given it?

Yes. A shareholder who has voted by proxy may revoke it by voting again in any manner (telephone, Internet, mail or fax). In addition, you may revoke a voted proxy by depositing an instrument in writing (which includes another proxy form with a later date) executed by you or by your attorney authorized in writing with our Corporate Secretary at Suite 500, 122 – 1^st Avenue South, Saskatoon, Saskatchewan, Canada, S7K 7G3, at any time up to and including the last business day preceding the date of the Meeting, or any adjournment or postponement thereof or by depositing it with the Meeting chair on the day of the Meeting, or any adjournment or postponement thereof. You may also revoke a proxy in any other manner permitted by law.

Note that your participation in person in a vote by ballot at the Meeting will automatically revoke any proxy previously given by you in respect of business covered by that vote.

11. How do I vote if I am a Non-Registered Shareholder?

You are a Non-Registered (or Beneficial) Shareholder if your Shares are held through a bank, trust company, securities broker or other nominee.

For most of you, the proxy form or the request for voting instructions sent or to be sent by your nominee indicates whether you are a Non-Registered (or Beneficial) Shareholder.

MANAGEMENT PROXY CIRCULAR │ Questions and Answers on Voting and Proxies

Page 4

There are two ways that you can vote your Shares if you are a Non-Registered (or Beneficial) Shareholder:

(1)  By Providing Voting Instructions to Your Nominee

Your nominee is required to seek voting instructions from you in advance of the Meeting. Accordingly, you will receive, or have already received, from your nominee either a request for voting instructions or a proxy form for the number of Shares you hold.

Every nominee has its own procedures which should be carefully followed by Non-Registered Shareholders to ensure that their Shares are voted at the Meeting. These procedures generally allow voting by telephone, on the Internet, by mail or by fax. Please contact your nominee for instructions in this regard.

If your Shares are not registered in your name, do not use the fax number in 6(1)(d) as this number is reserved for Registered Shareholders.

(2)  By Attending the Meeting in Person

If you wish to vote in person at the Meeting, insert your own name in the space provided on the request for voting instructions or proxy form to appoint yourself as proxyholder and follow the instructions of your nominee.

Non-Registered Shareholders who instruct their nominee to appoint themselves as proxyholders should, at the Meeting, present themselves to a representative of CIBC Mellon at the table identified as “Beneficial Shareholders”. Do not otherwise complete the form sent to you as your vote will be taken and counted at the Meeting.

12. What if amendments are made to these matters or if other matters are brought before the Meeting?

The person named in the proxy form has discretionary authority with respect to amendments or variations to matters identified in the Notice of the Meeting and to other matters which may properly come before the Meeting.

As of the date of this Management Proxy Circular, our management knows of no such amendment, variation or other matter expected to come before the Meeting. If any other matters properly come before the Meeting, the persons named in the proxy form will vote on them in accordance with their best judgment.

13. How will the votes be counted?

All matters to be considered at the Meeting will each be determined by a majority of votes cast at the Meeting by proxy or in person. In the event of equal votes, the Meeting chair is entitled to a second or casting vote.

14. How can I contact the transfer agent?

You can contact the transfer agent as follows:

By mail:

CIBC Mellon Trust Company

600 The Dome Tower

333 – 7^th Avenue SW

Calgary, Alberta, Canada T2P 2Z1

By telephone:

1-800-387-0825 (toll-free within Canada and the United States)

or 1-416-643-5500 (from any country other than Canada and the United States)

By fax:

1-416-643-5501 (all countries)

By e-mail:

inquiries@cibcmellon.com

Except as otherwise stated, the information contained herein is given as of February 27, 2006. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

MANAGEMENT PROXY CIRCULAR │ Questions and Answers on Voting and Proxies

Page 5

Business of the Meeting

1. Financial Statements

The Consolidated Financial Statements for the fiscal year ended December 31, 2005 are included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 filed with the U.S. Securities and Exchange Commission (“SEC”) and the Canadian securities regulatory authorities.

2. Nominees for Election to the Board of Directors

The 12 nominees proposed for election as directors of the Corporation are listed beginning on page 7. All are currently directors of the Corporation. All nominees have established their eligibility and willingness to serve as directors. Directors will hold office until the next annual meeting of shareholders of the Corporation or until their successors are elected or appointed.

Unless otherwise instructed, the persons designated in the form of proxy intend to vote for the election of the nominees listed beginning on page 7. If, for any reason, at the time of the Meeting any of the nominees are unable to serve, it is intended that the persons designated in the form of proxy will vote in their discretion for a substitute nominee or nominees.

3. Appointment of Auditors

Proxies solicited hereby will be voted to reappoint the firm of Deloitte & Touche LLP, the present auditors of the Corporation, as auditors of the Corporation to hold office until the next annual meeting of shareholders of the Corporation, unless the shareholder signing such proxy specifies otherwise.

4. Adoption of 2006 Performance Option Plan

At the Meeting, shareholders will be asked to consider and, if deemed appropriate, adopt, with or without variation, a resolution (the full text of which is reproduced as Appendix B to this Management Proxy Circular) authorizing the Corporation to implement a new performance option plan, which is attached as Appendix C to this Management Proxy Circular. Unless a proxy specifies otherwise, the persons designated in the form of proxy intend to vote for the resolution to approve the new performance option plan.

MANAGEMENT PROXY CIRCULAR │ Business of the Meeting

Page 6

Nominees for Election to the Board of Directors

The articles of the Corporation provide that the Board of Directors of the Corporation (the “Board”) shall consist of a minimum of 6 directors and a maximum of 20, with the actual number to be determined from time to time by the Board. The Board has determined that, at the present time, there will be 12 directors.

Proxies solicited hereby will be voted for the following proposed nominees (or for substitute nominees in the event of contingencies not known at present) who will, subject to the bylaws of the Corporation and applicable corporate law, hold office until the next annual meeting of shareholders or until their successors are elected or appointed in accordance with the bylaws or applicable corporate law. In an uncontested election, any nominee for director who fails to receive votes in favor of his or her election representing at least a majority of the votes cast (added together with the votes withheld) shall tender his or her resignation for consideration by the Corporate Governance and Nominating Committee. Except in extenuating circumstances, it is expected that the Committee will recommend to the Board that the resignation be accepted and effective within a period of 90 days and that the action taken be publicly disclosed. To the extent possible, the Committee and Board members who act on the resignation shall be directors who have themselves received a majority of votes cast.

The following table states the names and ages of all the persons to be nominated for election as directors, all other positions and offices with the Corporation now held by them, their present principal occupation or employment, their business experience over the last five years, the period during which present directors of the Corporation have served as directors and their independence status. The table also discloses the number of Shares and Deferred Share Units beneficially owned by each of them as of February 27, 2006, including Shares over which any such individual has or shares voting or investment power, and the value thereof. Finally, the table discloses the number of Shares deemed to be beneficially owned (as defined).

FREDERICK J. BLESI

Director since 2001.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
2,000
5,476
$664,018

16,000⁽⁴⁾ Feb 2006
2,000
6,700
$835,635

11,000⁽⁵⁾

Mr. Blesi, 68, of Glenview, Illinois, U.S.A., is a retired Chairman and Chief Executive Officer of the Phosphate Chemicals Export Association, Inc. (“PhosChem”), principal exporter of U.S. phosphate chemicals. Before joining PhosChem, he was Vice President, International with International Minerals and Chemical Corporation. He is a director of the Evans Scholars Foundation and The Western Golf Association.

Mr. Blesi is a member of the Audit Committee and the Corporate Governance and Nominating Committee.

WILLIAM J. DOYLE

Director since 1989.
Independence Status ⁽¹⁾:
Non-independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
77,551
0
$6,888,080

 893,807 ⁽⁴⁾ Feb 2006
77,978
0
$7,489,787

 790,490 ⁽⁵⁾

Mr. Doyle, 55, of Winnetka, Illinois, U.S.A., is President and Chief Executive Officer of the Corporation. He became President of PCS Sales in 1987, after a career with International Minerals and Chemical Corporation. He is Chairman of The Fertilizer Institute and Potash & Phosphate Institute and Vice Chairman of Canpotex Limited. Mr. Doyle is on the College Board of Advisors at Georgetown University.

Mr. Doyle is a member of the Executive Committee.

MANAGEMENT PROXY CIRCULAR │ Nominees for Election to the Board of Directors

Page 7

JOHN W. ESTEY

Director since 2003.
Independence Status ⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
2,000
3,953
$528,745

2,000⁽⁴⁾ Feb 2006
2,000
5,577
$727,771

2,000⁽⁵⁾

Mr. Estey, 55, of Glenview, Illinois, U.S.A., is President and Chief Executive Officer of S&C Electric Company. He is a member of the Board of Governors of the National Electrical Manufacturers Association, a director of the Executives’ Club of Chicago and a member of the Dean’s Advisory Board at the Kellogg School of Management at Northwestern University.

Mr. Estey is Chair of the Compensation Committee and a member of the Safety, Health and Environment Committee.

WADE FETZER III

Director since 2002.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
3,000
2,428
$482,115

6,000⁽⁴⁾ Feb 2006
4,000
3,121
$683,972

7,000⁽⁵⁾

Mr. Fetzer, 68, of Glencoe, Illinois, U.S.A., is a Retired Partner with the investment banking firm Goldman Sachs. He sits on the boards of Serologicals Corporation, Sphere Communications, Northern Star Broadcasting, University of Wisconsin Foundation and Rush-Presbyterian St. Luke’s Medical Center. He is also on the Kellogg Alumni Advisory Board.

Mr. Fetzer is a member of the Corporate Governance and Nominating Committee and the Compensation Committee.

DALLAS J. HOWE

Director since 1991.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
6,000
8,539
$1,291,354

48,400⁽⁴⁾ Feb 2006
8,000
11,043
$1,829,080

46,400⁽⁵⁾

Mr. Howe, 61, of Calgary, Alberta, Canada, is owner and Chief Executive Officer of DSTC Ltd., a technology investment company, and a director of Advanced Data Systems Ltd. and the Saskatchewan Wheat Pool Inc. A director of Potash Corporation of Saskatchewan, the Crown corporation, from 1982 to 1989, he joined the Corporation’s Board in 1991 and was elected Chair in 2003.

Mr. Howe is Board Chair, Chair of the Executive Committee and a member of the Corporate Governance and Nominating Committee.

ALICE D. LABERGE

Director since 2003.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
2,000
3,594
$496,859

2,000⁽⁴⁾ Feb 2006
2,000
4,424
$617,025

2,000⁽⁵⁾

Ms. Laberge, 49, of Vancouver, British Columbia, Canada, is a Corporate Director and the former President and Chief Executive Officer of Fincentric Corporation, a global provider of software solutions to financial institutions. She was previously Senior Vice President and Chief Financial Officer of MacMillan Bloedel Limited and is a director of the Royal Bank of Canada, Catalyst Paper, the United Way of the Lower Mainland and St. Paul’s Hospital Foundation.

Ms. Laberge is a member of the Audit Committee and the Safety, Health and Environment Committee.

MANAGEMENT PROXY CIRCULAR │ Nominees for Election to the Board of Directors

Page 8

JEFFREY J. MCCAIG

Director since 2001.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
2,000
5,512
$667,216

28,000⁽⁴⁾ Feb 2006
2,000
6,735
$838,997

28,000⁽⁵⁾

Mr. McCaig, 54, of Houston, Texas, U.S.A., is Chairman and Chief Executive Officer of Trimac Holdings, a bulk trucking and third-party logistics company. Prior to that, he practiced law, specializing in corporate financing and securities. He is a director of Orbus Pharma Inc., The Standard Life Assurance Company of Canada and Stoneham Administration Inc.⁽⁶⁾

Mr. McCaig is a member of the Audit Committee and the Compensation Committee.

MARY MOGFORD

Director since 2001.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
4,000
6,587
$940,337

10,000⁽⁴⁾ Feb 2006
4,000
7,307
$1,086,037

10,000⁽⁵⁾

Ms. Mogford, 61, of Newcastle, Ontario, Canada, is a Corporate Director and a former Ontario Deputy Minister of Finance and Deputy Minister of Natural Resources. She is a director of Falconbridge Ltd., MDS Inc. and Sears Canada Inc., and a member of the Altamira Advisory Council. She is a Fellow of the Institute of Corporate Directors (ICD) and an accredited director under the ICD/Rotman School of Business Directors’ Education Program.

Ms. Mogford is the Chair of the Corporate Governance and Nominating Committee and a member of the Audit Committee.

PAUL J. SCHOENHALS

Director since 1992.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
2,000
4,410
$569,336

2,000⁽⁴⁾ Feb 2006
2,000
5,430
$713,652

2,000⁽⁵⁾

Mr. Schoenhals, 64, of Calgary, Alberta, Canada, is President and Chief Executive Officer of Enform, a petroleum industry safety and training service. He is a former Member of the Legislative Assembly and Cabinet Minister in Saskatchewan and was Chairman of Potash Corporation of Saskatchewan, the Crown corporation, from 1987 to 1989.

Mr. Schoenhals is the Chair of the Safety, Health & Environment Committee and a member of the Compensation Committee.

E. ROBERT STROMBERG, Q.C.

Director since 1991.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
13,877
4,262
$1,611,106

46,277⁽⁴⁾ Feb 2006
15,580
5,137
$1,989,868

47,980⁽⁵⁾

Mr. Stromberg, 64, of Saskatoon, Saskatchewan, Canada, was formerly associated with the Saskatchewan law firm Robertson Stromberg Pedersen. He is a director of NorSask Forest Products Inc. and Hitachi Canadian Industries Ltd. and holds the rank of Honorary Lieutenant-Colonel of the North Saskatchewan Regiment.

Mr. Stromberg is a member of the Executive Committee, the Safety, Health & Environment Committee and the Corporate Governance and Nominating Committee.

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JACK G. VICQ

Director since 1989.
Independence Status⁽¹⁾:
Independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
3,186
3,094
$557,790

15,186⁽⁴⁾ Feb 2006
3,186
3,791
$670,141

9,186⁽⁵⁾

Mr. Vicq, 66, of Saskatoon, Saskatchewan, Canada, is Professor Emeritus of Accounting, University of Saskatchewan. He is a past Associate Dean of Commerce at the university and was responsible for the Centre for International Business Studies. He formerly held the A.W. Johnson Distinguished Chair in Public Policy in the Saskatchewan Department of Finance.

Mr. Vicq is the Chair of the Audit Committee and a member of the Executive Committee.

ELENA VIYELLA DE PALIZA

Director since 2003.
Independence Status⁽¹⁾:
Non-independent.

Number of Shares Beneficially Owned
Number of Deferred Share Units Held⁽²⁾
Total Value of Shares Beneficially Owned and Deferred Share Units Held⁽³⁾

Number of Shares Deemed to be Beneficially Owned Feb 2005
2,500
3,243
$510,093

2,500⁽⁴⁾ Feb 2006
2,500
4,466
$669,084

2,500⁽⁵⁾

Ms. Viyella de Paliza, 51, of the Dominican Republic, is President of Inter-Quimica, S.A., a chemicals importer and distributor, Monte Rio Power Corp. and Indescorp, S.A. She is President of the Dominican Business Council, a member of the board of the Inter-American Dialogue and Past President of the Dominican Stock Exchange, Dominican Manufacturers Association and the National Agribusiness Board.

Ms. Viyella de Paliza is a member of the Executive Committee and the Safety, Health and Environment Committee.

(1)	See “Director Independence and Other Relationships”.
(2)	See “Compensation/ Attendance of Directors”. Deferred Share Units do not carry any voting rights. The number of Deferred Share Units held by each director has been rounded down to the nearest whole number.
(3)	Based on the price per Share on the NYSE of $88.82 as at February 28, 2005 and $96.05 as at February 27, 2006. The “Total Value of Shares Beneficially Owned and Deferred Share Units Held” as disclosed excludes the value of the additional deemed Shares included in the “Number of Shares Deemed to be Beneficially Owned”.
(4)	The number of Shares indicated above as deemed to be beneficially owned by the nominated directors includes Shares purchasable by such directors within 60 days of February 28, 2005 through the exercise of options granted by the Corporation, as follows: Frederick J. Blesi 14,000 Shares; William J. Doyle 816,256 Shares; Wade Fetzer III 3,000 Shares; Dallas J. Howe 42,400 Shares; Jeffrey J. McCaig 26,000 Shares; Mary Mogford 6,000 Shares; E. Robert Stromberg 32,400 Shares; and Jack G. Vicq 12,000 Shares. No stock options have been granted to the Corporation’s non-employee directors since November 2002.
(5)	The number of Shares indicated above as deemed to be beneficially owned by the nominated directors includes Shares purchasable by such directors within 60 days of February 27, 2006 through the exercise of options granted by the Corporation, as follows: Frederick J. Blesi 9,000 Shares; William J. Doyle 712,512 Shares; Wade Fetzer III 3,000 Shares; Dallas J. Howe 38,400 Shares; Jeffrey J. McCaig 26,000 Shares; Mary Mogford 6,000 Shares; E. Robert Stromberg 32,400 Shares; and Jack G. Vicq 6,000 Shares. No stock options have been granted to the Corporation’s non-employee directors since November 2002.
(6)	Mr. McCaig was a director of TCT Logistics Inc. (“TCT”) from June 2001 to January 2002. In or about January 2002, a receiver was appointed over the business and assets of TCT by a creditor of TCT.

All of the above directors have had the principal occupation described above for the previous five years other than Ms. Laberge, who was Chief Financial Officer of Fincentric Corporation from October 2000 to November 2003 and Chief Executive Officer from December 2003 to June 2005.

Director Independence and Other Relationships

The Board has determined that all of the directors of the Corporation with the exception of Mr. Doyle and Ms. Paliza are independent within the meaning of the “PotashCorp Governance Principles”, National Instrument 58-101 “Disclosure of Corporate Governance Practices” (“NI 58-101”), applicable rules of the SEC and the New York Stock Exchange (“NYSE”) corporate governance rules.

For a director to be considered independent, the Board must determine that the director does not have any material relationship with the Corporation, either directly or indirectly (e.g. as a partner, shareholder or officer of an organization that has a relationship with the Corporation). Directors of the

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Corporation inform the Board as to their relationships with the Corporation and provide other pertinent information pursuant to questionnaires that they complete, sign and certify on an annual basis. As permitted by the NYSE corporate governance rules, the Board has adopted categorical standards to assist it in making determinations of independence. These standards are set out in the “PotashCorp Governance Principles”, the full text of which is available on the Corporation’s website. The independence standards established by the Board are as follows:

1. A director will not be considered independent if, currently or within the preceding three years, as applicable:

(a)	the director is, or was, an employee or executive officer of the Corporation, including any affiliated entity of the Corporation;
(b)	an immediate family member of the director is, or was, an executive officer of the Corporation, including any affiliated entity of the Corporation;
(c)	the director is, or was, a partner of, employed by or affiliated with any of the Corporation’s present or former internal or external auditors;
(d)	an immediate family member of the director is, or was, a partner of, employed by or affiliated with any of the Corporation’s present or former internal or external auditors as a partner, principal, manager or in any other capacity; or
(e)	an executive officer of the Corporation serves or served on the compensation committee of an entity which, in turn, employs or employed either (i) the particular director as an executive officer or (ii) an immediate family member of such director as an executive officer.

2.

A director will not be considered independent if the director received any direct compensation, or an immediate family member of the director received more than $100,000 in direct compensation, within the past three fiscal years from the Corporation, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided that such compensation is not contingent in any way on continued service).

3.

A director will not be considered independent if the director has any of the following commercial or charitable relationships:

(a)

the director has served as an executive officer or employee of, or any of his or her immediate family members has served as an executive officer of, another company that makes payments to, or receives payments from, the Corporation for property or services in an amount that, in any one of the three most recent fiscal years, exceeds the greater of (x) $1,000,000 and (y) 2 percent of the annual consolidated gross revenues of the company for which such director, or any of his or her immediate family members, has served as an executive officer (or as an employee in the case of the director); or

(b)

the director has served as an officer, director or trustee of a charitable organization, and the Corporation’s discretionary charitable contributions to that organization exceeds 1.5 percent of that organization’s total annual consolidated gross revenues within any one of the three most recent fiscal years (provided that the Corporation’s matching of employee charitable contributions will not be included in the amount of the Corporation’s contributions for this purpose).

4. Where a relationship exists as a result of a director who is a limited partner, a non-managing member or who occupies a similar position in an entity that does business with the Corporation, or who has a shareholding in such entity which is not significant, and who, in each case, has no active role in sales to, purchases from, or in providing services to the Corporation and derives no direct material benefit from same, such relationship shall be considered not to be material.

Mr. Doyle is the Chief Executive Officer of the Corporation and is therefore not independent. Mr. Doyle is also Vice Chairman of Canpotex Limited. The Corporation had sales of approximately $577.1 million to Canpotex Limited in 2005.

Ms. Paliza’s father and brother are executive officers of Fertilizantes Santo Domingo, C. por A (“Fersan”), a fertilizer bulk blender and distributor of agrichemicals based in the Dominican Republic, which is a customer of the Corporation. Although representing less than 1% of the Corporation’s consolidated sales in 2005, sales to Fersan exceeded 2% of Fersan’s 2005 consolidated gross revenues. As such, Ms. Paliza does not meet the Corporation’s categorical independence standards which incorporate in relevant part the NYSE corporate governance rules. Ms. Paliza has no direct or indirect interest in the Corporation’s sales to and purchases by Fersan and all such transactions are completed on normal trade terms. Even though she does not meet the aforementioned independence standards, Ms. Paliza provides a valuable contribution to the Board through her industry knowledge and experience and international business perspective.

In determining the independence of its other directors, the Board evaluated business and other relationships that each director had with the Company. In doing so, it determined as immaterial (i) any relationship falling below the thresholds in 3(a) and not otherwise required to be disclosed pursuant to Items 404(a) or (b) of Regulation S-K under the Securities

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Exchange Act of 1934 (the “Exchange Act”), (ii) any relationships falling below the threshold in paragraph 3(b) or covered pursuant to paragraph 4 above, and (iii) any relationship between the Corporation and an entity as to which the director in question has no relationship other than a director thereof.

Although disclosure is required pursuant to the regulations of the SEC under the Exchange Act, the Board also determined the following relationships relating to Mr. Stromberg to not impair his independence.

Mr. Stromberg was associated with the Saskatchewan law firm Robertson Stromberg Pedersen until June 30, 2005. The Corporation retained Robertson Stromberg Pederson in 2005. Total billings for 2005 did not exceed $150,000 and Mr. Stromberg derived no material benefit therefrom. A son of Mr. Stromberg, David Stromberg, is a director and a major indirect shareholder of Micro Oil Inc. (“Micro Oil”), a privately held process oil blender and supplier based in Saskatoon, Saskatchewan. David Stromberg is also the president of Micro Oil. Another son of Mr. Stromberg, Jeffrey Stromberg, is a shareholder of Micro Oil. In 2005 and 2004, purchases in an aggregate amount of approximately Cdn$1,126,147.78 and Cdn$352,000, respectively, were made by the Corporation from Micro Oil. The 2005 purchases totaled $929,625, based on a 2005 average exchange rate of 1.2114, and the 2004 purchases totaled $270,499 based on 2004 average exchange rate of 1.3013. Micro Oil and the Corporation have also entered into a confidentiality agreement relating to the development of oil processes used by the Corporation.

Purchases from Micro Oil are made in the ordinary course of business. Mr. Stromberg has no current relationship with the Robertson Stromberg Pedersen firm and has no interest in the business of his adult sons. Through his prominence in the Saskatchewan business community and his professional qualifications and experience, Mr. Stromberg has been and continues to be a valued member of the Board. His presence on the Board plays no role in the Corporation’s decisions to transact business with Micro Oil or the Robertson Stromberg Pedersen firm. The Corporation has and will continue to make such decisions on the basis of the best interests of the Corporation.

None of the directors of the Corporation serve together on the boards of directors of other companies.

Compensation/Attendance of Directors

Directors of the Corporation who are not also officers or employees, that is all directors other than Mr. Doyle, (the “outside directors”) are compensated through the cash payment of an annual retainer plus other fees and the grant of Deferred Share Units. In 2003, the Board decided to discontinue granting stock options to directors.

Except as set forth below, each outside director receives from the Corporation a retainer at an annual rate of $50,000, a per diem fee of $1,500 for meetings he or she attends (until July 1, 2005 the annual rate of the retainer was $40,000 and the per diem fee was $1,000) and a travel fee of $500 per day where travel is required on a day or days on which a meeting does not occur. Outside directors receive an additional $10,000 per year if they serve as a chair of a Board Committee ($15,000 in the case of the Audit Committee Chair). As of July 1, 2004, all Audit Committee members receive an additional $5,000 per year, with the exception of the Audit Committee Chair. Each outside director who is a member of a Board Committee receives a per diem fee of $1,500 for meetings he or she attends, provided such meetings are not held the same day as a Board meeting. Outside directors are also reimbursed for expenses incurred in discharging their responsibilities. Effective July 1, 2005, Mr. Howe, as Board Chair, receives an annual retainer of $140,000 (until July 1, 2005, his annual retainer was $110,000), but does not receive per diem or travel fees. Director compensation is established on the advice of independent consultants, with a view to establishing compensation at the median of the applicable Comparator Group (see “Report of the Compensation Committee and Compensation Discussion and Analysis – Compensation Principles”).

Effective November 20, 2001, the Corporation adopted a Deferred Share Unit Plan for Non-Employee Directors (the “Plan”), which entitles non-employee directors to receive discretionary grants of deferred share units (“Deferred Share Units”), each of which has an initial value equal to the market value of a Share at the time of its grant. The Plan also allows the director to defer, in the form of Deferred Share Units, up to 100% of the annual retainer fees and any other fees payable to such director in respect of serving as a director (“Fees”), which would otherwise be payable in cash. The Plan is intended to enhance the Corporation’s ability to attract and retain highly qualified individuals to serve as directors and promote a greater alignment of interests between such directors and the shareholders of the Corporation.

The number of Deferred Share Units credited to the director’s account with respect to Fees that the director elects to allocate to the Plan is determined as of the last trading day of each calendar quarter and is equal to the quotient obtained by dividing (a) the aggregate amount of Fees allocated to the Plan for the relevant calendar quarter by (b) the market value of a Share on such last trading day (determined on the basis of the closing price on the Toronto Stock Exchange (“TSX”) for participants resident in Canada and on the basis of the closing price on the NYSE for all other participants). Deferred Share Units earn dividends in the form of additional Deferred Share Units at the same rate as dividends are paid on Shares.

Each Deferred Share Unit is credited to the account of an individual director and fully vests upon an award, but is distributed only when the director has ceased to be a member

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of the Board or the board of directors of any subsidiary and the director is neither an employee of the Corporation nor of any subsidiary.

At such time, the director will receive a cash payment equal to the market value of a number of Shares purchased on the open market equal to the number of Deferred Share Units recorded in the director’s account (reduced by the amount of applicable withholding taxes). While the Compensation Committee, with Board approval, has the discretion to distribute Shares in lieu of cash, the Committee and Board have determined that all distributions pursuant to the Plan will be made in cash.

On July 1, 2004, the Board determined that the value of annual discretionary Deferred Share Unit grants be established at $55,000 for outside directors, with the exception of the Board Chair, Mr. Howe, whose annual value of Deferred Share Unit grants is set at $140,000. On November 16, 2005, each non-employee director received a discretionary grant of 676 Deferred Share Units, with the exception of the Board Chair, Mr. Howe, who was granted 1,721 Deferred Share Units.

The Board believes that the economic interests of directors should be aligned with those of shareholders. To achieve this, all directors are expected to hold Shares and Deferred Share Units in the Corporation. By the time a director has served on the Board for ten months, he or she must own a minimum of 2,000 Shares. By the time a director has served on the Board for three years, he or she must own Shares and/or Deferred Share Units with a value at least five times the annual retainer paid to directors. The Board may make exceptions to this standard where, as a result of the unique financial circumstances of a director, compliance would result in an unacceptable hardship. As at February 27, 2006, all of the Corporation’s directors were in compliance with the minimum shareholding requirements described above.

Directors also participate in the Corporation’s Group Life insurance coverage (Cdn$50,000), Accidental Death and Dismemberment coverage (Cdn$100,000), Business Travel Accidental coverage (Cdn$250,000) and Supplemental Business Travel Medical coverage ($250,000 per calendar year).

The following table sets forth compensation earned by the individuals who served as directors of the Corporation during fiscal 2005.

Remuneration of Directors

for the 12-month period ended December 31, 2005

	Annual Retainer ($)				Meeting and Other Fees ($)								Percentage
													of Total
			Deferral to				Deferral to		Annual Grant of				Remuneration
			Deferred Share				Deferred Share		Deferred Share		Total		in Deferred Share
Director	Cash		Units		Cash		Units		Units ($)		Remuneration ($)		Units
Frederick J. Blesi	$	–	$	45,000.00	$	38,000.00	$	–	$	55,000.00	$	138,000.00		72.46	%
William J. Doyle	$	–	$	–	$	–	$	–	$	–	$	–		–
John W. Estey	$	–	$	45,000.00	$	–	$	36,500.00	$	55,000.00	$	136,500.00		100.00
Wade Fetzer III	$	45,000.00	$	–	$	25,500.00	$	–	$	55,000.00	$	125,500.00		43.82
Dallas J. Howe	$	62,500.00	$	62,500.00	$	–	$	–	$	140,000.00	$	265,000.00		76.42
Alice D. Laberge	$	33,750.00	$	11,250.00	$	38,500.00	$	–	$	55,000.00	$	138,500.00		47.83
Jeffrey J. McCaig	$	–	$	45,000.00	$	37,000.00	$	–	$	55,000.00	$	137,000.00		72.99
Mary Mogford	$	45,000.00	$	–	$	49,000.00	$	–	$	55,000.00	$	149,000.00		36.91
Paul J. Schoenhals	$	30,015.00	$	14,985.00	$	24,345.50	$	12,154.50	$	55,000.00	$	136,500.00		60.18
E. Robert Stromberg, Q.C.	$	36,000.00	$	9,000.00	$	23,200.00	$	5,800.00	$	55,000.00	$	129,000.00		54.11
Jack G. Vicq	$	45,000.00	$	–	$	45,000.00	$	–	$	55,000.00	$	145,000.00		37.93
Elena Viyella de Paliza	$	27,000.00	$	18,000.00	$	–	$	28,500.00	$	55,000.00	$	128,500.00		78.99
Total	$	324,265.00	$	250,735.00	$	280,545.50	$	82,954.50	$	690,000.00	$	1,628,500.00		62.86	%

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The following tables provide a summary of Board and Committee meetings held during fiscal 2005 and attendance thereat.

Summary of Board and Committee Meetings Held

for the 12-month period ended December 31, 2005

Board of Directors	9
Audit Committee	9
Compensation Committee	6
Corporate Governance and Nominating Committee	6
Executive Committee	0
Safety, Health and Environment Committee	5
Total number of meetings held	35

Pursuant to the “PotashCorp Governance Principles”, the Board meets in executive session, with only independent directors present, before and after each regularly scheduled meeting of the Board. The presiding officer at the executive session is Dallas J. Howe, the Board Chair, or, in his absence, a director selected by majority vote of those present. Sessions are of no fixed duration and participant directors are encouraged to raise and discuss any issues of concern.

Summary of Attendance of Directors

for the 12-month period ended December 31, 2005

	Board		Committee
	meetings		meetings
Director	attended		attended
Frederick J. Blesi		9 of 9		15 o	f 15
William J. Doyle		9 of 9	n/a (1)
John W. Estey		9 of 9		11 o	f 11
Wade Fetzer III		9 of 9		12 o	f 12
Dallas J. Howe		9 of 9		6 o	f 6 (2)
Alice D. Laberge		9 of 9		14 o	f 14
Jeffrey J. McCaig		9 of 9		15 o	f 15
Mary Mogford		9 of 9		15 o	f 15
Paul J. Schoenhals		9 of 9		11 o	f 11
E. Robert Stromberg, Q.C.		9 of 9		11 o	f 11
Jack G. Vicq		8 of 9		9 o	f 9
Elena Viyella de Paliza		9 of 9		5 o	f 5

(1)         Mr. Doyle was a member of only the Executive Committee, which did not meet in 2005. However, upon invitation of the applicable Committees, he did attend all or a portion of many of the Committee meetings held.

(2)         In addition to the Committees of which he is a member, Mr. Howe, as Board Chair, regularly attends other Committee meetings as well.

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Appointment of Auditors

Proxies solicited hereby will be voted to reappoint the firm of Deloitte & Touche LLP, the present auditors, as auditors of the Corporation to hold office until the next annual meeting of shareholders, unless the shareholder signing such proxy specifies otherwise. The affirmative vote of a majority of Shares voted on such matter is required to reappoint the firm of Deloitte & Touche LLP as auditors of the Corporation. Since the Corporation’s initial public offering in 1989, Deloitte & Touche LLP (or its predecessors) have been the Corporation’s auditors. A representative of Deloitte & Touche LLP is expected to attend the Meeting. At that time the representative will have the opportunity to make a statement if he or she desires and will be available to respond to appropriate questions.

For the years ended December 31, 2005 and December 31, 2004, Deloitte & Touche LLP received the following fees:

	Year ended December 31,
	2005		2004
Audit Fees		$2,281,000		$2,301,000
Audit Related Fees		201,000		165,000
Tax Fees		32,000		79,000
All Other Fees		3,000		121,000

Audit Fees

Deloitte & Touche LLP billed the Corporation $2,281,000 and $2,301,000 for 2005 and 2004, respectively, for the following audit services (i) audit of the annual consolidated financial statements of the Corporation for the fiscal years ended December 31, 2005 and 2004; (ii) review of the interim financial statements of the Corporation included in quarterly reports on Form 10-Q for the periods ended March 31, June 30 and September 30, 2005 and 2004; (iii) audits of individual statutory financial statements; and (iv) the provision of consent letters. The amounts billed for 2005 and 2004 were significantly impacted by the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

Audit-Related Fees

Deloitte & Touche LLP billed the Corporation $201,000 and $165,000 for 2005 and 2004, respectively, for the following services (i) accounting consultations regarding financial accounting and reporting standards; and (ii) employee benefit plan audits.

Tax Fees

Deloitte & Touche LLP billed the Corporation $32,000 and $79,000 for 2005 and 2004, respectively, for the following services (i) tax compliance; (ii) tax planning; and (iii) tax advice, including minimizing tax exposure or liability.

All Other Fees

Deloitte & Touche LLP billed the Corporation $3,000 and $121,000 for 2005 and 2004, respectively, for provision of risk and knowledge datasets and implementation of a risk control tracking system.

Pre-Approval Policy for External Auditor Services

The Audit Committee monitors and reviews the independence of its auditors on an on-going basis. In addition, the Committee has adopted processes for the pre-approval of engagements for services of its external auditors.

The Audit Committee’s policy requires pre-approval of all audit and non-audit services provided by the external auditor. The policy identifies three categories of external auditor services and the pre-approval procedures applicable to each category, as follows:

(1)	Audit and audit-related services – these are identified in the annual Audit Service Plan presented by the external auditor and require annual approval. The Audit Committee monitors the audit services engagement at least quarterly.
(2)	Pre-approved list of non-audit services – non-audit services which are reasonably likely to occur have been identified and receive general pre-approval of the Audit Committee, and as such do not require specific pre-approvals. The term of any general pre-approval is 12 months from approval unless otherwise specified. The Audit Committee annually reviews and pre-approves the services on this list.
(3)	Other proposed services – all proposed services not categorized above are brought forward on a case-by-case basis and specifically pre-approved by the Chair of the Audit Committee, to whom pre-approval authority has been delegated.

All fees paid to the independent auditors for 2005 were approved in accordance with the pre-approval policy.

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Adoption of 2006 Performance Option Plan

2006 Performance Option Plan

On February 27, 2006, the Board adopted a new performance option plan (the “2006 Performance Option Plan”), subject to the approval of the 2006 Performance Option Plan by the Corporation’s shareholders at the Meeting. If approved, the 2006 Performance Option Plan will be deemed effective as of January 1, 2006 and will permit the grant of options to purchase up to 1,400,000 Shares to individual officers and employees of the Corporation and its subsidiaries. Non-employee directors and other non-employee contractors and third party vendors will not be eligible to participate in the 2006 Performance Option Plan.

Options to purchase Shares may be granted under the terms of the 2006 Performance Option Plan only during 2006 and no options will be granted prior to the Meeting. Unless sooner terminated as provided therein, the 2006 Performance Option Plan will terminate on January 1, 2007, although the terms of the plan will continue to govern options granted thereunder prior to termination.

The 2006 Performance Option Plan will be administered by the Compensation Committee or any other Board Committee designated by the Board. A copy of the 2006 Performance Option Plan is attached hereto as Appendix C. This description of the 2006 Performance Option Plan is qualified, in its entirety, by the terms of the attached plan document.

If approved, the 2006 Performance Option Plan will result in up to 1.35% (as at February 27, 2006) of the outstanding share capital of the Corporation being available for issue pursuant to the exercise of options granted under the 2006 Performance Option Plan. The aggregate number of Shares in respect of which stock options may be granted to any one person pursuant to the 2006 Performance Option Plan and which remain outstanding may not at any time exceed 300,000 Shares, representing 0.29% (as at February 27, 2006) of the outstanding share capital of the Corporation.

Under the terms of the 2006 Performance Option Plan, options will have a term of ten years and will vest at the end of the three-year performance cycle ending December 31, 2008, subject to the Corporation’s achievement of the performance criteria described in the 2006 Performance Option Plan. The performance metrics and vesting scale have been designed in accordance with the Corporation’s compensation philosophy. See “Report of the Compensation Committee and Compensation Discussion and Analysis”. In general, options will vest as determined by a schedule that references the Corporation’s performance during the performance cycle as measured by reference to cash flow return on investment and weighted average cost of capital. Any options that do not become vested will terminate at the end of the performance cycle.

The number of options granted to each individual optionee will be targeted to deliver total compensation in the 75^th percentile of the Comparator Group for corporate performance, based on cash flow return on investment and weighted average cost of capital, above the 75^th percentile of the Dow Jones U.S. Basic Materials Index (“DJUSBMI”). Similarly, for corporate performance in the 50^th percentile of the DJUSBMI, the number of options granted will be targeted to deliver total compensation in the 50^th percentile of the Comparator Group.

It is anticipated that there will be approximately 220 participants in the 2006 Performance Option Plan. Following shareholder approval of the 2006 Performance Option Plan at the Meeting, a determination will be made as to the number of options to be granted to executive officers and other participants, which options will be granted in accordance with the criteria described below.

The option price for any option granted under the 2006 Performance Option Plan to any optionee shall be fixed by the Board when the option is granted and, for optionees resident in the United States and any other optionees designated by the Board, the option price shall not be less than the fair market value of a Share at such time, which shall be deemed to be the closing price per Share on the NYSE on the last trading day immediately preceding the day the stock option is granted. For all other optionees, the option price shall be deemed to be the closing price per Share on the TSX on the last trading day immediately preceding the day the stock option is granted. In either case, if the Shares did not trade on such exchange on such day, the option price shall be the closing price per Share on such exchange on the last day on which the Shares traded on such exchange prior to the day the stock option is granted.

The 2006 Performance Option Plan requires all options to be subject to provisions to the effect that:

(a) if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates by reason of his or her death, or if an optionee who is a retiree pursuant to paragraph (b) below dies during the 36-month period following retirement, the legal personal representatives of the optionee will be entitled to exercise any unexercised vested options, including such stock options that may vest after the date of death, during the period ending at the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which exercise the stock options will terminate;

(b) subject to the terms of paragraph (a) above, if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates by reason of retirement in accordance with the then prevailing

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retirement policy of the Corporation or subsidiary, the optionee will be entitled to exercise any unexercised vested stock options, including such stock options that may vest after the date of retirement, during the period ending at the end of the 36^th month following the calendar month in which the optionee retires, failing which exercise the stock options will terminate;

(c) if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates for any reason other than as provided in paragraphs (a) or (b) above, the optionee will be entitled to exercise any unexercised vested stock options, to the extent vested and exercisable at the date of such event, during the period ending at the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the stock options will terminate; and

(d) each stock option is personal to the optionee and is not assignable, except (i) as provided in paragraph (a) above, and (ii) at the election of the Board, a stock option may be assignable to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing.

Nothing contained in paragraphs (a), (b) or (c) above shall extend the period during which a stock option may be exercised beyond its ten-year term or any earlier date on which it is otherwise terminated in accordance with the provisions of the 2006 Performance Option Plan.

If a stock option is assigned pursuant to paragraph (d)(ii) above, the references in paragraphs (a), (b) and (c) above to the termination of employment or death of an optionee shall not relate to the assignee of a stock option but shall relate to the original optionee. In the event of such assignment, legal personal representatives of the original optionee shall not be entitled to exercise the assigned stock option, but the assignee of the stock option or the legal personal representatives of the assignee may exercise the stock option during the applicable specified period.

The Board may amend or discontinue the 2006 Performance Option Plan at any time but no such amendment may increase the aggregate maximum number of Shares that may be subject to stock options granted under the 2006 Performance Option Plan, change the manner of determining the minimum option price, extend the option term under any option beyond ten years or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under the 2006 Performance Option Plan; and, provided further, that, without the prior approval of the Corporation’s shareholders, stock options issued under the 2006 Performance Option Plan shall not be repriced, replaced or regranted through cancellation, or by lowering the option price of a previously granted stock option. In the event of certain transactions affecting the capitalization of the Corporation, including a merger, the Board may make such adjustments in the number or option price of outstanding options or the number of Shares available for grant and other authorized limits under the 2006 Performance Option Plan it deems appropriate to reflect such transaction. In the event of change of control (as defined in the 2006 Performance Option Plan), all unvested options then outstanding will become fully vested.

A participant in the 2006 Performance Option Plan who is employed and resident in Canada will be deemed to receive a benefit from employment in the year he or she exercises options under the 2006 Performance Option Plan. One-half of the difference between the exercise price and the market price of the Shares at the time of exercise, multiplied by the number of Shares over which options are exercised, will be included in the participant’s taxable income in the year of exercise. If the participant so elects, and subject to certain limitations, taxation of the said benefit may be deferred from the year of exercise until the earliest of the year the participant disposes of the Shares, dies or ceases to be resident in Canada for tax purposes. The participant will have a cost base in the optioned Shares equal to their market value on the date of exercise for purposes of computing any capital gain or capital loss on any subsequent disposition of the Shares. The Corporation may not take any tax deduction in respect of the benefits deemed to be received by participants under the 2006 Performance Option Plan in Canada.

All of the options granted under the 2006 Performance Option Plan will be treated as non-qualified stock options for U.S. federal income tax purposes. A participant in the 2006 Performance Option Plan who is employed and resident in the U.S. will not be deemed to receive any income at the time an option is granted, nor will the Corporation’s applicable subsidiary be entitled to a deduction at that time. However, when any part of an option is exercised, the participant will be deemed to have received ordinary income in an amount equal to the difference between the exercise price of the option and the fair market value of the Shares received on the exercise of the option. The Corporation’s applicable subsidiary will be entitled to a tax deduction in an amount equal to the amount of ordinary income realized by such participants. Upon any subsequent sale of the Shares acquired upon the exercise of an option, any gain (the excess of the amount received over the fair market value of the Shares on the date ordinary income was recognized) or loss (the excess of the fair market value of the Shares on the date ordinary income was recognized over the amount received) will be a long-term capital gain or loss if the sale occurs more than one year after such date of recognition and otherwise will be a short-term capital gain or loss.

Grants under the 2006 Performance Option Plan shall be made after shareholder approval is obtained and during the 2006 fiscal year.

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In order for the 2006 Performance Option Plan to become effective, the resolution to approve the 2006 Performance Option Plan must be passed by a majority of the votes cast by the shareholders who vote in respect of the resolution.

UNLESS A PROXY SPECIFIES THAT THE SHARES IT REPRESENTS SHOULD BE VOTED AGAINST THE RESOLUTION TO APPROVE THE 2006 PERFORMANCE OPTION PLAN, THE PROXYHOLDERS NAMED IN THE ACCOMPANYING FORM OF PROXY INTEND TO VOTE FOR THE RESOLUTION.

Securities Authorized for Issuance Under Equity Compensation Plans

The Corporation has three other stock option plans. On May 5, 2005, the Corporation’s shareholders approved the 2005 Performance Option Plan under which the Corporation was permitted, after February 28, 2005 and before January 1, 2006, to grant options for the issuance of up to 1,200,000 Shares pursuant to the exercise of the options. As at January 1, 2006, options to acquire 1,186,000 Shares had been granted and were outstanding under the 2005 Performance Option Plan. Grants under the 2005 Performance Option Plan were made during fiscal year 2005 only. The material terms of the 2005 Performance Option Plan are described in the “Report of the Compensation Committee and Compensation Discussion and Analysis – Long-Term Incentives (Stock Options)”. Additional information regarding the 2005 Performance Option Plan, including the full text of the plan, can be found in the Corporation’s Management Proxy Circular for the fiscal year ended 2004. No amendments with respect to the 2005 Performance Option Plan have been adopted in the last fiscal year.

The Corporation also has an existing Stock Option Plan – Officers and Employees with 148,176 options remaining available for grant as at February 27, 2006 (148,176 at December 31, 2005) and a Stock Option Plan – Directors with 28,600 options remaining available for grant as at February 27, 2006 (28,600 at December 31, 2005). The material terms of the Stock Option Plan – Officers and Employees and the Stock Option Plan – Directors are described in the “Report of the Compensation Committee and Compensation Discussion and Analysis – Long-Term Incentives (Stock Options)”. No amendments with respect to the Stock Option Plan – Officers and Employees and the Stock Option Plan – Directors have been adopted in the last fiscal year.

The following table provides information about securities that may be issued under the Corporation’s existing equity compensation plans, as of December 31, 2005 and February 27, 2006:

Equity Compensation Plan Information

						(c) Number of Shares
	(a) Number of Shares					remaining available for
	to be issued			(b) Weighted-average		future issuance under
	upon exercise of			exercise price of		equity compensation
	outstanding options,			outstanding options,		plans (excluding Shares
Plan Category	warrants and rights			warrants and rights		reflected in column (a))
December 31, 2005
Equity compensation plans approved by shareholders		5,081,756	(1)	$	50.46		190,776
Equity compensation plans not approved by shareholders		n/a			n/a		n/a
February 27, 2006
Equity compensation plans approved by shareholders		5,023,569	(2)	$	51.02		193,276
Equity compensation plans not approved by shareholders		n/a			n/a		n/a

(1)	Of this amount, 1,186,000 options were outstanding pursuant to the 2005 Performance Option Plan, 3,711,156 options were outstanding pursuant to the Stock Option Plan – Officers and Employees and 184,600 options were outstanding pursuant to the Stock Option Plan – Directors.
(2)	Of this amount, 1,183,500 options were outstanding pursuant to the 2005 Performance Option Plan, 3,660,469 options were outstanding pursuant to the Stock Option Plan – Officers and Employees and 179,600 options were outstanding pursuant to the Stock Option Plan – Directors.

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Corporate Governance

In accordance with NI 58-101, the Corporation annually discloses information relating to its system of corporate governance. Details of the Corporation’s corporate governance practices are described in Appendix A to this Management Proxy Circular. Furthermore, in accordance with the requirements of NI 58-101, the text of the Corporation’s Board of Directors Charter is attached hereto as Appendix D. In addition, the recent activities of certain of the Committees of the Board are described below in the Committee reports. The “PotashCorp Governance Principles”, described in part below, the Board of Directors Charter and the Board Committee charters are also available on the Corporation’s website, www.potashcorp.com, and in print to any shareholder who requests a copy from the Corporate Secretary of the Corporation.

As a Canadian reporting issuer with securities listed on the TSX and the NYSE, the Corporation has in place corporate governance practices that are not only consistent with the requirements of both of those stock exchanges but in many cases go beyond those requirements. The Corporation is also in compliance with applicable rules adopted by the Canadian Securities Administrators through the Canadian securities regulatory authorities and the SEC.

Report of the Audit Committee

The Corporation has a standing Audit Committee. The Board has determined that each of the following directors, who served as members of the Audit Committee during the year ended December 31, 2005, is independent according to the Board’s independence standards as set out in the “PotashCorp Governance Principles” (which is available on the Corporation’s website), NI 58-101, applicable rules of the SEC and the corporate governance rules of the NYSE. See also “Nominees for Election to the Board of Directors – Director Independence and Other Relationships”.

      Jack G. Vicq (Chair)

      Frederick J. Blesi

      Alice D. Laberge

      Jeffrey J. McCaig

      Mary Mogford

The Board has determined that Mr. Vicq and Ms. Laberge qualify as “audit committee financial experts” under the rules of the SEC and thereby have the requisite accounting and/or related financial management expertise required under the rules of the NYSE. In addition, the Board, in its business judgment, has determined that each member of the Audit Committee is financially literate.

The purpose of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities for (i) the integrity of the Corporation’s financial statements, (ii) the Corporation’s compliance with legal and regulatory requirements, (iii) the qualification and independence of the Corporation’s independent auditors, and (iv) the performance of the Corporation’s independent auditors. In accordance with the Audit Committee Charter adopted by the Board, the Audit Committee has responsibility for the oversight of the Corporation’s financial reporting and audit processes and related internal controls on behalf of the Board. During the fiscal year ended December 31, 2005, the Committee met 9 times.

In overseeing the audit process, the Audit Committee obtained from the independent auditors their letter dated February 14, 2006, as required by the Independent Standards Board Standard No. 1, describing all relationships between the auditors and the Corporation that might bear on the auditors’ independence and the auditors’ judgment that they are, in fact, independent and discussed with the auditors the disclosures therein. The Audit Committee also reviewed the organizational structure, procedure and practices that support the objectivity of the internal audit department and reviewed and approved the Internal Audit Department Charter. The Audit Committee reviewed with both the independent and the internal auditors their audit plans, audit scope and identification of audit risks. The Audit Committee discussed, with and without management present, the results of the independent auditors’ communications required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees”. The Committee also discussed the results of the internal audit examinations.

In meetings with financial management, internal audit and the independent auditors, the Audit Committee reviewed and discussed quarterly interim financial information prior to the earnings release for the applicable quarter. The Audit Committee also reviewed and approved the quarterly MD&As.

The Audit Committee reviewed and discussed the MD&A and the audited financial statements of the Corporation as of and for the fiscal year ended December 31, 2005, with management and the independent auditors, including the quality, not just the acceptability, of the Corporation’s financial reporting practices and the completeness and clarity of the related financial disclosures. Management is responsible for the preparation of the Corporation’s financial statements and the independent auditors are responsible for auditing those financial statements.

The Audit Committee reviewed the processes involved in evaluating the Corporation’s internal control environment and the Audit Committee also oversaw and monitored the 2005 compliance process related to the certification and attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

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Based on the above-mentioned review and discussions with management and the independent auditors, the Audit Committee recommended to the Board that the audited consolidated financial statements and MD&A be included in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, for filing with the SEC. The Audit Committee also recommended the reappointment, subject to shareholder approval, of the independent auditors.

The Audit Committee reviews the Corporation’s Disclosure Controls and Procedures on an annual basis. In addition, in November 2005, it reviewed and updated its Committee Charter, a copy of which is attached as Appendix E hereto. The Committee has established procedures for:

•      the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters; and

•      the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.

Submitted on behalf of the Audit Committee: Jack G. Vicq, Frederick J. Blesi, Alice D. Laberge, Jeffrey J. McCaig and Mary Mogford.

Report of the Compensation Committee and Compensation Discussion and Analysis

Composition of the Compensation Committee

The Corporation has a standing Compensation Committee, referred to as the “Committee” hereinafter in this report. The Board has determined that each of the following directors who served as members of the Committee during the year ended December 31, 2005, is independent according to the Board’s independence standards as set out in the “PotashCorp Governance Principles” (which is available on the Corporation’s website), NI 58-101, applicable rules of the SEC and the corporate governance rules of the NYSE. See also “Nominees for Election to the Board of Directors – Director Independence and Other Relationships”.

      John W. Estey (Chair)

      Wade Fetzer III

      Jeffrey J. McCaig

      Paul J. Schoenhals

Compensation Committee Report on Executive Compensation

The Committee is, at present, composed of four independent directors. The Committee held 6 meetings in the last fiscal year.

The Committee is charged with formulating and making recommendations to the Board in respect of compensation issues relating to directors and senior officers of the Corporation. The Committee also makes recommendations regarding the Corporation’s stock option plans and administers the Short- and Medium-Term Incentive plans, each in accordance with its terms which are described later in this report. Prior to January 1, 2006, the Corporation administered a Long-Term Incentive Plan, the terms of which are substantially the same as the current Medium-Term Incentive Plan. The name of the plan was changed principally to distinguish it from our option plans which, given their ten-year life, are more appropriately considered long-term incentives.

The Committee reviews and makes recommendations regarding the general merit increase budget for salaried and non-bargaining hourly employees and has general oversight of employee benefit programs. In addition, the Committee, in consultation with the Chief Executive Officer, considers and reports to the Board regarding employee or executive succession matters.

Compensation Structure and Policies

The Corporation designates executive compensation policies, as described more fully below, to attract and retain qualified executives by providing compensation packages which are competitive within the marketplace and which compensate executives in a manner that encourages individual performance consistent with shareholder expectations.

Compensation Principles

•      Provide emphasis on performance-based compensation by maintaining total cash compensation levels (salary and annual short-term incentives) at the median (50^th percentile) of the relevant comparator group with the opportunity to achieve above median compensation through the medium-term and long-term incentive plans (performance units and stock options) by achieving above median company performance.

•      External competitive compensation comparisons prepared by independent compensation consultants currently consist of (i) a group of 23 publicly traded U.S. companies selected on the basis of a number of factors, including similar industry characteristics and market capitalization (the “Comparator Group”), and (ii) additional executive compensation survey information gathered by three independent compensation consulting services consisting of U.S.-based company data (the “Additional Surveys”).

•      In order to determine the median for the purpose of total cash compensation comparisons, regression based upon sales size is applied to the salaries and annual short-term incentive targets of the Comparator Group and the Additional Surveys for each position studied.

•      The opportunity to earn total compensation above the median is provided through medium-term and long-term incentive plans. These plans are designed with measures (total shareholder return and internal performance measures that have been linked historically with total

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	shareholder return) that will require above median company performance relative to other basic materials companies in order to deliver above median total compensation. The total shareholder return of the DJUSBMI has been established as a benchmark for determining the relative performance of the Corporation.
•	In order to determine the median and upper quartile for purposes of total compensation (salary, annual short-term incentives, medium-term incentives and long-term incentives), the range between competitive levels based upon comparative sales size regression and comparative market capitalization regression is utilized.
•	Establish the value of retirement and welfare benefits at the median of comparable companies.

The Committee engaged Hewitt Associates, executive compensation consultants, during 2005 for research, survey information and design expertise in reviewing certain executive and director compensation programs. This work has included director pay analysis, performance stock option plan design and executive compensation analysis. Also in 2005, the Committee engaged Watson Wyatt executive compensation consultants to provide input and a second opinion on the competitiveness of program design and award values. Hewitt Associates has historically performed other human resources consulting services for the Corporation, including actuarial consulting, employee benefits design, finance consulting and recordkeeping services. The Committee has adopted the corporate governance best practice of retaining independent executive compensation consulting services and conducted a process during the summer of 2005 to select an independent consulting firm to replace Hewitt Associates as executive compensation consultant to the Committee. The Committee evaluated four consulting firms and selected Watson Wyatt as the replacement consultant, based in part on the positive experience in delivering the review services earlier in the year, on their expertise in both Canadian and U.S. compensation regulation and practices and on their depth of available compensation consulting services. Watson Wyatt does not perform any other consulting services for the Corporation. The Committee will continue to use Hewitt Associates’ proprietary Total Compensation Measurement data services to provide specific competitive data for selected executive and director positions for some period of transition, but this information has been and will continue to be supplemented with other compensation survey data available through Watson Wyatt consulting.

Elements of Executive Compensation

Executive compensation consists of four main elements: base salary, short-term incentives, performance units issued under the Medium-Term Incentive Plan which measures a performance period of three years, and stock options issued as long-term incentives. These are described in the table below.

Compensation			Performance
Element	Form	Eligibility	Period	Determination
Base salary	Cash	All salaried employees	Annual	• For the executive group, base salary targets are set at the median of the Comparator Group and Additional Surveys, adjusted to reflect individual performance and internal equity.
Short-term incentives	Cash	All executives and other selected employees (approximately 218 in 2005). This Plan has been extended to most salaried staff employees beginning in 2006.	1 year	• Awards are based on the achievement of predetermined goals for corporate performance or a combination of corporate and operating group performance. • Targets have been established at the median of the Comparator Group and Additional Surveys. • Individual awards can be adjusted (± 20%) to recognize individual performance, provided the total of the adjusted awards proximates the total of the awards at mid-point.

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Compensation			Performance
Element	Form	Eligibility	Period	Determination
Medium-Term Incentive Plan	Performance Share Units	All executives and senior management (approximately 65 individuals)	3 years	• Units issued at a price equal to the average market price of the Shares at award date (January 1, 2006). • Each award vests and is paid out at the end of the three-year performance period (December 31, 2008) in relation to a vesting schedule whereby 1/2 of the units are vested in accordance with corporate TSR targets and 1/2 of the units are vested in accordance with corporate TSR relative to a selected competitive group’s TSR. • The value at payout is based on the number of vested units multiplied by the 30-day average Share price at the end of the performance period.
Long-term incentives	Performance Stock Options	All executives and other selected managers (approximately 215 individuals)	3 years (vesting) 10 years (option term)	• The 2005 and 2006 Performance Option Plans incorporate performance vesting. • Based on Share price appreciation during the 10-year term.

The Corporation does not have any non-qualified deferred compensation arrangements in place for management.

Salary

The Corporation has established a system of tiered salary levels for senior executives (i.e. vice president and above) of the Corporation. Senior executive positions are assigned to an appropriate salary tier, considering the position’s internal value as well as external comparisons to relevant positions in the Comparator Group and Additional Surveys. The Committee generally establishes salary guidelines at levels that approximate the median (the 50^th percentile), adjusted through a regression analysis utilizing sales size. Individual executive salaries for those executives that report directly to the Chief Executive Officer are subject to approval by the Chief Executive Officer and the Committee. The Chief Executive Officer’s salary is subject to approval by the Committee and the Board.

Short-Term Incentive Compensation

The Corporation’s Short-Term Incentive Plan is intended to aid in developing strong corporate management by providing annual financial incentives to eligible employees to achieve success. The plan presently provides for incentive awards based on an individual’s performance, position with the Corporation and the financial results of the Corporation. In 2005, there were about 218 participants in this plan. Eligible positions are assigned an incentive award range with a target expressed as a percentage of salary. The Corporation’s performance as determined by cash flow return (defined in the plan) in relation to a pre-established target provides a corporate measure of achievement expressed as a percentage and applied to the potential target award. Individual awards are also adjusted in accordance with individual performance and such other factors as the Committee deems appropriate. For certain participants employed at operating facilities, one-half of the award is based upon achievement of the corporate performance target and one-half is based upon achievement of annually determined operating facility targets, including safety, environmental performance and productivity.

Under the terms of the plan, generally no payments are made if the cash flow return is less than 50% of the target set by the Board for that year. For senior executives, which include the Named Executive Officers, incentive awards can range from 15% to 200% of salary, depending upon position level, actual cash flow return as compared to target return above the minimum threshold requirement, and subject to adjustment (± 20%) based on the executive’s performance and such other factors as the Committee deems appropriate, provided the total of the adjusted awards proximates the total of the awards at mid-point.

Effective for the 2006 plan year, the Corporation’s Short-Term Incentive Plan has been extended to most salaried staff employees. The purpose is to tie compensation more directly to corporate performance and support initiatives to have motivated and productive employees that support corporate goals. Furthermore, an extensive study of cash compensation was conducted and indicated that competitive practice also supports extending performance-based pay at these levels of the Corporation.

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Medium-Term Incentive Plan

The Corporation’s Medium-Term Incentive Plan is intended to award senior executives and other key employees for superior performance over a three-year measurement period and for their continued contributions to the success of the Corporation. The performance objectives under the plan are designed to further align the interests of executives and key employees with those of shareholders by linking the vesting of awards to the total return to shareholders over the three-year performance period beginning January 1, 2006 and ending December 31, 2008 (called Total Shareholder Return or “TSR”). TSR measures the capital appreciation in the Shares, including dividends paid over the performance period, and thereby simulates the actual investment performance of the Shares.

A participant is awarded a number of units under the Medium-Term Incentive Plan, generally based on the participant’s salary at the beginning of the performance period (multiplied by three), target award percentage and the Share price at the beginning of the performance period. The target award percentages range from 20% to 70%, depending upon the executive’s position with and potential for contribution to the success of the Corporation.

Under the Medium-Term Incentive Plan, vesting of one-half of the units is based on increases in the TSR over the three-year performance period ending December 31, 2008. Vesting of the remaining one-half of the units is based on the extent to which the TSR matches or exceeds the TSR of the common shares of a group of peer companies over the performance period. The peer group of companies consists of those companies that are included in the DJUSBMI.

Participants generally are required to continue in a qualifying position with the Corporation throughout the performance period as one of the conditions to vesting. However, if a participant’s employment terminates earlier due to the participant’s retirement, disability or death or the Corporation terminates a participant’s employment without just cause, the participant will be entitled to a cash payment in settlement of a pro rata number of units, with vesting determined based on the achievement of performance objectives as of the date of termination. A participant who resigns or whose employment is terminated for just cause forfeits all rights to any units granted under the plan.

Vested units are settled in cash based on the average Share price in the last 30 trading days at the end of the performance period. However, the Share price used to determine the cash payout in settlement of a vested unit may not exceed 300% of the market value of a Share as at the commencement of a performance cycle. Depending on the extent to which the performance objectives are achieved, an amount ranging from 0% to 150% of the units granted under the Medium-Term Incentive Plan may become vested. Achievement of all target performance objectives entitles an eligible executive to a payout of 100% of the units awarded under the plan. The target performance objective for the one-half of the units based on total TSR is a TSR of 30% over the performance period. The target performance objective for the remaining units is to outperform the peer group index by 5% over the performance period. A maximum of 150% of units may become vested if performance exceeds target. For a corporate TSR of 50% or more, one-half of the units will vest at 150%. For TSR performance that exceeds the peer group by 10% or more, one-half of the units will vest at 150%. No units will vest if none of the minimum performance objectives are achieved. The minimum performance requirement for the units based on total TSR is a positive TSR. The minimum performance requirement for the remaining units is for the TSR to have matched the peer group index.

Long-Term Incentives (Stock Options)

Stock Option Plan – Officers and Employees and Stock Option Plan – Directors

The November 20, 2003 grant was the last full grant made under the Stock Option Plan – Officers and Employees (the “Officers and Employees Plan”) described immediately below. See the 2005 and 2006 Performance Option Plans for a description of the Corporation’s newer plans for officers and employees. In addition, options have not been granted under the Stock Option Plan – Directors (the “Directors Plan”) since 2002. Under both the Officers and Employees Plan and the Directors Plan, the aggregate number of Shares subject to options to any single optionee may not at any time exceed 5% of the issued and outstanding Shares (on a non-diluted basis). Beginning in the fourth quarter of 2003, the Corporation began to expense stock options.

As at February 27, 2006, options for a total of 3,660,469 Shares had been granted and were outstanding under the Officers and Employees Plan, representing approximately 3.53% of the total number of Shares outstanding. Options were granted at 100% of market value at the date of the grant, become exercisable over two years (or earlier in the event of a “change of control”, as defined in the Officers and Employees Plan) and expire after ten years. 148,176 options are still available for grant under the Officers and Employees Plan.

If the employment of an optionee terminates by reason of his or her death or if a retired optionee dies, his or her legal personal representatives will be entitled to exercise any unexercised options, including options that may vest after the date of death, at any time until the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which the options terminate. Unless the Board at the time of the grant of an option provides otherwise, if the employment of an optionee terminates by reason of retirement in accordance with the applicable retirement policy, the optionee is entitled to exercise any options, including options that vest after the date of retirement, until the expiry date of such options or the date on which such options are otherwise terminated in accordance with the

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provisions of the Officers and Employees Plan, failing which the options terminate. If the employment of an optionee terminates, for any other reason, the optionee will be entitled to exercise unexercised vested options, to the extent exercisable at the date of such event, at any time until the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the options terminate.

Options granted under the Officers and Employees Plan are not assignable, except where the optionee’s employment terminates by reason of his or her death or if a retired optionee dies, provided that an option may be assigned to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing if the Board so elects. If a “change of control” of the Corporation occurs (as defined in the Officers and Employees Plan), each outstanding option granted under the Officers and Employees Plan may be exercised, even if such option is not otherwise exercisable by its terms.

The Board may amend or discontinue the Officers and Employees Plan at any time but, except in certain limited circumstances, no such amendment may increase the aggregate maximum number of Shares that may be subject to option under the Officers and Employees Plan, change the manner of determining the minimum option price, extend the option period under any option beyond ten years or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under the Officers and Employees Plan.

As at February 27, 2006, options for a total of 179,600 Shares had been granted and were outstanding under the Directors Plan, representing approximately 0.17% of the total number of Shares outstanding. Options were granted at 100% of the market value at the date of the grant, became exercisable over two years and expire after ten years. 28,600 options are still available for grant under the Directors Plan. The terms of the Directors Plan are substantially as described for the Officers and Employees Plan. As noted above, the Company has not granted options under the Directors Plan since 2002.

2005 and 2006 Performance Option Plans

On May 5, 2005, the Corporation’s shareholders approved the 2005 Performance Option Plan under which the Corporation could offer, after February 28, 2005 and before January 1, 2006, options for the issuance of up to 1,200,000 Shares pursuant to the exercise of options to eligible officers and employees. Under the 2005 Performance Option Plan, the exercise price of an option is the quoted market closing price of the Corporation’s Shares on the last trading day immediately preceding the date of grant and the option’s maximum term is ten years. As of February 27, 2006, options to acquire 1,183,500 Shares had been issued and were outstanding under the 2005 Performance Option Plan.

The substantially identical 2005 and 2006 Performance Option Plans have one key difference from the Officers and Employees Plan, which is the performance-based vesting feature. This feature was developed to support the Committee’s principles, as defined above, that the opportunity to earn pay above the median should be delivered through long-term compensation that requires achieving performance goals aligned with shareholder interests.

Under the 2005 and 2006 Performance Option Plans, option vesting is determined by achieving corporate performance goals that historically have correlated with the Corporation’s TSR and, in turn, relative to the DJUSBMI TSR. Performance will be measured over a three-year vesting period.

The performance-based vesting schedule determines the percentage of options vested at the end of the three-year vesting period and ties the level of Corporation performance to the level of total compensation delivered.

Using 10-year historical data, the Committee worked with Hewitt Associates and Watson Wyatt to analyze the correlation between the Corporation’s cash flow return on investment (“CFROI”) minus its weighted average cost of capital (“WACC”), the Corporation’s TSR and the Corporation’s performance relative to the DJUSBMI performance. Having established the link between the Corporation’s CFROI-WACC and TSR performance levels relative to the DJUSBMI performance, a schedule was developed based upon the Corporation’s CFROI-WACC levels to vest appropriate amounts of Shares at different performance levels.

In order to deliver a level of total compensation that is synchronized with the level of corporate performance achieved, data on compensation provided by the Comparator Group and Additional Surveys was analyzed to determine the 25^th, 50^th, and 75^th percentile compensation levels for the Corporation’s management positions. These compensation study results and the vesting schedule are then linked to determine option grant levels that will deliver the appropriate compensation for the performance delivered.

For 2006, the Corporation is requesting shareholder approval of an amount of 1,400,000 options to be available for grant under the provisions of the 2006 Performance Option Plan. It is expected that this amount will be sufficient for one annual grant to be made after the Meeting and before January 1, 2007.

Executive Share Ownership Guidelines

The Committee strongly supports Share ownership by its executives. In November 2004 the Corporation introduced minimum shareholding guidelines, to be met by November 2009 for the then current executive officer group. Any

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individual who is promoted into a position subject to these Guidelines will have a five-year period within which to meet the Share ownership requirements. The shareholding requirements reflect the value of Shares held and can be met through direct or beneficial ownership of Shares, including Shares held through the Corporation’s qualified defined contribution savings plans. Options and performance units (under the Medium-Term Incentive Plan) are not included in the definition of Share ownership for purposes of the guidelines.

The Guidelines are:

	Share Ownership
Title	Guideline
Chief Executive Officer		5 times base salary
Chief Financial Officer, Chief Operating Officer, Senior Vice Presidents and Division Presidents		3 times base salary
Designated Senior Vice Presidents and Vice Presidents		1 times base salary

Of the Named Executive Officers, Mr. Doyle, Ms. Irwin and Mr. Brownlee held Shares with a value in excess of the ownership guidelines as of February 27, 2006. Details regarding the ownership of Shares by the Named Executive Officers are set forth under “Ownership of Shares”.

Chief Executive Officer Compensation

The Committee reviews annually the Chief Executive Officer’s salary, any awards under the Short- and Medium-Term Incentive Plans and any grant of options under the Corporation’s option plans and makes its recommendations to the Board. The Chief Executive Officer’s annual salary is determined primarily on the basis of his individual performance and the performance of the Corporation. While no mathematical weighting formula exists, the Committee considers all factors which it deems relevant, including the Corporation’s financial results, the Corporation’s TSR and performance relative to its Comparator Group, the duties and responsibilities of the Chief Executive Officer, the Chief Executive Officer’s individual performance relative to written objectives established at the beginning of each year, and current compensation levels. Awards pursuant to the Short- and Medium-Term Incentive Plans and under the option plans are made in accordance with the plans as outlined above.

Reference is also made to the compensation of Chief Executive Officers of the Comparator Group and Additional Surveys. The comparison of the Corporation’s Chief Executive Officer compensation to the Comparator Group incorporates many factors including the relative sales and market capitalization of the companies, their profitability and shareholder return history, the duties of the Chief Executive Officer and any other extenuating or special circumstances. In general, the Chief Executive Officer’s cash compensation is set at the 50^th percentile of the applicable range.

In January 2006, the Committee and the Board reviewed Mr. Doyle’s performance relative to his 2005 performance goals for the purpose of determining his 2006 base pay level and 2005 short-term incentive bonus award. At that time, a salary of $1,000,000 and short-term incentive bonus award of $1,056,000 for 2005 performance were recommended by the Committee and approved by the Board. The goals and related achievements upon which the decision was based were:

1. Improvement in all safety indices.

This goal was not met in 2005. Recordable and lost time injury rates both increased from the record-low levels of 2004.

2. Meet or exceed approved 2005 budget, including earnings per share (EPS) and cash flow per share (CFPS) targets.

This goal was achieved.

3. Outperform our peer group of basic materials companies in total shareholder return.

TSR for the last three years ending December 31, 2005 was 158% for the Corporation versus 57.4% for the DJUSBMI; however TSR for 2005 was -2.7% for the Corporation versus 6.3% for the DJUSBMI.

4. Continue to implement strategic plan to decommoditize selected product lines with particular focus on improving return on our phosphate business.

During second quarter of 2006, a new purified phosphate plant will come on stream in Aurora, NC. The new DFP plant at Aurora demonstrated production at capacity, substantially improving feed phosphate results. Phosphate gross margin for 2005 was $98.9 million, more than six times the 2004 total.

5. Grow revenue base and bottom line for the company through strategic use of capital.

Revenue increased to $3,847.2 million in 2005 versus $3,244.4 million in 2004 and net income in 2005 was $542.9 million versus $298.6 million in 2004. Strategic capital was used to complete the Rocanville expansion, continue the purified phosphoric acid plant expansion, and complete key Trinidad debottlenecks. Investments in other companies included $18.6 million in Arab Potash Company, $74.9 million in Israel Chemicals, Ltd. and $97.4 million in Sinochem Hong Kong Holdings Limited (“Sinofert”).

6. Oversee the establishment of a global International Plant Nutrition Institute through the International Fertilizer Association to ensure a scientific environmental defense for fertilizer products.

This effort is ongoing and should be achieved by the end of 2006.

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7. Show measurable success in leadership development and succession planning for the Corporation’s employees.

During 2005, 75% of position movements in the executive and senior staff group were filled by promoting and transferring internal candidates.

8. Lead management’s effort in maintaining best corporate governance practices at all levels.

Mr. Doyle supported management and approved continuing initiatives in the area of corporate compliance. In addition, the tone was set at the top of the organization regarding the importance of conducting business honestly, fairly, with integrity and in compliance with all legal requirements and for all employees to reaffirm their commitment to the company’s “Statement of Core Values and Code of Business Conduct”.

9. Find new ways to make it easier for our customers to do business with us.

The following four customer service initiatives were begun in 2005:

▪ Open/shipped orders confirmation tool – an automatic e-mail to customers on a regular basis with a summary of all open and shipped orders on a month-to-date or year-to-date basis so they can track any changes that need to be made to their open orders.

▪ Enterprise wide customer complaint system – central data bank to track complaint receipt and resolution.

▪ Customer contact recording system – enhanced technology to note customer requirements, comments and commitments and to review previous actions in order to improve the quality and depth of our customer response.

▪ Website hits reporting tool – enhanced technology to track customers’ preferences when it comes to utilizing our website and to focus on expanding and improving areas most often utilized.

10. Provide leadership for the company with the investment community, within our industry and in the communities in which our people work and reside.

In 2005, Mr. Doyle supported and was directly involved with numerous analyst and shareholder events, including meetings with major shareholders, analyst meetings, conference calls, and plant site tours. The Corporation received 5 awards from the Canadian Institute of Certified Accountants (CICA) for its annual reporting, sustainability report and corporate governance disclosure. This included the top reporting award in the mining sector, second place for our sustainability report and corporate governance disclosure, and top honors for our annual report and recognition as the overall best corporate reporter in Canada.

Leadership in our communities was demonstrated by community support projects at all our plants and offices, both cash donations and volunteer hours. The Corporation demonstrated its commitment to stakeholders in the global community by providing major contributions to the South Asia tsunami relief effort and to Hurricane Katrina relief. Corporate donations increased by 58% in 2005.

Mr. Doyle’s compensation for 2005 as set forth in the Summary Compensation Table and salary for 2006 were determined in accordance with the foregoing and approved by the Committee together with all other independent members of the Board.

Submitted on behalf of the Committee: John W. Estey, Wade Fetzer III, Jeffrey J. McCaig and Paul J. Schoenhals.

Report on Corporate Governance and Nominating Matters

Disclosure Regarding Nominating Committee Processes

The Corporation has a standing Corporate Governance and Nominating Committee, referred to as the “CG&N Committee” hereinafter in this report. The CG&N Committee has a charter which is available to shareholders and others at the Corporation’s website, www.potashcorp.com. Each of the following five directors who comprise the CG&N Committee is independent according to the Board’s independence standards as set out in the “PotashCorp Governance Principles” (which is available on the Corporation’s website), NI 58-101, applicable rules of the SEC and the corporate governance rules of the NYSE. See also “Nominees for Election to the Board of Directors – Director Independence and Other Relationships”. During the fiscal year ended December 31, 2005, the CG&N Committee met 6 times.

Mary Mogford (Chair)

Frederick J. Blesi

Wade Fetzer III

Dallas J. Howe

E. Robert Stromberg

Shareholders may propose individuals to be nominated for election as directors (a “Proposal”) in accordance with the provisions of Section 137 of the Canada Business Corporations Act  (the “Act”). Shareholders wishing to make a Proposal should refer to the relevant sections of the Act for a description of the procedures to be followed. For additional information regarding shareholder proposals, see “2007 Shareholder Proposals”. Shareholders who do not meet the threshold criteria for making, or otherwise choose not to make, a Proposal may at any time suggest nominees for

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election to the Board. Names of and supporting information regarding such nominees should be submitted to: Corporate Secretary, Potash Corporation of Saskatchewan Inc., Suite 500, 122 – 1^st Avenue South, Saskatoon, Saskatchewan, S7K 7G3, Canada.

A CG&N Committee-recommended nominee for a position on the Board must, at a minimum, meet the qualification standards for directors established by Section 105 of the Act. In addition, such nominee must possess and exhibit the highest degree of integrity, professionalism, values and independent judgment. The CG&N Committee also believes that the Board should be comprised of directors who possess experience and expertise in one or more of the following areas:

•      fertilizer industry

•      global and international commerce

•      transportation industry

•      e-commerce and technology

•      finance

•      law

•      accounting

•      mining industry

•      chemical industry

•      general business management

•      public policy

On an ongoing basis the CG&N Committee asks incumbent directors and senior management to suggest individuals who should be considered as proposed nominees to the Board. The CG&N Committee identifies the mix of expertise and qualities required for the Board. The Chair of the CG&N Committee, in consultation with the CG&N Committee, the Board Chair and the Chief Executive Officer maintains a list of potential candidates suggested by incumbent directors, senior management or shareholders and biographical information for each such potential candidate. When it becomes apparent that a vacancy on the Board will arise, either from mandatory or elective retirement or otherwise, the CG&N Committee reviews its list of potential candidates against the skill sets of incumbent Board members and the range of experience and expertise necessary for the Board. Potential candidates who have, in the opinion of the CG&N Committee, the desired expertise are identified. Those who have the requisite qualifications and meet the Corporation’s standards are ranked by the CG&N Committee in order of preference and contacted to determine their interest in serving on the Board. If this process does not result in the identification of suitable nominees, the CG&N Committee may engage the services of a search firm to assist in the identification of director candidates. The CG&N Committee evaluates all potential candidates in the manner described, no matter what the source of the recommendation.

Prior to joining the Board, new directors are informed of the degree of energy and commitment the Corporation expects of its directors.

In an uncontested election, any nominee for director who fails to receive votes in favor of his or her election representing at least a majority of the votes cast (added together with the votes withheld) shall tender his or her resignation for consideration by the CG&N Committee. Except in extenuating circumstances, it is expected that the CG&N Committee will recommend to the Board that the resignation be accepted and effective within a period of 90 days and that the action taken be publicly disclosed. To the extent possible, the CG&N Committee and Board members who act on the resignation shall be directors who have themselves received a majority of votes cast.

Disclosure Regarding Director Orientation and Continuing Education

The Board has adopted a written New Director Orientation Policy designed to:

(a)	provide each new director with a baseline of knowledge about the Corporation which will serve as a basis for informed decision-making;
(b)	tailor the program for each new director to take into account his or her unique mix of skills, experience, education, knowledge and needs; and
(c)	be delivered over a period of time to minimize the likelihood of overload and maximize the lasting educational impact.

The orientation program is tailored to the needs of each new director, and consists of a combination of written materials, one-on-one meetings with senior management, site visits and other briefings and training as appropriate.

The Board also recognizes the importance of ongoing director education and the need for each director to take personal responsibility for this process. To facilitate ongoing education, the Corporation will:

(a)	maintain a directors’ intranet site to facilitate the exchange of views and published information;
(b)	maintain a membership for each director in an organization dedicated to corporate governance and ongoing director education;
(c)	each year encourage and fund the attendance of each director at one seminar or conference of interest and relevance and fund the attendance of each Committee Chair at one additional seminar or conference. In all cases, approval for attendance shall be obtained, in advance, from the Board Chair. In 2005, a number of directors took advantage of our policy by attending seminars or conferences of interest or relevance;
(d)	encourage presentations by outside experts to the Board or Committees on matters of particular import or emerging significance; and

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(e) at least annually, schedule a site visit in conjunction with a Board meeting.

The Board holds one meeting each year at one of the Corporation’s operating facilities. Site visits by the Board and meetings with senior management of the facility are incorporated into the itinerary.

Disclosure Regarding the Ability of Shareholders to Communicate With the Board of Directors

The Corporation has a process for shareholders or other interested parties who wish to communicate with members of the Board, including the presiding director or the non-management directors as a group. Communications in writing should be sent to:

PotashCorp Board of Directors

c/o Corporate Secretary

Suite 500, 122 – 1^st Avenue South

Saskatoon, Saskatchewan S7K 7G3

CANADA

Communications by e-mail should be sent to directors@potashcorp.com.

Matters relating to the Corporation’s accounting, internal accounting controls or auditing matters will be referred to the Audit Committee. Other matters will be referred to the Board Chair.

To further facilitate communications between the Corporation’s shareholders and the Board, the Corporation has adopted a policy that all directors standing for re-election and all new director nominees are expected to attend the Meeting. In 2005, all such directors and nominees attended the annual meeting.

Submitted on behalf of the CG&N Committee: Mary Mogford, Frederick J. Blesi, Wade Fetzer III, Dallas J. Howe and E. Robert Stromberg.

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Ownership of Shares

The following table sets forth information as of February 27, 2006, with respect to the beneficial ownership of Shares held by the executive officers of the Corporation named in the Summary Compensation Table herein and by all directors and executive officers of the Corporation as a group.

			Number of		Percentage
			Shares		of
	Number of		Beneficially		Outstanding
Name	Shares Held		Owned(1)(2)(3)		Shares
William J. Doyle, Director, President and Chief Executive Officer		77,978		790,490		0.76%
Wayne R. Brownlee, Executive Vice President, Treasurer and Chief Financial Officer		17,398		355,618		0.34%
James F. Dietz, Executive Vice President and Chief Operating Officer		12,600		258,852		0.25%
Barbara J. Irwin, Senior Vice President, Administration		12,065		185,285		0.18%
Garth W. Moore, President, PCS Potash		6,622		124,842		0.12%
All directors and executive officers as a group, including the above-named individuals (26 persons)		220,871		2,488,875		2.40%

(1)         The number of Shares beneficially owned is reported on the basis of regulations of the SEC, and includes Shares that the individual has the right to acquire at any time within 60 days after February 27, 2006 and Shares directly or indirectly held by the individual or by certain family members or others over which the individual has sole or shared voting or investment power.

(2)         Each of the directors and executive officers of the Corporation owned less than 1% of the Shares issued and outstanding as at February 27, 2006. The directors and executive officers of the Corporation as a group beneficially owned approximately 2.401% of the Shares issued and outstanding as at February 27, 2006.

(3)         Includes Shares purchasable within 60 days after February 27, 2006 through the exercise of options granted by the Corporation, as follows: Mr. Doyle 712,512 Shares; Mr. Brownlee 338,220 Shares; Mr. Dietz 246,252 Shares; Ms. Irwin 173,220 Shares; Mr. Moore 118,220 Shares and directors and executive officers as a group, including the foregoing individuals, 2,268,004 Shares.

Listed below are the names and other information concerning persons known to the Corporation (from records and reports filed with the SEC on Schedule 13D or 13G) who owned, as of February 27, 2006 more than 5% of the Corporation’s Shares:

	Amount and Nature of		Percent of
Name and Address of Beneficial Owner	Beneficial Ownership		Class(1)
FMR Corp. (Fidelity) 82 Devonshire Street Boston, Massachusetts 02109		16,771,446(2)(3)		16.18%
PRIMECAP Management Company 225 S. Lake Ave., #400 Pasadena, California 91101		10,279,315(4)(5)		9.92%
Capital Group International, Inc. 11100 Santa Monica Blvd. Los Angeles, California 90025		8,792,250(6)(7)(8)		8.48%
Capital Guardian Trust Company 11100 Santa Monica Blvd. Los Angeles, California 90025		6,454,250(8)(9)(10)		6.23%
Jarislowsky, Fraser Limited 1010 Sherbrooke St. West Suite 2005 Montreal, Quebec H3A 2R7		5,803,930(11)(12)		5.60%

(1)         Represents percent of Shares outstanding as of February 27, 2006.

(2)         Such person has sole dispositive power as to all 16,771,446 Shares and sole voting power as to 4,330,031 Shares.

(3)         As set forth in a Schedule 13G dated February 14, 2006.

(4)         Such person has sole dispositive power as to all 10,279,315 Shares and sole voting power as to 2,608,915 Shares.

(5)         As set forth in a Schedule 13G dated February 8, 2006.

(6)         Such person has sole dispositive power as to all 8,792,250 Shares and sole voting power as to 7,371,150 Shares.

(7)         As set forth in a Schedule 13G dated February 2, 2006.

(8)         Capital Group International, Inc. may be deemed the beneficial owner of the Shares of its subsidiaries, including the 6,454,250 Shares beneficially owned by
              Capital Guardian Trust Company.

(9)         Such person has sole dispositive power as to all 6,454,250 Shares and sole voting power as to 5,300,750 Shares.

(10)          As set forth in a Schedule 13G dated February 2, 2006.

(11)          Such person has sole dispositive power as to all 5,803,930 Shares, sole voting power as to 4,854,556 Shares, and shared voting powers as to 949,374 Shares.

(12)          As set forth in a Schedule 13G dated February 10, 2006.

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Executive Compensation

Summary Compensation Table

The following table sets forth, for the periods indicated, all compensation earned by the individuals who served as the Chief Executive Officer and the Chief Financial Officer of the Corporation, and by each of the Corporation’s other three most highly compensated executive officers as of the end of calendar year 2005, for services rendered to the Corporation and its subsidiaries (the “Named Executive Officers”).

Summary Compensation Table⁽¹⁾

										Long-Term Compensation
			Annual Compensation							Awards		Payouts
																	Additional 2005 Information
										Securities
										Underlying							Option Grant
							Other Annual			Options		LTIP		All Other			Date Present
			Salary		Bonus(2)		Compensation			Granted(3)		Payouts(4)		Compensation			Value(12)		Totals(13)
Name and Principal Position	Year		$		$		$			#		$		$			$		$
William J. Doyle		2005		950,000		1,056,000		66,501	(5)		225,000		6,332,879		70,023	(6)		4,416,750		12,892,153
President and		2004		808,750		1,375,000		139,431	(5)		–		–		25,500	(6)
Chief Executive Officer		2003		783,750		535,000		51,579	(5)		112,512		–		81,822	(6)
Wayne R. Brownlee		2005		420,000		352,000		117	(7)		65,000		1,659,358		34,089	(8)		1,286,043		3,751,607
Executive Vice President,		2004		359,385		350,000		6,630	(7)		–		–		13,727	(8)
Treasurer and Chief		2003		359,385		144,000		2,649	(7)		48,220		–		19,321	(8)
Financial Officer
James F. Dietz		2005		417,783		318,000		1,736	(7)		65,000		2,001,334		17,965	(9)		1,275,950		4,032,768
Executive Vice President		2004		385,288		370,000		4,238	(7)		–		–		4,614	(9)
and Chief Operating Officer		2003		385,288		164,000		–			56,252		–		12,284	(9)
Barbara J. Irwin		2005		347,416		201,000		1,736	(7)		35,000		1,457,259		11,905	(10)		687,050		2,706,366
Senior Vice President,		2004		324,741		275,000		4,584	(7)		–		–		2,253	(10)
Administration		2003		322,333		126,000		–			48,220		–		11,629	(10)
Garth W. Moore		2005		348,938		195,000		5,880	(7)		35,000		1,464,744		30,695	(11)		692,485		2,737,742
President,		2004		317,216		267,000		3,419	(7)		–		–		13,417	(11)
PCS Potash		2003		317,216		123,000		2,570	(7)		48,220		–		18,437	(11)

(1)	Those amounts which were paid in Canadian dollars have been converted to United States dollars using the average exchange rate for the month prior to the date of payment.
(2)	Reports amounts awarded pursuant to the Corporation’s Short-Term Incentive Plan. See “Compensation Committee Report on Executive Compensation – Short-Term Incentive Compensation”.
(3)	Options granted pursuant to the Stock Option Plan – Officers and Employees and the 2005 Performance Option Plan. 2003 amounts adjusted to reflect the stock split which occurred in August 2004.
(4)	Reflects payouts pursuant to the terms of the Long-Term Incentive Plan in effect for the three-year performance period January 1, 2003 to December 31, 2005. The calculation was based on performance over the three-year period, measured by reference to TSR. TSR of the Corporation measured the capital appreciation of the Shares over the performance period and included dividends paid. As such, it simulated the actual investment performance realized by shareholders. The plan considered both the TSR of the Corporation and the TSR performance relative to the DJUSBMI.

    The following table sets forth rates of return over the performance period (using the defined average opening/closing prices):

	Potash Corp (NYSE)		DJUSBMI
TSR		148.77%		60.11%

	Market capitalization for the Corporation was $3.31 billion as at January 1, 2003 and $8.31 billion as at December 31, 2005. This represented an increase of $5.0 billion, or 151%.
	For details regarding the Medium-Term Incentive Plan in place for the performance period January 1, 2006 to December 31, 2008, see “Compensation Committee Report on Executive Compensation – Medium-Term Incentive Plan”.
(5)	Of the other annual compensation indicated for 2005, $21,636 is related to spousal travel benefits (while accompanying the executive on Corporation business), $17,347 reflects payments made for personal tax planning, preparation, administration and financial matters, $16,860 reflects a membership allowance, and $10,064 relates to tax reimbursements on taxable benefits. Of the other annual compensation indicated for 2004, $84,820 reflects a membership allowance and $9,755 represents tax reimbursements on taxable benefits. Of the other annual compensation indicated for 2003, $34,854 reflects payments made for personal tax preparation and administration, and $3,048 represents tax reimbursements on taxable benefits.
(6)	The reported amounts for 2005, 2004 and 2003 consist, respectively, of:

(i)	$60,128, $17,259 and $28,740 which represents the Corporation’s contribution to the Corporation’s defined contribution pension and savings plan on behalf of the indicated Named Executive Officer;
(ii)	$9,895, $8,241 and $8,532 which represents the value of the benefit for group term life insurance premiums paid by the Corporation on behalf of the indicated Named Executive Officer; and
(iii)	$44,550 for 2003 which represents moving expenses.

(7) The reported amounts for 2005, 2004 and 2003 represent tax reimbursements on taxable benefits.

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(8) The reported amounts for 2005, 2004 and 2003 consist, respectively, of:

(i)	$30,725, $10,995 and $15,944 which represents the Corporation’s contribution to its defined contribution pension and savings plans on behalf of the indicated Named Executive Officer; and
(ii)	$3,364, $2,732 and $3,377 which represents the value of the benefit for group term life insurance premiums paid by the Corporation on behalf of the indicated Named Executive Officer.

(9) The reported amounts for 2005, 2004 and 2003 consist, respectively of:

(i)	$11,709, $0 and $10,000 which represents contributions by the Corporation’s subsidiary to its defined contribution pension plan on behalf of the indicated Named Executive Officer; and
(ii)	$6,256, $4,614, and $2,284 which represents the value of the benefit for group term life insurance premiums paid by the Corporation’s subsidiary on behalf of the indicated Named Executive Officer.

(10) The reported amounts for 2005, 2004 and 2003 consist, respectively of:

(i)	$9,892, $681 and $9,707 which represents contributions by the Corporation’s subsidiary to its defined contribution pension plan on behalf of the indicated Named Executive Officer; and
(ii)	$2,013, $1,572, and $1,922 which represents the value of the benefit for group term life insurance premiums paid by the Corporation’s subsidiary on behalf of the indicated Named Executive Officer.

(11) The reported amounts for 2005, 2004 and 2003 consist, respectively, of:

(i)	$27,323, $10,426 and $14,682 which represents the Corporation’s contribution to its defined contribution pension and savings plans on behalf of the indicated Named Executive Officer; and
(ii)	$3,372, $2,991, $3,755 which represents the value of the benefit for group term life insurance premiums paid by the Corporation on behalf of the indicated Named Executive Officer.

(12)	Taken from “Option Grants During the Most Recently Completed Fiscal Year” table below.
(13)	Total of the dollar values disclosed on the “Summary Compensation Table” and the “Option Grant Date Present Value” for 2005.

Options

The following table provides details on the options granted to the Named Executive Officers during the fiscal year ended December 31, 2005.

Option Grants During the Most Recently Completed Fiscal Year⁽¹⁾

Individual Grants
	Number of		% of Total Options
	Securities		Granted to		Exercise or				Grant Date
	Underlying Options		Employees in		Base Price				Present Value(3)(4)
Name	Granted(1)(2)		Fiscal Year		($/Share)		Expiration Date		$
William J. Doyle		225,000		18.93%		$88.23		May 5, 2015		$4,416,750
Wayne R. Brownlee		65,000		5.47%		Cdn$109.92		May 5, 2015		1,286,043
James F. Dietz		65,000		5.47%		$88.23		May 5, 2015		1,275,950
Barbara J. Irwin		35,000		2.94%		$88.23		May 5, 2015		687,050
Garth W. Moore		35,000		2.94%		Cdn$109.92		May 5, 2015		692,485

(1)	Options granted pursuant to the Corporation’s 2005 Performance Option Plan.
(2)	Options granted on May 5, 2005. Subject to the terms of the 2005 Performance Option Plan, each option will vest, if at all, based on achievement of certain corporate measures over a three-year period ending December 31, 2007.
(3)	The Black-Scholes-Merton Option Pricing Model was used by the Compensation Committee to determine the grant date present value of the stock options granted in May 2005 by the Corporation to the Named Executive Officer, thereby assisting in the calculation regarding the number of options to grant. Under the Black-Scholes-Merton Option Pricing Model, the “Grant Date Present Value” of the stock options referred to in the table was $19.63 per Share for Mr. Doyle, Mr. Dietz and Ms. Irwin and Cdn$24.63 per Share for Mr. Brownlee and Mr. Moore. The material assumptions and adjustments incorporated in the Black-Scholes-Merton Option Pricing Model in estimating the value of options reflected in the above table include the following:

(i)	an option term of 10 years and an interest rate of 4.14% (US risk free rate corresponding to the term of the options) with respect to options granted to Mr. Doyle, Mr. Dietz and Ms. Irwin; and an option term of 10 years and an interest rate of 4.13% (Cdn. risk free rate corresponding to the term of the options) with respect to the options granted to Mr. Brownlee and Mr. Moore;
(ii)	with respect to options granted to Mr. Doyle, Mr. Dietz and Ms. Irwin, volatility of 27.1% (calculated using daily stock prices on the NYSE for the three-year period prior to 4/1/2005); and with respect to the options granted to Mr. Brownlee and Mr. Moore, volatility of 27.09% (calculated using daily stock prices on the TSX for the three-year period prior to 4/1/2005);
(iii)	with respect to the options granted to Mr. Doyle, Mr. Dietz and Ms. Irwin, dividends at the rate of $0.60 per Share and with respect to the options granted to Mr. Brownlee and Mr. Moore, dividends at the rate of Cdn$0.7424 per Share (representing the annualized dividends paid with respect to a Share at the date of grant); and
(iv)	a discount related to risk of forfeiture of 29.63% for Mr. Doyle, Mr. Dietz and Ms. Irwin and 29.05% for Mr. Brownlee and Mr. Moore was applied. A further 25% discount regarding risk for the performance based features was also then applied.

The ultimate values of the options will depend on the future market price of the Shares, which cannot be forecast with reasonable accuracy. The actual value, if any, an optionee will realize upon exercise of an option will depend on the excess of the market value of the Shares over the exercise price on the date the option is exercised.

(4) Amounts denominated in Canadian dollars are converted to United States dollars at the exchange rate in effect at the date of grant of the options.

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The following table sets forth the options exercised during the year ended December 31, 2005 by the Named Executive Officers, the number of options held by the Named Executive Officers at year end, and the year-end value of unexercised, in-the-money options held by such individuals at December 31, 2005.

Aggregated Option Exercises During the Most Recently Completed

Fiscal Year and Fiscal Year-End Option Values

					Number of Securities				Value of Unexercised in-the-
	Securities				Underlying Options at FY-End				Money Options at FY-End(2)
	Acquired on		Aggregate
	Exercise		Value Realized(1)				# Not				$ Not
Name	#		$		# Exercisable		Exercisable		$ Exercisable		Exercisable
William J. Doyle		160,000	$	9,788,765		712,512		225,000	$	30,263,369	$	0
Wayne R. Brownlee		76,300		4,356,863		338,220		65,000		12,569,636		0
James F. Dietz		30,000		2,034,765		246,252		65,000		10,175,215		0
Barbara J. Irwin		15,000		810,379		173,220		35,000		6,986,915		0
Garth W. Moore		90,000		4,569,609		118,220		35,000		3,362,569		0

(1)	All values are pre-tax.
(2)	Values are calculated by determining the amount by which the market value of the Shares underlying the options on December 31, 2005 exceeded the exercise prices of the options and converting Canadian dollar amounts to United States dollars using the December 31, 2005 exchange rate of $0.8577.

Pension Plans

The Corporation maintains the Potash Corporation of Saskatchewan Inc. Pension Plan (the “PCS Plan”), which generally requires all participating employees to contribute 5.5% of their earnings (or such lesser amount as is deductible for Canadian income tax purposes) to the PCS Plan and the Corporation to contribute an equal amount. When an individual retires, the full amount in the individual’s account is used to produce the pension.

The Corporation maintains a Supplemental Retirement Income Plan (the “Supplemental Plan”), which provides a supplementary pension benefit for certain of the Corporation’s officers and key managers. Under the basic terms of the Supplemental Plan, a pension benefit is provided in an amount equal to 2% of the average of the participant’s three highest years’ earnings multiplied by the participant’s years of pensionable service (to a maximum of 35 years), minus any annual retirement benefit payable under the PCS Plan or certain other tax qualified plans. For the purposes of the Supplemental Plan, earnings are defined as the participant’s annual base pay plus 100% of all bonuses paid or payable for such year pursuant to the Short-Term Incentive Plan. The normal retirement age pursuant to the Supplemental Plan is 65, with a reduction in benefits for early retirement prior to age 62. No benefits pursuant to the Supplemental Plan are payable if termination occurs prior to age 55. Benefits payable to employees who have reached the minimum age (55) for retirement pursuant to the Supplemental Plan are generally secured by letters of credit provided by the Corporation and are generally paid in the form of an annuity for life, or at a participant’s election, in a single lump sum payment equal to the actuarial present value of the annual benefit provided by the Supplemental Plan.

For a designated group of senior officers, including Mr. Doyle, Mr. Brownlee and Mr. Moore, the benefit payable under the Supplemental Plan is an amount equal to (i) 5% of the average of the senior officer’s three highest years’ earnings multiplied by the senior officer’s years of pensionable service (to a maximum of 10 years), plus (ii) 2% of the average of the senior officer’s three highest years of earnings multiplied by the senior officer’s years of pensionable service in excess of 25 years to a maximum of 10 additional years, minus (iii) any annual retirement benefit payable under the PCS Plan and certain other tax qualified plans.

The following table shows the range of estimated annual benefits to Mr. Doyle, Mr. Brownlee and Mr. Moore pursuant to the Supplemental Plan. Estimated benefits payable pursuant to the Supplemental Plan will be reduced by any benefits payable to Mr. Doyle, Mr. Brownlee and Mr. Moore pursuant to the PCS Plan and certain other tax qualified plans.

Supplemental Retirement Income Plan Table

		Years of Service
Remuner-
ation ($)		10		20		30		40
$	250,000	$	125,000	$	125,000	$	150,000	$	175,000
	500,000		250,000		250,000		300,000		350,000
	1,000,000		500,000		500,000		600,000		700,000
	1,500,000		750,000		750,000		900,000		1,050,000
	2,000,000		1,000,000		1,000,000		1,200,000		1,400,000
	3,000,000		1,500,000		1,500,000		1,800,000		2,100,000

As of December 31, 2005, the average of the three highest years’ earnings for purposes of the Supplemental Plan for each Named Executive Officer participating in the Supplemental Plan was as follows: $1,942,500 for Mr. Doyle, $650,923 for Mr. Brownlee and $546,790 for Mr. Moore. The estimated credited years of service at assumed retirement age of 65 for each of the Named Executive Officers participating in the Supplemental Plan are as follows: 28 years for Mr. Doyle, 41 years for Mr. Brownlee and 31 years for Mr. Moore.

The cost of the future pension benefits is calculated each year by the Corporation and is reviewed by independent actuaries. The 2005 annual service cost and total accrued pension obligations for the Supplemental Plan as at December 31,

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2005 respectively, for Mr. Doyle is $363,668 and $8,008,965, for Mr. Brownlee $113,262 and $4,052,773 and for Mr. Moore $82,765 and $2,333,313. The annual service cost represents the value of the projected Supplemental Plan benefit earned during the year. The total accrued pension obligation represents the value of the projected Supplemental Plan benefit earned for all service to date.

The annual service cost and total accrued pension obligations described above are based on estimates solely related to this plan, and represent contractual entitlements which may change over time. The methods used to determine such estimated amounts will not be identical to the methods used by other companies and, as a result, these figures may not be directly comparable across companies. The assumptions for this plan also differ from the assumptions disclosed in Note 14 to the consolidated financial statements relating to the Corporation’s significant pension plans. The key assumptions made in determining these amounts are as follows:

	Assumptions	Assumptions	Assumptions
	Used at the End	Used at the End	Used at the End
	of the Year 2005	of the Year 2004	of the Year 2003
	and for the	and for the	and for the
	2006 Expense	2005 Expense	2004 Expense
Interest Rate	5.00% per annum	6.00% per annum	7.00% per annum
Increase in Pensionable Earnings	4.00% per annum	5.00% per annum	5.00% per annum
Increase in the Income Tax Act Maximum Contribution Limits	2.00% per annum	2.00% per annum	2.00% per annum
Expected Return on Plan Assets	N/A	N/A	N/A
Retirement Age	Age 62	Age 62	Age 62
Mortality Rates	1994 Unisex Pensioner Mortality Table	1994 Unisex Pensioner Mortality Table	1983 Group Annuity Mortality Table

Prior to January 1, 1999, PCS Phosphate and PCS Nitrogen maintained separate defined benefit pension plans for their respective eligible U.S. employees, including Mr. Dietz in the case of PCS Nitrogen. Effective January 1, 1999, the Corporation consolidated its pension plans for U.S. employees and the Nitrogen Pension Plan was merged with and into the Phosphate Pension Plan to form a new U.S. Pension Plan (the “U.S. Pension Plan”).

Under the U.S. Pension Plan, participants age 62 or older with at least 20 years of service receive a retirement benefit of 1.5% of the participant’s final average compensation (as defined below) multiplied by the participant’s years of service accrued after December 31, 1998 (maximum 35 years) in the form of a life annuity. Participants with service accrued prior to January 1, 1999 under previous plans, including Mr. Dietz, will have a portion of their retirement benefit calculated under the formulas for such plans. Employees not meeting the minimum age or years of service requirement at termination will receive a reduced benefit.

Pursuant to the U.S. Pension Plan, final average compensation is defined as compensation for the highest paid 60 consecutive months of service out of the last 120 months of service. Compensation is defined as a participant’s base pay plus annual bonus. The retirement benefits from the U.S. Pension Plan for Mr. Dietz and Ms. Irwin are subject to certain limitations on the amount of retirement benefits that may be provided under U.S. tax qualified pension plans. The Corporation maintains a supplemental pension plan (the “U.S. Supplemental Plan”) intended to provide participants with the same aggregate benefits that such participant would have received had there been no legal limitations on the benefits provided by the U.S. Pension Plan. No benefits pursuant to the U.S. Supplemental Plan are payable if termination occurs prior to age 55.

For Mr. Dietz and Ms. Irwin, the following table represents the range of estimated annual benefits under the U.S. Pension Plan and the U.S. Supplemental Plan for service on or after January 1, 1999.

Post-1998 Service Table

		Years of Service
Remuner-
ation ($)		10		15		20		25		30
$	300,000	$	45,000	$	67,500	$	90,000	$	112,500	$	135,000
	400,000		60,000		90,000		120,000		150,000		180,000
	500,000		75,000		112,500		150,000		187,500		225,000
	600,000		90,000		135,000		180,000		225,000		270,000
	700,000		105,000		157,500		210,000		262,500		315,000
	800,000		120,000		180,000		240,000		300,000		360,000

As of December 31, 2005, the final average compensation for the purposes of the U.S. Pension Plan and U.S. Supplemental Plan for Mr. Dietz was $615,843 and for Ms. Irwin was $452,674. The estimated credited years of post-1998 service under such plans at normal retirement age of 65 for Mr. Dietz is 13 years and for Ms. Irwin 20 years.

As of December 31, 1998, the Nitrogen Pension Plan provided a normal monthly retirement benefit equal to the sum of (i) 1.1% of the participant’s average monthly pay during the highest paid 60 consecutive calendar months of the last 120 calendar months of employment multiplied by the participant’s credited service, and (ii) 0.4% of (a) the excess of such average monthly pay over the participant’s “covered compensation” multiplied by (b) the participant’s credited service (up to a maximum of 35 years). “Covered compensation” is defined as the 35-year average of the U.S. Social Security wage bases measured from the year in which the participant reaches Social Security retirement age.

The following table represents the range of estimated annual benefits for Mr. Dietz pursuant to the formula in the Nitrogen Pension Plan (including benefits relating to pre-1999 service under the U.S. Supplemental Plan).

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Nitrogen Pre-1999 Service Table

		Years of Service
Remuner-
ation ($)		5		10		15		20		25
$	300,000	$	21,000	$	43,000	$	64,000	$	85,000	$	106,000
	400,000		29,000		58,000		86,000		115,000		144,000
	500,000		36,000		73,000		109,000		145,000		181,000
	600,000		44,000		88,000		131,000		175,000		219,000
	700,000		51,000		103,000		154,000		205,000		256,000
	800,000		59,000		118,000		176,000		235,000		294,000

As of December 31, 2005, the estimated credited years of pre-1999 service at normal retirement age of 65 for Mr. Dietz is 6 years for the purposes of the U.S. Pension Plan, and 2 years for purposes of the U.S. Supplemental Plan. Final average compensation is the same as that calculated for the purpose of the U.S. Pension Plan and post-1998 service.

The 2005 annual service cost and the total accrued pension obligation for the U.S. Supplemental Plan as at December 31, 2005, respectively for Mr. Dietz is $39,571 and $627,433, for Ms. Irwin is $24,242 and $223,759. The annual service cost represents the value of the projected U.S. Supplemental Plan benefit, earned during the year. The total accrued pension obligation represents the value of the projected U.S. Supplemental Plan benefit earned for all service to date. The assumptions used in calculating such obligations are those as used in Note 14 to the consolidated financial statements.

Employment Contracts and Termination of Employment

Change in Control Agreements

Effective December 30, 1994, the Corporation and, where applicable, PCS Sales entered into Change in Control Agreements with certain senior executives, including Mr. Doyle, Mr. Brownlee and Mr. Moore. The initial term of each Change in Control Agreement was through December 31, 1997; however, the term of the Change in Control Agreements has been automatically renewed for successive one-year periods since December 31, 1997 and continues to be subject to automatic renewal for successive one-year terms until the employee reaches age 65 or unless either party gives notice of termination. A change in control of the Corporation will be deemed to have occurred if:

(a)	there is a significant (50% or more) change in the Board within any two-year period, not including replacement directors approved for nomination by the Board;
(b)	there occurs an amalgamation, merger, consolidation or other transaction whereby the control of the existing shareholders of the Corporation is diluted to less than 50% control of the surviving or consolidated entity;
(c)	there occurs a significant (50% or more based on book value) sale or other disposition of the fixed assets of the Corporation within any twelve-month period; or
(d)	any party acquires 20% or more of the voting securities of the Corporation.

Benefits pursuant to the Change in Control Agreements will be payable upon termination of the executive’s employment within two years following a change in control. Termination of the executive’s employment is defined to include the executive ceasing to be employed for any reason, including constructive dismissal, except by reason of death, disability, resignation or voluntary retirement, or dismissal for dishonest or willful misconduct.

The severance benefit entitlements upon termination of employment following a change in control of the Corporation are:

(a)	a lump-sum payment of three times the executive’s current base salary and average bonus for the last three years;
(b)	a lump-sum payment of the pro-rata target bonus for the short year in which the termination occurs;

(c) immediate vesting and cash out of all outstanding Long-Term Incentive Plan awards;

(d) a credit of three additional years of service under the Supplemental Plan;

(e)	a three-year continuation of medical, disability and group term life insurance, provided that these benefits terminate upon obtaining similar coverage from a new employer or upon commencement of retiree benefits; and
(f)	financial or outplacement counseling to a maximum of Cdn$10,000.

Payments to be made pursuant to the foregoing and relating to the employee’s bonus may be deferred by the executive for up to three years or for such other period as may be permitted by the Income Tax Act (Canada). For Mr. Doyle, there is provision for a “gross up” of payments to cover excise taxes if payable in respect of such benefits.

All outstanding non-exercisable options granted to the executive pursuant to the option plan become exercisable upon the occurrence of a change in control. In the event no public market for the Shares exists, the Corporation (or PCS Sales, as the case may be) will compensate the executive for the value of his or her options on the basis of a Share value approved by the shareholders of the Corporation upon a change in control, or, if no such value has been approved, then based upon the market value of the Shares when last publicly traded.

Other

The current severance policy of the Corporation for termination without cause, which is applicable to all salaried employees including the Named Executive Officers, is to provide notice of impending termination, or payment of salary in lieu of notice, equivalent to two weeks for each complete year of service (subject to a minimum of 4 weeks and a maximum of 52 weeks). Such policy is superseded by specific termination provisions contained in any applicable written agreement.

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Performance Graphs

The following graph illustrates the Corporation’s cumulative shareholder return, assuming reinvestment of dividends, by comparing a $100 investment in the Shares at December 31, 2000 to the return on the Standard & Poor’s 500 Index^®, the DJUSBMI and a self-selected peer group.

	Dec-00		Dec-01		Dec-02		Dec-03		Dec-04		Dec-05
Corporation-NYSE Listing	$	100	$	80	$	84	$	116	$	225	$	219
Self-Selected Peer Group		100		105		108		135		215		276
S&P 500®		100		88		69		88		98		103
DJUSBMI		100		104		88		137		146		167

	Symbol
The self-selected peer group consists of:
Agrium Inc.*	AGU
Mosaic Co (formerly IMC Global Inc.)	MOS
Yara International ASA	YAR NO
Israel Chemicals Limited	CHIM IT
Sociedad Quimica Y Minera de Chile S.A.	SQM/B CI
K&S AG	SDF GR

The following graph illustrates the Corporation’s cumulative shareholder return, assuming reinvestment of dividends, by comparing a Cdn$100 investment in the Shares at December 31, 2000 to the return on the S&P/ TSX Composite Index.

	Dec-00		Dec-01		Dec-02		Dec-03		Dec-04		Dec-05
Corporation-TSX Listing	$	100	$	85	$	89	$	101	$	182	$	171
S&P/ TSX Composite Index		100		87		77		97		111		138

^® Copyright^© 2006, Standard & Poor’s, a division of The McGraw Hill Companies, Inc. All rights reserved.

* TSX Listing.

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Page 35

Directors’ and Officers’

Liability Insurance

The Corporation has acquired and maintains liability insurance for its directors and officers as well as those of its subsidiaries as a group. The coverage limit of each insurance is $100 million per claim and $100 million in the annual aggregate. The Corporation has entered into a one-year contract ending June 30, 2006. Premiums of $871,450 were paid by the Corporation for the last fiscal year. Claims for which the Corporation grants indemnification to the insured persons are subject to a $5 million deductible for any one loss.

Voting Shares

There are 103,651,326 Shares of the Corporation outstanding as of February 27, 2006, each Share carrying the right to one vote. Each shareholder of record at the close of business on March 13, 2006 is entitled to vote at the Meeting the Shares registered in his or her name on that date.

The quorum for any meeting of shareholders is one or more persons present and holding or representing by proxy not less than 5% of the total number of outstanding Shares.

Normal Course Issuer Bid

On January 25, 2005, the Corporation announced that its Board of Directors had authorized a Share repurchase program of up to 5.5 million Shares (approximately 5% of the Corporation’s issued and outstanding Shares) through a normal course issuer bid. On September 22, 2005, the Corporation announced that its Board of Directors had authorized an increase in the number of Shares sought under the normal course issuer bid. The amendment allowed the Corporation to repurchase up to 4.0 million additional Shares, for a total of 9.5 million Shares (approximately 10% of the Corporation’s public float). Under the normal course issuer bid, Shares could be repurchased from time to time on the open market through February 14, 2006 at prevailing market prices. The purchases were made through the facilities of the TSX and the NYSE. Shares purchased under the bid were cancelled. The Corporation completed its normal course issuer bid on December 16, 2005. A copy of the notice the Corporation filed with the TSX in respect of the normal course issuer bid, as well as the amendment thereto, may be obtained from the Corporate Secretary of the Corporation at the address indicated under “Additional Information”.

2007 Shareholder Proposals

Proposals of shareholders intended to be presented at the Corporation’s annual meeting of shareholders in 2007 and which such shareholders are entitled to request be included in the Management Proxy Circular for that meeting, must be received at the Corporation’s principal executive offices not later than November 29, 2006.

Additional Information

Financial information relating to the Corporation is contained in its comparative financial statements and MD&A for the fiscal year ended December 31, 2005. Additional information relating to the Corporation that are not contained in this Management Proxy Circular, including the Corporation’s financial information as well as its most recent Form 10-K together with any document incorporated by reference therein, are available on SEDAR at www.sedar.com or EDGAR at www.sec.gov/edgar.shtml. Copies may be also be obtained on request from the Corporate Secretary, Potash Corporation of Saskatchewan Inc., Suite 500, 122 – 1st Avenue South, Saskatoon, Saskatchewan, S7K 7G3, Canada.

Directors’ Approval

The contents and the sending of this Management Proxy Circular have been approved by the Board.

JOSEPH A. PODWIKA

Secretary

February 27, 2006

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Appendix A

Statement of Corporate Governance Practices

The Board, through its Corporate Governance and Nominating Committee, which met 6 times in 2005, is focused on new threshold regulatory standards (both proposed and implemented) as well as best practices that go beyond the requirements mandated by regulation.

To comply with those standards and achieve those best practices, the Board has adopted the “PotashCorp Governance Principles” and “Statement of Core Values and Code of Business Conduct”. The complete text of the “PotashCorp Governance Principles”, the “Statement of Core Values and Code of Business Conduct” and the Board and Committee Charters, as well as other governance related documents, can be found at www.potashcorp.com and are available in print to any shareholder who requests them.

Many regulatory changes have come into effect over the past year. The Corporation has amended its governance practices in response to changes in regulations and best practices and will continue to respond to future corporate governance developments as appropriate. On June 30, 2005, National Policy 58-201 “Corporate Governance Guidelines” (“NP 58-201”) and National Instrument 58-101 “Disclosure of Corporate Governance Practices” (“NI 58-101”) came into force in Canada. The Corporation’s corporate governance practices are substantially in alignment with NP 58-201. In addition, the following table discloses the Corporation’s current corporate governance practices in accordance with the requirements of NI 58-101.

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
1.	(a)	Disclose the identity of directors who are independent.		Yes	The Board has determined that all of the directors of the Corporation with the exception of Mr. Doyle and Ms. Paliza are independent. See disclosure under the “Director Independence and Other Relationships” section of this Management Proxy Circular.
	(b)	Disclose the identity of directors who are not independent, and describe the basis of that determination.		Yes	See disclosure under the “Director Independence and Other Relationships” section of this Management Proxy Circular.
	(c)	Disclose whether or not a majority of directors are independent. If a majority of directors are not independent, describe what the board of directors (the board) does to facilitate its exercise of independent judgment in carrying out its responsibilities.		Yes	Ten of twelve, or 83.3%, of the Corporation’s current directors are independent.
	(d)	If a director is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction, identify both the director and the other issuer.		Yes	Such other directorships have been disclosed in the “Nominees for Election to the Board of Directors” section of this Management Proxy Circular.
	(e)	Disclose whether or not the independent directors hold regularly scheduled meetings at which members of management are not in attendance. If the independent directors hold such meetings, disclose the number of meetings held during the preceding 12 months. If the independent directors do not hold such meetings, describe what the board does to facilitate open and candid discussion among its independent directors.		Yes	The Board has adopted a policy for the independent members of the Board to meet without management present before and after each regularly scheduled meeting of the Board. These sessions are of no fixed duration and participating directors are encouraged to raise and discuss any issues of concern. This policy was complied with for all meetings of the Board in 2005 with respect to Mr. Doyle (9 meetings). With respect to Ms. Paliza, who was identified as non-independent in early 2005, this was complied with commencing in July 2005 (3 meetings).

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Page 37

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(f)	Disclose whether or not the chair of the board is an independent director. If the board has a chair or lead director who is an independent director, disclose the identity of the independent chair or lead director, and describe his or her role and responsibilities. If the board has neither a chair that is independent nor a lead director that is independent, describe what the board does to provide leadership for its independent directors.		Yes	Dallas J. Howe serves as the Board Chair, and is an independent director. He has served as Board Chair since 2003. A position description for the Board and Executive Committee Chair has been developed and approved by the Board. Amongst other things the Board and Executive Committee Chair is expected to: (a)  provide leadership to ensure effective functioning of the Board; (b)  lead in the assessment of Board and Executive Committee performance; (c)  assist the Compensation Committee in monitoring and evaluating the performance of the Chief Executive Officer and senior officers of the Corporation; (d)  lead the Board and Executive Committee in ensuring succession plans are in place at the senior management level; and (e)  act as an effective liaison among the Board and management.
	(g)	Disclose the attendance record of each director for all board meetings held since the beginning of the issuer’s most recently completed financial year.		Yes	Attendance records are fully disclosed in the “Compensation/Attendance of Directors” section of this Management Proxy Circular. Pursuant to the “PotashCorp Governance Principles”, directors are expected to attend all meetings of the Board and Board committees upon which they serve, to come to such meetings fully prepared, and to remain in attendance for the duration of the meetings. Where a director’s absence from a meeting is unavoidable, the director should, as soon as practicable after the meeting, contact the Board Chair, the Chief Executive Officer or the Corporate Secretary for a briefing on the substantive elements of the meeting.
2. Disclose the text of the board’s written mandate. If the board does not have a written mandate, describe how the board delineates its role and responsibilities.				Yes	The Board of Directors Charter is attached to this Management Proxy Circular as Appendix D.
3.	(a)	Disclose whether or not the board has developed written position descriptions for the chair and the chair of each board committee. If the board has not developed written position descriptions for the chair and/or the chair of each board committee, briefly describe how the board delineates the role and responsibilities of each such position.		Yes	A position description for the Board and Executive Committee Chair and each Board Committee Chair (which are attached to the relevant Board Committee Charters) has been developed and approved by the Board and can be found on the Corporation’s website at www.potashcorp.com.

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Page 38

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(b)	Disclose whether or not the board and CEO have developed a written position description for the CEO. If the board and CEO have not developed such a position description, briefly describe how the board delineates the role and responsibilities of the CEO.		Yes	A written position description for the Chief Executive Officer has been developed and approved by the Board. The Chief Executive Officer reports to the Board and has general supervision and control over the business and affairs of the Corporation. Amongst other things, the Chief Executive Officer is expected to: (a)  foster a corporate culture that promotes ethical practices, encourages individual integrity and fulfils social responsibility; (b)  develop and recommend to the Board a long-term strategy and vision for the Corporation that leads to creation of shareholder value; (c)  develop and recommend to the Board annual business plans and budgets that support the Corporation’s long-term strategy; and (d)  consistently strive to achieve the Corporation’s financial and operating goals and objectives.
4.	(a)	Briefly describe what measures the board takes to orient new directors regarding the role of the board, its committees and its directors, and the nature and operation of the issuer’s business.		Yes	The Board has adopted a written New Director Orientation Policy designed to: (a)  provide each new director with a baseline of knowledge about the Corporation which will serve as a basis for informed decision-making; (b)  tailor the program for each new director to take into account his or her unique mix of skills, experience, education, knowledge and needs; and (c)  be delivered over a period of time to minimize the likelihood of overload and maximize the lasting educational impact. The orientation program is tailored to the needs of each new director, and consists of a combination of written materials, one-on-one meetings with senior management, site visits and other briefings and training as appropriate.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 39

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(b)	Briefly describe what measures, if any, the board takes to provide continuing education for its directors. If the board does not provide continuing education, describe how the board ensures that its directors maintain the skill and knowledge necessary for them to meet their obligations as directors.		Yes	The Board recognizes the importance of ongoing director education and the need for each director to take personal responsibility for this process. To facilitate ongoing education, the Corporation will: (a)  maintain a directors’ intranet site to facilitate the exchange of views and published information; (b)  maintain a membership for each director in an organization dedicated to corporate governance and ongoing director education; (c)  each year encourage and fund the attendance of each director at one seminar or conference of interest and relevance and fund the attendance of each Committee Chair at one additional seminar or conference. In all cases, approval for attendance shall be obtained, in advance, from the Board Chair. In 2005, a number of directors took advantage of our policy by attending seminars or conferences of interest or relevance; (d)  encourage presentations by outside experts to the Board or Committees on matters of particular import or emerging significance; and (e)  at least annually, schedule a site visit in conjunction with a Board meeting.
5.	(a)	(i)  Disclose whether or not the board has adopted a written code for its directors, officers and employees. If the board has adopted a written code, disclose how a person or company may obtain a copy of the written code.		Yes	The Board has adopted the “PotashCorp Code of Business Conduct”. The complete text of the “PotashCorp Code of Business Conduct”, as well as other governance related documents, can be found at www.potashcorp.com and are available in print to any shareholder who requests them.
		(ii) Describe how the board monitors compliance with its code, or if the board does not monitor compliance, explain whether and how the board ensures compliance with its code.		Yes	The Audit Committee reviews the process for communicating the “PotashCorp Code of Business Conduct” to the Corporation’s personnel, and for monitoring compliance therewith. The Board, through the Audit Committee, receives regular reports from management directly responsible for compliance-related matters (the General Counsel, Vice President Internal Audit and Senior Vice President Administration). In addition, annual compliance sign offs are sought from each employee. The Board, through the Audit Committee Chair, also receives reports of all financial or accounting issues raised through the Corporation’s anonymous toll-free hotline.

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Page 40

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
		(iii) If the board has adopted a written code, provide a cross-reference to any material change report filed since the beginning of the issuer’s most recently completed financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the code.		Yes	The Corporation has not filed any material change reports since the beginning of the 2005 financial year that pertains to any conduct of a director or executive officer that constitutes a departure from the “PotashCorp Code of Business Conduct”. Pursuant to the “PotashCorp Governance Principles”, no waiver of the application of the “PotashCorp Code of Business Conduct” to directors or senior officers is permitted.
	(b)	Describe any steps the board takes to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or executive officer has a material interest.		Yes	Pursuant to the “PotashCorp Governance Principles”, each director of the Corporation must possess and exhibit the highest degree of integrity, professionalism and values, and must never be in a conflict of interest with the Corporation. A director who has a conflict of interest regarding any particular matter under consideration should advise the Board, refrain from debate on the matter and abstain from any vote regarding it. The Board has also developed categorical independence standards to assist it in determining when individual directors are free from conflicts of interests and are exercising independent judgment in discharging their responsibilities. All directors and senior officers are bound by the “PotashCorp Code of Business Conduct” and no waiver of the application of that Code to directors or senior officers is permitted.
	(c)	Describe any other steps the board takes to encourage and promote a culture of ethical business conduct.		Yes	The Corporation’s “Statement of Core Values and Code of Business Conduct” was distributed to all employees in September 2003 and is reinforced with on-line training programs. In late 2005, staff employees were required to complete an on-line training module regarding corporate ethics. At the end of 2005, all employees were asked to sign a written confirmation of their compliance with the Code.

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Page 41

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
6.	(a)	Describe the process by which the board identifies new candidates for board nomination.		Yes	The Corporate Governance and Nominating Committee (the “CG&N Committee”) is responsible for recruiting and proposing to the full Board new nominees for directors. The CG&N Committee, in the discharge of its duties: (a)  in consultation with the Board and Chief Executive Officer and, on an ongoing basis, identifies the mix of expertise and qualities required for the Board; (b)  assesses the attributes new directors should have for the appropriate mix to be maintained; (c)  in consultation with the Board and Chief Executive Officer and, on an ongoing basis, maintains a database of potential candidates; (d)  has implemented a procedure to identify, with as much advance notice as practicable, impending Board vacancies, so as to allow sufficient time for recruitment and for introduction of proposed nominees to the existing Board; (e)  develops a “short-list” of candidates and arranges for each candidate to meet with the CG&N Committee, the Board Chair and the Chief Executive Officer; (f)  recommends to the Board as a whole proposed nominee(s) and arranges for their introduction to as many Board members as practicable; (g)  ensures that prospective candidates are informed of the degree of energy and commitment the Corporation expects of its directors; and (h)  encourages diversity in the composition of the Board.
	(b)	Disclose whether or not the board has a nominating committee composed entirely of independent directors. If the board does not have a nominating committee composed entirely of independent directors, describe what steps the board takes to encourage an objective nomination process.		Yes	The Corporation has a standing Corporate Governance and Nominating Committee (the “CG&N Committee”). Each of the five directors who comprise the CG&N Committee is independent. Please refer to “Director Independence and Other Relationships” and the “Report on Corporate Governance and Nominating Matters” sections of this Management Proxy Circular for additional information.
	(c)	If the board has a nominating committee, describe the responsibilities, powers and operation of the nominating committee.		Yes	The responsibilities, powers and operation of the CG&N Committee are set out in its Charter, which is available on the Corporation’s website at www.potashcorp.com. Pursuant to the CG&N Committee Charter, the purpose of the CG&N Committee is to identify the individuals qualified to become members of the Board, to recommend to the Board nominees for election to the Board at each annual meeting of shareholders or to fill vacancies on the Board and to address related matters. Please refer to the “Report on Corporate Governance and Nominating Matters” section of this Management Proxy Circular for additional information.

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Page 42

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
7.	(a)	Describe the process by which the board determines the compensation for your company’s directors and officers.		Yes	Director and officer compensation is established on the advice of independent consultants, with a view to establishing target compensation at the median of the applicable comparator group. Please refer to the “Report of the Compensation Committee and Compensation Discussion and Analysis” and the “Compensation/Attendance of Directors” sections of this Management Proxy Circular, as well as the response to 7(d) below for additional information.
	(b)	Disclose whether or not the board has a compensation committee composed entirely of independent directors. If the board does not have a compensation committee composed entirely of independent directors, describe what steps the board takes to ensure an objective process for determining such compensation.		Yes	The Corporation has a standing Compensation Committee. Each of the four directors who comprise the Compensation Committee is independent. Please refer to the “Director Independence and Other Relationships” and “Report of the Compensation Committee and Compensation Discussion and Analysis” sections of this Management Proxy Circular for additional information.
	(c)	If the board has a compensation committee, describe the responsibilities, powers and operation of the compensation committee.		Yes	The responsibilities, powers and operation of the Compensation Committee are set out in its charter, which is available on the Corporation’s website at www.potashcorp.com. Pursuant to the Compensation Committee Charter, the purpose of the Compensation Committee is to carry out the Board’s responsibility for (i) executive compensation (including philosophy and programs); (ii) management development and succession; (iii) Board compensation; and (iv) broadly applicable compensation and benefit programs. Please refer to the “Report of the Compensation Committee and Compensation Discussion and Analysis” section of this Management Proxy Circular for additional information.

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Page 43

			PotashCorp
Disclosure Requirement under Form 58-101F1			Compliance		Comments & Discussion
	(d)	If a compensation consultant or advisor has, at any time since the beginning of the issuer’s most recently completed financial year, been retained to assist in determining compensation for any of the issuer’s directors and officers, disclose the identity of the consultant or advisor and briefly summarize the mandate for which they have been retained. If the consultant or advisor has been retained to perform any other work for the issuer, state that fact and briefly describe the nature of the work.		Yes	The Compensation Committee of the Board of Directors engaged Hewitt Associates, executive compensation consultants, during 2005 for research, survey information and design expertise in reviewing certain executive and director compensation programs. This work has included director pay analysis, performance stock option plan design and executive compensation analysis. Also in 2005, the Committee engaged the services of Watson Wyatt executive compensation consultants to provide input and a second opinion on the competitiveness of program design and award values. Hewitt Associates has historically performed other human resources consulting services for the Corporation, including actuarial consulting, employee benefits design, finance consulting and recordkeeping services. The Committee has adopted the corporate governance best practice of retaining independent executive compensation consulting services and conducted a process during the summer of 2005 to select an independent consulting firm to replace Hewitt Associates as executive compensation consultant to the Committee. The Committee evaluated four consulting firms and selected Watson Wyatt as the replacement consultant, based in part on the positive experience in delivering the review services earlier in the year, on their expertise in both Canadian and U.S. compensation regulation and practices and on their depth of available compensation consulting services. Watson Wyatt does not perform any other consulting services for the Corporation. The Committee will continue to use Hewitt Associates’ proprietary Total Compensation Measurement data services to provide specific competitive data for selected executive and director positions for some period of transition, but this information has been and will continue to be supplemented with other compensation survey data available through Watson Wyatt consulting.
8. If the board has standing committees other than the audit, compensation and nominating committees, identify the committees and describe their function.				Yes	In addition to the Audit Committee, Compensation Committee and CG&N Committee, the Board also has an Executive Committee and a Safety, Health and Environment Committee. The Executive Committee is delegated all powers of the Board in respect of the business and affairs of the Corporation during the intervals between meetings of the Board, except only such powers specified in subsection 115(3) of the Canada Business Corporations Act in all cases in which specific directions shall not have been given by the Board. The Executive Committee rarely exercises such powers and did not meet in 2005. The Safety, Health and Environment Committee assists the Board to review and recommend for approval policies, management systems and performance with respect to safety, health and environment matters affecting the Corporation.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 44

	PotashCorp
Disclosure Requirement under Form 58-101F1	Compliance		Comments & Discussion
9. Disclose whether or not the board, its committees and individual directors are regularly assessed with respect to their effectiveness and contribution. If assessments are regularly conducted, describe the process used for the assessments. If assessments are not regularly conducted, describe how the board satisfies itself that it, its committees, and individual directors are performing effectively.		Yes	Pursuant to the “PotashCorp Governance Principles”, which is available on the Corporation’s website, the Board has adopted the following five-part effectiveness evaluation program: 1.   Annual Board Assessment by all Members of the Board Each year Board members complete a detailed questionnaire which a) provides for quantitative ratings in key areas, and b) seeks subjective comment in each of those areas. The questionnaire is administered by the Corporate Secretary. Responses are reviewed by the Corporate Secretary and the Chair of the CG&N Committee. A summary report is then prepared and provided to the Board Chair, the CG&N Committee and the Chief Executive Officer and then reported to the full Board by the CG&N Committee Chair. Attribution of comments to individual directors in the summary report is made only if authorized by that director. In assessing the responses to the questionnaire, the focus is on continuous improvement. Matters requiring follow-up are identified, action plans are developed and there is ongoing monitoring by the CG&N Committee to ensure satisfactory results. As part of the annual Board assessment, the Board reviews and considers any proposed changes to the Board Charter. 2.   Annual Assessment of each Committee* by Members of that Committee Each year members of each Committee* complete a detailed questionnaire designed to allow Committee members to evaluate how well each Committee is operating and to make suggestions for improvement. The questionnaire is administered by the Corporate Secretary who receives responses and reviews them with the appropriate Committee Chair. A summary report is then prepared and provided to the Board Chair, the Chair of the CG&N Committee, the appropriate Committee and the Chief Executive Officer and then reported to the full Board by the appropriate Committee Chair. As part of the annual Committee assessment, the Board reviews and considers any proposed changes to the Committee Charters. As with the Board assessment, the focus is on continuous improvement. Chairs of each Committee are expected to follow up on matters raised in the Committee assessments and take such action as appropriate.

*   Each of the Audit, Compensation, CG&N, and Safety, Health and Environment Committees participate in this process. Because of its limited activity, the Executive Committee does not.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 45

	PotashCorp
Disclosure Requirement under Form 58-101F1	Compliance	Comments & Discussion
		3.   Annual Assessment of the Board Chair by Members of the Board Each year members of the Board are asked to assess and comment on the discharge, by the Board Chair, of his duties. Individual responses are received by the Corporate Secretary and the Chair of the CG&N Committee. A summary report is then provided to the Board Chair and the full Board, with no attribution of comments to individual directors without their consent. As part of the annual Board Chair assessment, the Board reviews and considers any proposed changes to the Board and Executive Committee Chair position description. 4.   Annual Assessment of Each Committee Chair by Members of each Committee Each year, members of each Committee are asked to assess and comment on the discharge, by each Committee Chair, of his or her duties. Responses are received by the Corporate Secretary and the Committee Chair under review. A summary report is then provided to the appropriate Committee and to the full Board, with no attribution of comments to individual directors without their consent. As part of the annual Committee Chair assessment, the Board reviews and considers any proposed changes to the Committee Chair position descriptions. 5.   Annual Assessment of Individual Directors Each year during the period from May to September, the Board Chair (and, as in the opinion of the Board Chair is desirable, the Chair of the CG&N Committee) formally meets with each director individually to engage in full and frank two-way discussion of any and all issues which either wish to raise, with a focus on maximizing the contribution of each director to the Board and Committees. In completing the review, the Board Chair will employ a checklist, discuss both short term and long term goals, and establish action items to allow individual directors to enhance both his or her personal contributions and overall Board effectiveness. The Board Chair will share peer feedback with each director as appropriate and will review progress and action taken. Each director, during such formal review, shall be prepared to discuss with the Board Chair how the directors, both individually and collectively, could operate more effectively. The Board Chair will discuss the results of the individual evaluations with the Chair of the CG&N Committee and report summary findings to both that Committee and to the full Board at the November meeting.

MANAGEMENT PROXY CIRCULAR │ Appendix A

Page 46

Appendix B

Resolution of Shareholders

WHEREAS the Board of Directors of Potash Corporation of Saskatchewan Inc. (the “Corporation”) has, inter alia, approved a new performance option plan (the “2006 Performance Option Plan”), a copy of which is attached as Appendix C to the Management Proxy Circular of the Corporation sent to the shareholders of the Corporation in connection with the annual and special meeting of the Corporation to be held May 4, 2006;

NOW THEREFORE, BE IT RESOLVED that:

1.	the 2006 Performance Option Plan is hereby adopted and approved by the shareholders of the Corporation; and
2.	any officer of the Corporation be and is hereby authorized and directed for and on behalf of the Corporation to do such things and to take such actions as may be necessary or desirable to carry out the intent of the foregoing resolution and the matters authorized thereby.

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Page 47

Appendix C

2006 Performance Option Plan

1. PURPOSE OF PLAN

Potash Corporation of Saskatchewan Inc. (the “Corporation”) by resolution of its Board of Directors (the “Board”) has established, subject to shareholder approval at the Corporation’s 2006 Annual and Special Meeting of shareholders, this Potash Corporation of Saskatchewan Inc. 2006 Performance Option Plan (the “Plan”) to support the Corporation’s compensation philosophy of providing selected employees and officers with an opportunity to: promote the growth and profitability of the Corporation; align their interests with shareholders; and earn compensation commensurate with corporate performance. The Corporation believes this Plan will directly assist in supporting the Corporation’s compensation philosophy by providing participants with the opportunity through stock options, which will vest, if at all, based on corporate performance over a three-year period, to acquire Common Shares of the Corporation (“Common Shares”).

2. DURATION OF THIS PLAN

This Plan was adopted by the Board on February 27, 2006 to be effective as of January 1, 2006 (the “Effective Date”), subject to shareholder approval at the Corporation’s 2006 Annual and Special Meeting of shareholders, and shall remain in effect, unless sooner terminated as provided herein, until one (1) year from the Effective Date, at which time it will terminate. After this Plan is terminated, no stock options may be granted but stock options previously granted shall remain outstanding in accordance with their applicable terms and conditions and this Plan’s terms and conditions.

3. ADMINISTRATION

This Plan shall be administered by the Compensation Committee of the Board or any other committee designated by the Board to administer this Plan (the “Committee”). The Committee shall be responsible for administering this Plan, subject to this Section 3 and the other provisions of this Plan. The Committee may employ attorneys, consultants, accountants, agents, and other individuals, any of whom may be an employee, and the Committee, the Corporation, and its officers and directors shall be entitled to rely upon the advice, opinions, or valuations of any such individuals. All actions taken and all interpretations and determinations made by the Committee shall be made in the Committee’s sole discretion and shall be final and binding upon the participants, the Corporation, and all other interested individuals. To the extent applicable, the Plan shall be administered with respect to optionees subject to the laws of the U.S. so as to avoid the application of penalties pursuant to Section 409A of the Internal Revenue Code.

4. AUTHORITY OF THE COMMITTEE

The Committee shall have full and exclusive discretionary power to interpret the terms and the intent of this Plan and any Stock Option Award Agreement or other agreement or document ancillary to or in connection with this Plan, to determine eligibility for stock options and to adopt such rules, regulations, forms, instruments, and guidelines for administering this Plan as the Committee may deem necessary or proper. Such authority shall include adopting modifications and amendments to any Stock Option Award Agreement that are necessary to comply with the laws of the countries and other jurisdictions in which the Corporation and/or its subsidiaries operate.

5. SHARES SUBJECT TO STOCK OPTIONS

The aggregate number of Common Shares issuable after February 27, 2006 pursuant to stock options under this Plan may not exceed 1,400,000 Common Shares. The aggregate number of Common Shares in respect of which stock options have been granted to any one person pursuant to this Plan and which remain outstanding shall not at any time exceed 300,000. The authorized limits under this Plan shall be subject to adjustment under Sections 12 and 13.

If any stock option granted under this Plan, or any portion thereof, expires or terminates for any reason without having been exercised in full, the Common Shares with respect to which such option has not been exercised shall again be available for further stock options under this Plan; provided, however, that any stock option that is granted under this Plan that does not vest as a result of a failure to satisfy the Performance Measures, shall not be again available for grant under this Plan.

6. GRANT OF STOCK OPTIONS

From time to time the Board may designate individual officers and employees of the Corporation and its subsidiaries eligible to be granted options to purchase Common Shares and the number of Common Shares which each such person will be

MANAGEMENT PROXY CIRCULAR │ Appendix C

Page 48

granted a stock option to purchase; provided that the aggregate number of Common Shares subject to such stock options may not exceed the number provided for in Section 5 of this Plan. Non-employee directors and other non-employee contractors and third party vendors are not eligible to participate in this Plan.

7. OPTION PRICE

The option price for any option granted under this Plan to any optionee shall be fixed by the Board when the option is granted and shall be not less than the fair market value of the Common Shares at such time which, for optionees resident in the United States and any other optionees designated by the Board, shall be deemed to be the closing price per Common Share on the New York Stock Exchange on the last trading day immediately preceding the day the option is granted and, for all other optionees, shall be deemed to be the closing price per Common Share on the Toronto Stock Exchange on the last trading day immediately preceding the day the option is granted; provided that, in either case, if the Common Shares did not trade on such exchange on such day the option price shall be the closing price per share on such exchange on the last day on which the Common Shares traded on such exchange prior to the day the option is granted.

8. VESTING OF STOCK OPTIONS

Subject to achievement of Performance Measures as certified and approved by the Audit Committee of the Board, stock options granted under this Plan will vest no later than thirty (30) days after the audited financial statements for the applicable Performance Period have been approved by the Board.

9. PERFORMANCE MEASURES FOR VESTING OF STOCK OPTIONS

(a) The Performance Measures which will be used to determine the degree to which stock options will vest over the three-year period beginning the first day of the fiscal year in which they are granted (the “Performance Period”) shall be cash flow return on investment (“CFROI”) and weighted average cost of debt and equity capital (“WACC”).

(i)

CFROI is the ratio of after tax operating cash flow to average gross investment over the fiscal year, calculated as A divided by B, where (1) A equals operating income plus nonrecurring or unusual items plus accrued incentive awards plus depreciation and amortization less cash taxes, and (2) B equals the average of total assets plus accumulated depreciation plus accumulated amortization less cash and cash equivalents less non interest bearing current liabilities.

(ii)

WACC is the weighted average cost of debt and equity capital, calculated as [A times the product of B divided by C] plus [D times the product of E divided by C], where (1) A equals the after-tax market yield cost of debt, (2) B equals the market value of debt less cash and cash equivalents (3) C equals the market value of debt less cash and cash equivalents, plus the market value of equity, (4) D equals the cost of equity, and (5) E equals the market value of equity.

(b) In determining the number of stock options that will actually vest based on the degree to which the Performance Measures have been attained during the applicable Performance Period, the following chart shall be utilized which shows the three year average excess of CFROI being greater than WACC and the respective portion of the stock option that will vest:

Performance Measure		Vesting Scale
3 year average excess of		% of Stock Option
CFROI>  WACC		Grant Vesting
	<0%		0%
	0.20%		30%
	1.20%		70%
	2.20%		90%
	2.50%		100%

(c) In assessing the portion of the stock options that shall vest in accordance with the above chart, the following shall be done:

(i)	Each year, the CFROI and WACC will be calculated in accordance with the definitions herein, based on the audited financial statements and approved by the Audit Committee.
(ii)	In each Performance Period, the average of the three fiscal years shall be calculated by taking the simple average of the individual years’ results.

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Page 49

(iii) The resulting three-year average will then be applied, using the scale above to determine the number of stock options, if any, that will vest as of the end of the Performance Period.

(iv) For results falling between the reference points in the chart above, the level of vesting shall be mathematically interpolated between the reference points.

10. TERMS OF STOCK OPTIONS

The period during which a stock option is exercisable may not exceed 10 years from the date the stock option is granted, and the Stock Option Award Agreement may contain provisions limiting the number of Common Shares with respect to which the stock option may be exercised in any one year. Each stock option agreement shall contain provisions to the effect that:

(a)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of his or her death, or if an optionee who is a retiree pursuant to Section 10(b) dies, the legal personal representatives of the optionee will be entitled to exercise any unexercised vested options, including such stock options that may vest after the date of death, during the period ending at the end of the twelfth calendar month following the calendar month in which the optionee dies, failing which exercise the stock options terminate;
(b)	subject to the terms of Section 10(a) above, if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, by reason of retirement in accordance with the then prevailing retirement policy of the Corporation or subsidiary, the optionee will be entitled to exercise any unexercised vested stock options, including such stock options that may vest after the date of retirement, during the period ending at the end of the 36th month following the calendar month in which the optionee retires, failing which exercise the stock options terminate;
(c)	if the employment of an optionee as an officer or employee of the Corporation or a subsidiary terminates, for any reason other than as provided in Sections 10(a) or (b), the optionee will be entitled to exercise any unexercised vested stock options, to the extent exercisable at the date of such event, during the period ending at the end of the calendar month immediately following the calendar month in which the event occurs, failing which exercise the stock options terminate;
(d)	for greater certainty and for these purposes, an optionee’s employment with the Corporation or a subsidiary shall be considered to have terminated effective on the last day of the optionee’s actual and active employment with the Corporation or subsidiary whether such day is selected by agreement with the optionee or unilaterally by the Corporation or subsidiary and whether with or without advance notice to the optionee. For the avoidance of doubt, no period of notice that is given or ought to have been given under applicable law in respect of such termination of employment will be utilized in determining an optionee’s entitlement under the Plan. The employment of an optionee with the Corporation shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to a person that is a subsidiary of the Corporation and such person ceases to be a subsidiary of the Corporation, unless the Committee determines otherwise; and
(e)	each stock option is personal to the optionee and is not assignable, except (i) as provided in Section 10(a), and (ii) at the election of the Board, a stock option may be assignable to the spouse, children and grandchildren of the original optionee and to a trust, partnership or limited liability company, the entire beneficial interest of which is held by one or more of the foregoing.

Nothing contained in Sections 10(a), (b) or (c) shall extend the period during which a stock option may be exercised beyond its stipulated expiration date or the date on which it is otherwise terminated in accordance with the provisions of this Plan.

If a stock option is assigned pursuant to Section 10(e)(ii), the references in Sections 10(a), (b) and (c) to the termination of employment or death of an optionee shall not relate to the assignee of a stock option but shall relate to the original optionee. In the event of such assignment, legal personal representatives of the original optionee shall not be entitled to exercise the assigned stock option, but the assignee of the stock option or the legal personal representatives of the assignee may exercise the stock option during the applicable specified period.

11. EXERCISE OF STOCK OPTIONS

Subject to the provisions of this Plan, a vested stock option may be exercised from time to time by delivering to the Corporation at its registered office a written notice of exercise specifying the number of Common Shares with respect to which the stock option is being exercised and accompanied by payment in cash or certified cheque in full of the purchase price of the Common Shares then being purchased.

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Page 50

12. ADJUSTMENTS

Appropriate adjustments to the authorized limits set forth in Section 5, in the number, class and/or type of Common Shares optioned and in the option price per share, both as to stock options granted or to be granted, may be made by the Board in its discretion to give effect to adjustments in the number of Common Shares which result from subdivisions, consolidations or reclassifications of the Common Shares, the payment of share dividends by the Corporation, the reconstruction, reorganization or recapitalization of the Corporation or other relevant changes in the capital of the Corporation.

13. MERGERS

If the Corporation proposes to amalgamate or merge with another body corporate, the Corporation shall give written notice thereof to optionees in sufficient time to enable them to exercise outstanding vested stock options, to the extent they are otherwise exercisable by their terms, prior to the effective date of such amalgamation or merger if they so elect. The Corporation shall use its best efforts to provide for the reservation and issuance by the amalgamated or continuing corporation of an appropriate number of Common Shares, with appropriate adjustments, so as to give effect to the continuance of the stock options to the extent reasonably practicable. In the event that the Board determines in good faith that such continuance is not in the circumstances practicable, it may upon 30 days’ notice to optionees terminate the stock options.

14. CHANGE OF CONTROL

If a “change of control” of the Corporation occurs, each then outstanding stock option granted under this Plan may be exercised, in whole or in part, even if such option is not otherwise exercisable by its terms. For purposes of this Plan, a change of control of the Corporation shall be deemed to have occurred if any of the following occur, unless the Board adopts a plan after the Effective Date of this Plan that has a different definition (in which case such definition shall be applied), or the Committee decides to modify or amend the following definition through an amendment of this Plan:

(a)	within any period of two consecutive years, individuals who at the beginning of such period constituted the Board and any new directors whose appointment by the Board or nomination for election by shareholders of the Corporation was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose appointment or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board;
(b)	there occurs an amalgamation, merger, consolidation, wind-up, reorganization or restructuring of the Corporation with or into any other entity, or a similar event or series of such events, other than any such event or series of events which results in securities of the surviving or consolidated corporation representing 50% or more of the combined voting power of the surviving or consolidated corporation’s then outstanding securities entitled to vote in the election of directors of the surviving or consolidated corporation being beneficially owned, directly or indirectly, by the persons who were the holders of the Corporation’s outstanding securities entitled to vote in the election of directors of the Corporation prior to such event or series of events in substantially the same proportions as their ownership immediately prior to such event of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation;
(c)	50% or more of the fixed assets (based on book value as shown on the most recent available audited annual or unaudited quarterly consolidated financial statements) of the Corporation are sold or otherwise disposed of (by liquidation, dissolution, dividend or otherwise) in one transaction or series of transactions within any twelve month period;
(d)	any party, including persons acting jointly or in concert with that party, becomes (through a take-over bid or otherwise) the beneficial owner, directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation’s then outstanding securities entitled to vote in the election of directors of the Corporation, unless in any particular situation the Board determines in advance of such event that such event shall not constitute a change of control; or
(e)	the Board approves and/or recommends that shareholders accept, approve or adopt any transaction that would constitute a change of control under clause (b), (c) or (d) above and determines that the change of control resulting from such transaction will be deemed to have occurred as of a specified date earlier than the date under (b), (c) or (d), as applicable.

15. AMENDMENT OR DISCONTINUANCE OF THIS PLAN

The Board may amend or discontinue the Plan at any time but, subject to Sections 12, 13, and 14, no such amendment may increase the aggregate maximum number of Common Shares that may be subject to stock options under this Plan, change the manner of determining the minimum option price, extend the option period under any option beyond 10 years or, without the consent of the holder of the option, alter or impair any option previously granted to an optionee under this Plan; and, provided

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further, that, without the prior approval of the Corporation’s shareholders, stock options issued under this Plan shall not be repriced, replaced, or regranted through cancellation, or by lowering the option price of a previously granted stock option. Pre-clearance of the Toronto Stock Exchange of amendments to the Plan will be required to the extent provided under the relevant rules of the Toronto Stock Exchange.

16. EVIDENCE OF STOCK OPTIONS

Each stock option granted under this Plan shall be evidenced by a written stock option agreement between the Corporation and the optionee which shall give effect to the provisions of this Plan and include such other terms as the Committee shall determine (“Stock Option Award Agreement”).

17. WITHHOLDING

To the extent that the Corporation is required to withhold federal, provincial, state, local or foreign taxes in connection with any payment made or benefit realized by an optionee or other person hereunder, and the amounts available to the Corporation for such withholding are insufficient, it shall be a condition to the receipt of such payment or the realization of such benefit that the optionee or such other person make arrangements satisfactory to the Corporation for payment of the balance of such taxes required to be withheld, which arrangements (in the discretion of the Board) may include relinquishment of a portion of such benefit. Participants shall also make such arrangements in connection with the disposition of Common Shares acquired upon the exercise of option rights with respect to this Plan.

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Appendix D

Board of Directors Charter

1.   PURPOSE AND ROLE

The Board of Directors (the “Board”) of Potash Corporation of Saskatchewan Inc. (the “Corporation”) is responsible for the stewardship and oversight of the management of the Corporation and its global business. It has the statutory authority and obligation to protect and enhance the assets of the Corporation in the interest of all shareholders.

Although Directors may be elected by the shareholders to bring special expertise or a point of view to Board deliberations, they are not chosen to represent a particular constituency. The best interests of the Corporation and its shareholders must be paramount at all times.

The involvement and commitment of Directors is evidenced by regular Board and Committee meeting attendance, preparation, and active participation in setting goals and requiring performance in the interest of shareholders.

2.   COMPOSITION

The Board shall be comprised of that number of Directors as shall be determined from time to time by the Board, in accordance with the Corporation’s articles, bylaws and applicable laws.

3.   MEETINGS

The time at which and place where the meetings of the Board shall be held and the calling of the meetings and procedure in all things at such meetings shall be determined by the Board in accordance with the Corporation’s articles, bylaws and applicable laws.

The agenda for each Board meeting shall be established by the CEO and the Board Chair, taking into account suggestions from other members of the Board. Meeting materials and information shall be distributed in advance of each meeting so as to provide adequate time for review. The Board has a policy of holding one meeting each year at one of the Corporation’s operating facilities. Site visits by the Board and meetings with senior management of the facility are incorporated into the itinerary.

Directors are expected to attend, in person or via tele- or video-conference, all meetings of the Board and the Committees upon which they serve, to come to such meetings fully prepared, and to remain in attendance for the duration of the meeting. Where a Director’s absence from a meeting is unavoidable, the Director should, as soon as practicable after the meeting, contact the Board Chair, the CEO, or the Corporate Secretary for a briefing on the substantive elements of the meeting.

4.   CHAIR

The Chair of the Board shall have the duties and responsibilities set forth in the “Chair of the Board of Directors and Executive Committee Position Description.”

5.   RESPONSIBILITIES

The Board operates by delegating certain of its responsibilities to management and reserving certain powers to itself. Its principal duties fall into six categories:

▪    Overseeing and approving on an ongoing basis the Corporation’s business strategy and strategic planning process;

▪    Selection of the management;

▪    Setting goals and standards for management, monitoring their performance and taking corrective action where necessary;

▪    Approving policies, procedures and systems for implementing strategy, managing risk, and ensuring the integrity of the Corporation’s internal control and management information systems;

▪    Adopting a communications policy and reporting to shareholders on the performance of the business;

▪    Approval and completion of routine legal requirements.

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          5.1 Strategy Determination

(a)

The Board has the responsibility to participate, as a whole and through its Committees, in identifying the objectives and goals of the business as well as the associated risks, and the strategy by which it proposes to reach those goals and mitigate such risks. The Board shall adopt a strategic planning process and shall approve, on an annual basis, a strategic plan which takes into account, among other things, the opportunities and risks of the business.

(b)

The Board has the responsibility to ensure congruence between shareholder expectations, company plans and management performance.

          5.2 Selection of the Management

(a)	The Board retains the responsibility for managing its own affairs, including planning its composition, selecting its Chair, nominating candidates for election to the Board, appointing Committees and determining Director compensation.
(b)	The Board has the responsibility for the appointment and replacement of a Chief Executive Officer (“CEO”) of the Corporation, for monitoring CEO performance, determining CEO compensation, and providing advice and counsel in the execution of the CEO’s duties.
(c)	The Board has the responsibility for approving the appointment and remuneration of all corporate officers, acting upon the advice of the CEO.
(d)	The Board has the responsibility for, to the extent feasible, satisfying itself as to the integrity of the CEO and the other executive officers and that the CEO and other executive officers create a culture of integrity throughout the Corporation.
(e)	The Board has the responsibility for ensuring that adequate provision has been made for management succession (including appointing, training and monitoring senior management).

          5.3 Monitoring and Acting

(a)	The Board has the responsibility for monitoring the Corporation’s progress towards its goals, and revising and altering its direction in light of changing circumstances.
(b)	The Board has the responsibility for taking action when performance falls short of its goals or when other special circumstances (for example mergers and acquisitions or changes in control) warrant it.

          5.4 Policies and Procedures

(a)	The Board has the responsibility for developing the Corporation’s approach to corporate governance, including developing a set of corporate governance principles and guidelines that are specifically applicable to the Corporation.
(b)	The Board has the responsibility for approving and monitoring compliance with all significant policies, procedures and internal control and management systems by which the Corporation is operated.
(c)	The Board has responsibility for ensuring that the Corporation operates at all times within applicable laws and regulations, and to high ethical and moral standards.

          5.5 Reporting to Shareholders

(a)	The Board has the responsibility for adopting a communications policy for the Corporation, including adopting measures for receiving feedback from stakeholders.
(b)	The Board has the responsibility for ensuring that the financial performance of the Corporation is reported to shareholders on a timely, regular and non-selective basis.
(c)	The Board has the responsibility for ensuring that the financial results are reported fairly, and in accordance with generally accepted accounting principles.
(d)	The Board has the responsibility for timely and non-selective reporting of any other developments that have a significant and material impact on the value of the shareholders’ assets.
(e)	The Board has the responsibility for reporting annually to shareholders on its stewardship for the preceding year.
(f)	The Board has the responsibility for approving any payment of dividends to shareholders.

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          5.6 Legal Requirements

(a) The Board is responsible for ensuring that legal requirements, documents and records have been properly prepared, approved and maintained.

          5.7 Other

(a)	On an annual basis, this Board Charter shall be reviewed and assessed, and any proposed changes shall be submitted to the Board for consideration.
(b)	Any security holder may contact the Board by email or by writing to the Board c/o the Corporate Secretary. Matters relating to the Corporation’s accounting, internal accounting controls or auditing matters will be referred to the Audit Committee. Other matters will be referred to the Board Chair.

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Appendix E

Audit Committee Charter

1.   PURPOSE

1.1 The Audit Committee (the “Committee”) is a standing committee of the Board of Directors of Potash Corporation of Saskatchewan Inc. (the “Corporation”). Its purpose is to assist the Board of Directors in fulfilling its oversight responsibilities for (i) the integrity of the Corporation’s financial statements, (ii) the Corporation’s compliance with legal and regulatory requirements, (iii) the qualifications and independence of the auditors of the Corporation (the “external auditors”), and (iv) the performance of the Corporation’s internal audit function and external auditors. The Committee will also prepare the report that is, under applicable legislation and regulation, required to be included in the Corporation’s annual proxy statement and circular.

2.   AUTHORITY

2.1 The Committee has authority to conduct or authorize investigations into any matter within its scope of responsibility. It is empowered to:

(a)	Determine the public accounting firm to be recommended to the Corporation’s shareholders for appointment as external auditors, and, subject to applicable law, be directly responsible for the compensation and oversight of the work of the external auditors. The external auditors will report directly to the Committee.
(b)	Resolve any disagreements between management and the external auditors regarding financial reporting.
(c)	Pre-approve all auditing and permitted non-audit services performed by the Corporation’s external auditors.
(d)	Retain independent counsel, accountants, or others to advise the Committee or assist in its duties.
(e)	Seek any information it requires from employees – all of whom are directed to cooperate with the Committee’s requests – or external parties.
(f)	Meet with Corporation officers, external auditors or outside counsel, as necessary.
(g)	Delegate authority, to the extent permitted by applicable legislation and regulation, to one or more designated members of the Committee, including the authority to pre-approve all auditing and permitted non-audit services, providing that such decisions are presented to the full Committee at its next scheduled meeting.

3.   COMPOSITION

3.1	The Committee shall consist of at least three and no more than six members of the Board of Directors.
3.2	The Corporate Governance and Nominating Committee will recommend to the Board of Directors members for appointment to the Committee and the Chair of the Committee. Only independent Directors shall be entitled to vote on any Board resolution approving such recommendations.
3.3	If and whenever a vacancy shall exist on the Committee, the remaining members may exercise all its powers so long as a quorum remains in office.
3.4	Each Committee member shall be independent according to the independence standards established by the Board of Directors, and all applicable corporate and securities laws and stock exchange listing standards.
3.5	Each Committee member will also be financially literate. At least one member shall be designated as the “financial expert”, as defined by applicable legislation and regulation. No Committee member shall simultaneously serve on the audit committees of more than two other public companies.

4.   MEETINGS

4.1 A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members present at a meeting duly called and held. All Committee members are expected to attend each meeting, in person or via tele- or video-conference. Any decision or determination of the Committee reduced to writing and signed by all of the members of the Committee shall be fully as effective as if it had been made at a meeting duly called and held.

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4.2

The Committee will meet at least once each fiscal quarter, with authority to convene additional meetings, as circumstances require. The Committee will invite other members of the Board of Directors, members of management, internal auditors or others to attend meetings and provide pertinent information, as necessary. External auditors shall be entitled to receive notice of every meeting of the Committee and to attend and be heard thereat. The Committee will meet separately, periodically, with management, with internal audit and with external auditors. The Committee will also meet periodically in camera. Meeting agendas will be prepared and provided in advance to members, along with appropriate briefing materials.

4.3

The time at which and place where the meetings of the Committee shall be held and the calling of meetings and the procedure in all things at such meetings shall be determined by the Committee; provided that meetings of the Committee shall be convened whenever requested by the external auditors or any member of the Committee in accordance with the Canada Business Corporations Act. Following a Committee meeting, the Committee Chair shall report on the Committee’s activities to the Board of Directors at the next Board of Directors meeting. The Committee shall keep and approve minutes of its meetings in which shall be recorded all action taken by it, which minutes shall be available as soon as practicable to the Board of Directors.

5.   CHAIR

5.1 The Chair of the Committee shall have the duties and responsibilities set forth in Appendix “A”.

6.   RESPONSIBILITIES

There is hereby delegated to the Committee the duties and powers specified in section 171 of the Canada Business Corporations Act and, without limiting these duties and powers, the Committee will carry out the following responsibilities.

          6.1 Financial Statements

(a) Review significant accounting and reporting issues and understand their impact on the financial statements. These issues include:

(i)	complex or unusual transactions and highly judgmental areas;
(ii)	major issues regarding accounting principles and financial statement presentations, including any significant changes in the Corporation’s selection or application of accounting principles; and
(iii)	the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of the Corporation.

(b)	Review analyses prepared by management and/or the external auditors, setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements, including analyses of the effects of alternative GAAP methods on the financial statements.
(c)	Review both U.S. GAAP and Canadian GAAP issues and any reconciliation issues from Canadian GAAP to U.S. GAAP.
(d)	Review with management and the external auditors the results of the audit, including any difficulties encountered. This review will include any restrictions on the scope of the external auditors’ activities or on access to requested information, and any significant disagreements with management.
(e)	Review and discuss the annual audited financial statements and quarterly financial statements with management and the external auditors, including the Corporation’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), including the discussion of critical accounting estimates included therein.
(f)	Review and discuss the unaudited annual financial statements prior to the Corporation’s year-end earnings release.
(g)	Review the annual financial statements and MD&A and make a determination whether to recommend their approval by the Board of Directors.
(h)	Approve the quarterly financial statements and MD&A prior to their release.
(i)	Review disclosures made by the Chief Executive Officer and the Chief Financial Officer during the Forms 10-K and 10-Q certification process about significant deficiencies or material weaknesses in the design or operation of

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	internal controls or any fraud that involves management or other employees who have a significant role in the Corporation’s internal controls.
(j)	Discuss earnings press releases (particularly use of “pro forma” information or other non-GAAP financial measures), as well as financial information and earnings guidance provided externally, including to analysts and rating agencies. This review may be general (i.e., the types of information to be disclosed and the type of presentations to be made). The Committee does not need to discuss each release in advance.
(k)	Review management’s internal control report and the related attestation report of the external auditors when required by Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).

          6.2 Internal Control

(a)	Consider the effectiveness of the Corporation’s internal control system, including information technology security and control.
(b)	Understand the scope of internal audit’s and external auditors’ review of internal control over financial reporting, and obtain reports on significant findings and recommendations, together with management’s responses.
(c)	Review external auditors’ management letters and management’s responses to such letters.
(d)	As requested by the Board of Directors, discuss with management, internal audit and the external auditors the Corporation’s major risk exposures (whether financial, operational or otherwise), the adequacy and effectiveness of the accounting and financial controls, and the steps management has taken to monitor and control such exposures.
(e)	Annually review the Corporation’s disclosure controls and procedures, including any significant deficiencies in, or material non-compliance with, such controls and procedures.
(f)	Discuss with the Chief Financial Officer and, as is in the Committee’s opinion appropriate, the Chief Executive Officer, all elements of the certification required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act which duties may be discharged through the participation by the Chair of the Committee in the quarterly Sarbanes-Oxley Due Diligence Conference Call meeting.

          6.3 Internal Audit

(a)	Review with management, the external auditors and internal audit the charter, plans, activities, staffing and organizational structure of the internal audit function.
(b)	Ensure there are no unjustified restrictions or limitations on the functioning of the internal audit department, and review and concur in the appointment, replacement, or dismissal of the Vice President, Internal Audit.
(c)	Review the effectiveness of the internal audit function, including compliance with The Institute of Internal Auditors’ Standards for the Professional Practice of Internal Auditing.
(d)	On a regular basis, meet separately with the Vice President, Internal Audit to discuss any matters that the Committee or the Vice President, Internal Audit believes should be discussed privately.

          6.4 External Audit

(a)	Review the external auditors’ proposed audit scope and approach, (including coordination of audit effort with internal audit) and budget.
(b)	Review the performance of the external auditors, and exercise final approval on the recommendation to shareholders regarding the appointment or discharge of the external auditors. In performing this review, the Committee will:

(i)

At least annually, obtain and review a report by the external auditors describing (i) the external auditors’ internal quality control procedures; (ii) any material issues raised by the most recent internal quality control review, or peer review, of the external auditors, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the external auditors, and any steps taken to deal with any such issues; and (iii) (to assess the auditor’s independence) all relationships between the external auditors and the Corporation.

(ii)

Take into account the opinions of management and internal audit.

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          (iii) Review and evaluate the lead partner of the external auditors.

(c)	On an annual basis receive and review from the external auditors a report on items required to be communicated to the Committee by Audit Guideline 11 of the Canadian Institute of Chartered Accountants.
(d)	Ensure the rotation of the lead audit partner every five years and other audit partners every seven years, and consider whether there should be regular rotation of the audit firm itself.
(e)	Present its conclusions with respect to the external auditors to the full Board of Directors.
(f)	Set clear hiring policies for employees or former employees of the external auditors.
(g)	On a regular basis, meet separately with the external auditors to discuss any matters that the Committee or external auditors believe should be discussed privately.

          6.5 Compliance

(a)	Review the effectiveness of the system for monitoring compliance with laws and regulations and the results of management’s investigation and follow-up (including disciplinary action) of any instances of non-compliance.
(b)	Establish procedures for: (i) the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls or auditing matters; and (ii) the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.
(c)	Review the findings of any examinations by regulatory agencies, and any external auditors observations made regarding those findings.
(d)	Review the process for communicating the Code of Conduct to Corporation personnel, and for monitoring compliance therewith.
(e)	Obtain regular updates from management and Corporation legal counsel regarding compliance matters.

          6.6 Reporting Responsibilities

(a)	Regularly report to the Board of Directors about Committee activities and issues that arise with respect to the quality or integrity of the Corporation’s financial statements, the Corporation’s compliance with legal or regulatory requirements, the performance and independence of the Corporation’s external auditors, and the performance of the internal audit function.
(b)	Provide an open avenue of communication between internal audit, the external auditors, and the Board of Directors.
(c)	Report annually to shareholders, describing the Committee’s composition, responsibilities and how they were discharged, and any other information required by applicable legislation or regulation, including approval of non-audit services.
(d)	Review any other reports the Corporation issues that relate to Committee responsibilities.

          6.7 Other Responsibilities

(a)	Discuss with management the Corporation’s major policies with respect to risk assessment and risk management.
(b)	Perform other activities related to this Committee Charter as requested by the Board of Directors.
(c)	Institute and oversee special investigations as needed.
(d)	Ensure appropriate disclosure of this Committee Charter as may be required by applicable legislation or regulation.
(e)	Confirm annually that all responsibilities outlined in this Committee Charter have been carried out.
(f)	Receive and review, at least quarterly, a report prepared by the Corporation’s Natural Gas Hedging Committee and, if the Corporation’s hedged position is outside approved guidelines, determine the reasons for the deviation and any action which will be taken as a result.
(g)	Annually review the Corporation’s natural gas hedging policy.
(h)	Receive and review, at least annually and in conjunction with the Compensation Committee, a report on pension plan governance including a fund review and retirement plan accruals.

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7.   FUNDING

7.1 The Corporation shall provide for appropriate funding, as determined by the Committee, for (i) compensation to the external auditors for the purpose of preparing or issuing an audit report or performing other audit review or attest services as pre-approved by the Committee; (ii) compensation to any outside experts employed by the Committee; and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

8.   OTHER

8.1	The Committee shall conduct an evaluation of the Committee’s performance and this Audit Committee Charter, including Appendix “A” attached hereto, at least annually, and recommend to the Board of Directors such Committee Charter changes as the Committee deems appropriate.
8.2	Authority to make minor technical amendments to this Committee Charter is hereby delegated to the Secretary of the Corporation who will report any amendments to the Board of Directors at its next meeting.

APPENDIX “A”

POTASH CORPORATION OF SASKATCHEWAN INC.

Audit Committee Chair Position Description

In addition to the duties and responsibilities set out in the Board of Directors Charter and any other applicable charter, mandate or position description, the chair (the “Chair”) of the Audit Committee (the “Committee”) of Potash Corporation of Saskatchewan Inc. (the “Corporation”) has the duties and responsibilities described below.

1. Provide overall leadership to facilitate the effective functioning of the Committee, including:

(a)	overseeing the structure, composition, membership and activities delegated to the Committee;
(b)	chairing every meeting of the Committee and encouraging free and open discussion at meetings of the Committee;
(c)	scheduling and setting the agenda for Committee meetings with input from other Committee members, the Chair of the Board of Directors and management as appropriate;
(d)	facilitating the timely, accurate and proper flow of information to and from the Committee;
(e)	arranging for management, internal and external auditors and others to attend and present at Committee meetings as appropriate;
(f)	arranging sufficient time during Committee meetings to fully discuss agenda items;
(g)	encouraging Committee members to ask questions and express viewpoints during meetings; and
(h)	taking all other reasonable steps to ensure that the responsibilities and duties of the Committee, as outlined in its Charter, are well understood by the Committee members and executed as effectively as possible.

2.	Foster ethical and responsible decision making by the Committee and its individual members.
3.	Encourage the Committee to meet in separate, regularly scheduled, non-management, closed sessions with the internal auditor and the independent auditors.
4.	Following each meeting of the Committee, report to the Board of Directors on the activities, findings and any recommendations of the Committee.
5.	Carry out such other duties as may reasonably be requested by the Board of Directors.

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PRINTED IN CANADA

Potash Corporation 

of Saskatchewan Inc. 

 

Potash Corporation
of Saskatchewan Inc. Proxy

For use at the Annual and Special Meeting

of Shareholders to be held on May 4, 2006.

THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT OF THE CORPORATION.

The undersigned holder of common shares (“Shares”) of Potash Corporation of Saskatchewan Inc. (the “Corporation”) hereby appoints Dallas J. Howe, Board Chair, or failing him, William J. Doyle, President and Chief Executive Officer, or failing him, Wayne R. Brownlee, Executive Vice President, Treasurer and Chief Financial Officer, or failing him, Joseph A. Podwika, Secretary, or instead of any of the foregoing,

as proxy for the undersigned to attend, vote and act for and on behalf of the undersigned at the annual and special meeting of shareholders of the Corporation to be held:

Thursday, the 4^th day of May, 2006 (the “Meeting”)

10:30 a.m. (local time)

Adam Ballroom

Delta Bessborough

601 Spadina Crescent East

Saskatoon, Saskatchewan, Canada

and at any adjournments thereof, and hereby revokes any proxy previously given by the undersigned.

1. A shareholder has the right to appoint a person who need not be a shareholder, to represent him and to attend and act on his behalf at the Meeting, other than the nominees designated above, and may exercise such right by inserting the name of his nominee in the space provided above for that purpose.

2.	The Shares represented by this proxy will be voted in accordance with any choice specified in this proxy. If no specification is made, the persons named above will vote such Shares FOR the election of the directors named in this proxy, FOR the appointment of Deloitte & Touche LLP as auditors of the Corporation and FOR the resolution (attached as Appendix B to the accompanying Management Proxy Circular) approving the adoption of a new performance option plan, the full text of which is attached as Appendix C to the accompanying Management Proxy Circular. This proxy confers authority to vote in the proxyholder’s discretion with respect to amendments to matters identified in the accompanying Notice of Meeting and with respect to other matters that may properly come before the Meeting.
3.	If this proxy is not dated, it shall be deemed to be dated on the date on which this proxy was mailed by the Corporation.
4.	Reference is made to the accompanying Management Proxy Circular of the Corporation for further information regarding the completion and use of this proxy and other information pertaining to the Meeting.

Without limiting the general powers hereby conferred, the Shares represented by this proxy are to be:

1.	Voted FOR, or WITHHELD FROM VOTING, the nominees for directors listed below.
		For	Withhold		For	Withhold
	(01) F. J. Blesi			(07) J. J. McCaig
	(02) W. J. Doyle			(08) M. Mogford
	(03) J. W. Estey			(09) P. J. Schoenhals
	(04) W. Fetzer III			(10) E. R. Stromberg
	(05) D. J. Howe			(11) J. G. Vicq
	(06) A. D. Laberge			(12) E. Viyella de Paliza

		For	Withhold
2.	Voted FOR, or WITHHELD FROM VOTING, on the appointment of Deloitte & Touche LLP as auditors of the Corporation.
		For	Against
3.	Voted FOR or AGAINST the resolution (attached as Appendix B to the accompanying Management Proxy Circular) approving the adoption of a new performance option plan, the full text of which is attached as Appendix C to the accompanying Management Proxy Circular.

Dated the _______________  day of _________________________  2006.

Name of Shareholder
Signature of Shareholder