Given that the company whose shares POT is purchasing does not pay a dividend, any EPS accretion has to be a function of incremental fertilizer sales to the company. My sense is that that is the real reason they are buying into the company given that they paid more than twice the current trading price for the shares.
POT will be purchasing a 9.5% stake in Brazil's Fertilizantes Heringer SA from its controlling shareholders for $55.7 million. The deal is expected to close in the second half of this year, paving the way for a long term potash supply agreement that will allow POT to become Herringer's principal supplier over time. Heringer, one of the largest fertilizer companies in Brazil, delivered 5 million metric tons of fertilizers including about 1 million metric tons of potash in 2013.
Because you brought up the subject of Canadian withholding tax on dividends paid to U.S. shareholders, I thought it worthwhile to add the following. POT will indeed withhold tax on POT shares held in taxable accounts but will not withhold any tax on POT shares held in any retirement accounts. I personally hold my POT shares in both my regular, taxable account at my brokerage house as well as in my ROTH account. One gets hit with the tax while the other does not. I naturally claim the FTC on my return each year for those shares that get hit with the tax.
We all remember what happened when former Uralkali CEO Vladislav Baumgertner showed up in Minsk, only to be arrested and jailed on a variety of charges. It was Baumgertner who was in charge when the Belarus-Russia cartel was unwound, producing chaos in the potash markets in 2013. Eventually a deal was struck which allowed Baumgertner to return to Russia predicated on his being tried there for the crimes outlined by Belarus in the indictment that they had drawn up against him. However, a few days ago, all criminal charges against the former Uralkali CEO were dropped. It is always possible that civil charges may be brought against Baumgertner but my sense is that the Russians probably never had any intention of bringing criminal charges against Baumgertner given his close ties to a variety of characters in the Kremlin.
Your comment does not even qualify as fuzzy math. U.S. investors, whose notional currency is U.S. dollars, are paid by POT in U.S. dollars so no matter how much the dollar goes up or down, the percentage yield on the stock can never change. The current yield is now 4.3% in light of today's share price decline.
There was nothing in the SEC documents to warrant the extent to which the stock got hammered today. Notice that AGU and MOS were down slightly. I would just call it a bad hair day. POT has many of them.
During an investor conference today, MOS CEO Prokopanko said that as far as he was concerned, he was in no rush to conclude a contract with China and that therefore Canpotex should hold firm to its desire to raise its potash price in China. Sinofert told Canpotex that a price freeze was reasonable given the significant drop in freight rates from Vancouver, BC to Asian markets, thereby cutting producers' costs. Prokopanko, however, indicated that potash is already moving smoothly to other buyers. Prokopanko said that it is likely that Sinofert will agree to contracts first with either Uralkali or Belaruskali sometime at the end of March or early April, in time to move potash to Chinese farmers by spring.
During its CC yesterday, Agrium CEO Magro mentioned that AGU was fully committed for the first half of the year.
If revenues and earnings were double where they are now, the stock would be trading much higher. For a stock with a forward EPS of ~$2.00 a share, why should it be flying? On the other hand, consider Agrium. It is projecting earnings of $7.00-$8.50 for this year which puts its mid-range at $7.75. The stock is trading at ~$115 right now but it has been on a tear. With a P/E under 15 and a solid dividend that the company keeps raising, AGU's share price moves up. This really isn't all that difficult to understand. It's called show me the money.
Canpotex has informed China's Sinofert that it is seeking a $25 increase per metric ton of potash in connection with its 2015 potash supply contract. Sinofert says it wants to pay the same $305 per metric ton it paid last year. Who is going to blink?
As a way to enhance shareholder value during difficult times, BHP has proposed a $15 billion restructuring that will separate BHP into 2 companies. The existing company will be left with 4 main business lines; namely, iron ore, coal copper and petroleum&potash. As it happens, all of these commodities have lower cash flow, lower prices and higher net debt than the commodities that will be spun off as part of "South 32", the newly formed entity that will consist of manganese, silver, nickel, coal, and aluminum commodities. JP Morgan has estimated hard times for the denuded BHP, bereft of its shorn commodities whereas the newly formed mining company is expected to do quite well.
One consequence of the demerger is that BHP will be hit with impairment charges requiring write downs of about $600 million vis a vis its petroleum and its failure to have sold its Australian nickel assets.
Notwithstanding the above, CEO Mackenzie believes that the demerger will be the catalyst for better investor returns as well as reducing costs.
I mention the above information as an indication that if the demerger goes through, BHP will be in an even worse position to ultimately develop the Jansen project. To be sure, commodities are a cyclical business and an upturn in the loser businesses might occur. But until they do, I don't see where the swag is going to come from to fund a multi-year CAPEX project with negative returns based on current potash prices as far as the eye can see.
I don't disagree with what you have written but my focus was on 2016 and, to a lesser extent 2017. I had an expectation that we would be seeing a significant drop off after this year given that POT is supposedly going to be finished with the major, ongoing CAPEX projects but the chart does not support that expectation. Shareholder returns in terms of increased dividends and shareholder repurchases are directly linked to the reductions in CAPEX. The longer it takes to materially cut into that, the longer it will take for us to have more money jingling in our pockets, something I always look forward to. Of course significant potash price increases and/or significant increases in potash sales volumes could also result in more free cash flow capital coming our way but I am not counting on either of those eventualities. All that said, it isn't as if I am going anywhere. As I mentioned previously, I significantly increased my position in January.
I listened to CEO Tilk on the BMO conference this morning. Not much news there. However, the CAPEX chart accompanying the talk showed that CAPEX this year would be greater than last year and that there was not much drop off in 2016 either. I don't get it. I thought that after this year we were essentially done with CAPEX expansion. As best as I can tell, the chart shows about a $1.2 billion CAPEX this year and another $1 billion next year. 2017 looks like ~$800 million and 2018 ~$700 million. The footnote says that sustaining capital is included in the above figures but I could not tell what the relevant amounts of each category were. What I think the chart does show though is that there are increases in CAPEX planned for 2016-2018 for unspecified "opportunity projects."
The legal adviser at the Ministry of Finance, Joel Baris, has asked ICL to provide him with an immediate report on the company's intention of laying off 140 workers at its Bromine Compounds unit in Ne'ot Hovav. In his letter, Baris demands "every relevant detail concerning this intention, including the possibility that production lines in Israel will be shut down." Paris states that the request for an immediate report is for the purposes of examining "the possibility of exercising the state's rights in ICL by virtue of the special share it holds in the company and for the purposes of securing the state's vital interests in the company."
The state of Israel possesses a 'golden share' which permits it to decide who will run the mining concession at the Dead Sea. Right now, that is ICL. My own view is that the threat to cancel ICL's mining concession is an empty one because if it were ever acted upon, nobody else in the private sector would step in. As a result, the Dead Sea Works would just become another money losing, socialist adventure reflective of Israel's past and antithetical to the free market ethos that has been developing for decades. Whether ICL is going to blink or not remains to be seen although their management is pretty adamant that the layoffs are essential in order to make the company more efficient.
I have lived and worked in Israel when it was a socialist country and so can tell you from first hand experience that it was bad business. It is one thing for a government to step in to try to mediate a labor dispute but quite another to essentially threaten management that if they don't back down--because that is what this is all about--they will lose their ability to conduct a major part of their business. I have to believe that the folks at POT are paying careful attention to what is going on in Israel and that their appetite to acquire control of ICL has to be dwindling.
I am with you regarding POT getting out of ICL but you have to ask yourself who would want to own it. If POT attempted to sell on the open market the stock price would collapse so I doubt they would go that route. But sitting pat with it isn't much of a solution either.
ICL produces--or I should say--has the capacity to produce--~ 6 MMT of potash annually. Storage is not a problem because they have virtually unlimited open-air stockpiling capability at the Dead Sea. I assume, but really do not know for sure, what ICL is able to do with the potash that has already been excavated. And I also do not know what their current stock pile is regardless of whether they can move it or not. Suffice it to say though that if ICL is unable to engage the marketplace in a meaningful way because of the ongoing labor problems, ask yourself how much potash is going to be exported from Asia all the way to the U.S. when markets much closer to Russia and Belarus are clamoring for product formerly provided by ICL. Even as things stand, potash imports into the U.S. are less than 10% of the amounts sold. I am not expecting 2015 to be a great year, just a decent one. But that could change.
POT put a lot on the table in order to induce the Israeli government to agree to allow it to acquire a majority interest in ICL through the purchase of the ICL shares held by the Hofer family holding company. However, one thing not on the table, a thing I doubt POT would ever agree to as a condition of sale, is the 53% surtax on profits now being imposed on ICL. Either that tax would have to be cancelled or at least deferred for a very long period of time. I recognize that the value of ICL and therefore the cost of doing a deal will continue to come down as the company's losses mount due to the ongoing work stoppage. However, a bad deal is a bad deal regardless of what the initial capital expenditure turns out to be. So POT, according to the rumor mill over here, might very well pursue a deal with MOS regarding its phosphate division. But the likelihood that POT would want to spring again for a controlling interest in ICL looks very doubtful to me at the moment, even if all the Israeli stars lined up in favor of it moving forward.
There is much more going on over at ICL that has proven to have been the catalyst for the general strike that has now shut down the bromine and potash operations at ICL. Whereas, in the near term, 144 employees at its Bromine Compounds operation were summoned to pre-dismissal hearings, the same is true of 135 employees over at the Dead Sea Works in the Negev where the potash is extracted. These dismissals are an integral part of a downsizing that eventually will result in a total of 600 employees ultimately being let go over the next 2 years.
A significant problem facing ICL, aside from declining prices in the fertilizer markets, is that the Israeli government has imposed a 54% surtax on ICL's operations. This translates as an additional tax liability of ~$375 million on top of the ~$250 million the company already pays in taxes. In order to comply with the recommendations of the committee that is imposing this incremental tax liability on the company, ICL felt it had no choice but to adapt its business strategy to the new reality being forced upon it. As expected, the labor union is not happy with ICL's restructuring proposals. However, it is hard to see the company giving way when it is losing money every day with no prospect for a return to significant profitability in the absence of the downsizing it is attempting to implement. ICL has already cancelled planned investments in Israel of about $750 million and is reevaluating investments of another $1 billion as the investment environment in Israel deteriorates. In the meantime, ICL is looking to expand operations outside of Israel.
The nice thing about trying to acquire control of ICL is that the Hofer family is already ready to deal and the current PM has already expressed approval of the deal given what POT agreed to do last time. So if things line up next month after the election, I can't see any reason why POT would not try again, particularly with all the ongoing turmoil over at ICL's Dead Sea Works. They might even start to look like a White Knight instead of some vulture foreigner. Certainly if I were a member of the Histadrut Labor union, POT as controlling shareholder would look a lot better to me than the current crowd. But that's just me and all I care about is what is best for POT.
ICL's management reported that they had lost some potash market share during the last quarter of 2014 [along with the revenues therefrom] due to work stoppages. They were looking at a brighter future in 2015 but that was before the strike.
By the way, with regard to what POT can and cannot do with respect to buying ICL shares, the Golden Share held by the Israeli government prevents POT from purchasing any more ICL shares without its permission so it doesn't matter that the public float would be insufficient to gain them control. Anyway, they are not going to get involved with the public float, only the shares held by the Hofer holding company because that alone would given them what they want. Of course if the Israeli government were prepared to allow them to acquire the whole company, I am sure POT would go for it but I doubt that would ever occur and that was not the deal previously discussed.
I am sure that anything we can think of the folks at POT are already well aware of. Still, I have to admit that a sale of their phosphate business in order to be in a comfortable financial position to make an acquisition that has always been in their gunsights would make a lot of sense.
No need for the correction as your original percentage was correct. The reason that Hofer's holding company is showing or about to show a 46% interest in ICL is because they are taking a 6 percentage point interest that they hold and using it to float ICL shares on the NYSE.
If POT ever sells its phosphate division, it will be a cash deal. And MOS would be the perfect candidate to buy it insofar as POT's phosphate operations would complement nicely with what MOS already has and MOS has plenty of cash to do a deal. But like you said, folks investigate things all the time without pulling the trigger on anything. If there were a sale, POT would get top dollar for what it has; it isn't as if it would take a low ball payment just to get out of a business that continues to be quite profitable. If former CEO Doyle were still in charge, I doubt there would be consideration to sell off its phosphate business but CEO Tilk is much more of an M&A deal guy. But I don't think that anybody is going to hand anything over to BHP. At current prices, Jansen remains a pipe dream.
The question of what to do with the cash proceeds is another matter. I doubt whether the company would decide to just hand it over to us stakeholders either through a dividend increase or a share repurchase. More likely would be to hold onto it in the event that an opportunity arose such as to pick up a controlling interest in either SQM or ICL. I think ICL might very well become a front burner issue in the event that PM Netanyahu is reelected and the strike at ICL remains unresolved. I mean, if POT takes over majority control, everybody goes back to work which means that the Histadrut Labor union may start singing a different tune this time if negotiations ever resumed with POT.