Count me as a believer. It should come to an end after Thursday when the Q1 earnings are reported. I figure that the upward bidding of the shares at this time conveniently is occurring just before earnings. Some people like to do this figuring they will profit from a good report. And if the report is good either because of an earnings beat or an improved year forecast, those who took positions would then be able to exit with a profit. Of course if things turn sour, the selloff should swamp all the recent gains. Part of the reason why I doubt the validity of the upward rise is that the volume numbers have been below average, indicating that no serious accumulation is occurring. I look forward to the day when we get positive news that has legs. However, the recent rise just looks like some short term prospecting to me. And because of that, I doubt that the shorts have been running for cover in fear of an earnings gusher coming out of POT.
Dmitri Mazepin, one of the major Uralkali shareholders, recently made the following comment:
Today we represent our employees, our shareholders; behind us are thousands of workers, miners or those who work at factories. They need to know that the companies they work for have a future. Being one of the shareholders I want to make these companies grow. The decision to join Uralkali’s capital was aimed at creating, not destroying or destabilizing anything. I am a businessman, not a politician,” Dmitry Mazepin said.
Looks like the beat goes on as far as these folks getting back together again.
Production up 22% from prior month but down 12% from prior year. Exports up 33% from prior month but 23% below prior year. Domestic sales down 1% from previous onto but 50% above prior year. March ending inventory down 165,000 metric tons and 6% above previous 5 year average.
China routinely characterizes just about anything critical or negative about what is going on in China as a state secret so that figuring out what is really going on ordinarily requires extra effort. Not so this time with regard to the extent of China's soil pollution thanks to an official report which has just been made public. My sense is that even though the report confirms long suspected fears that extensive portions of China's farmland is contaminated affecting the viability of the country's food supply, it is reasonable to believe that the situation might even be worse than reported notwithstanding the absence of any obvious sugar coating of what has been revealed.
The official report says that nearly 20% of the country's arable land is contaminated, largely due to the presence of heavy metals such as cadmium, nickel and arsenic. With so much land now unfit for farming, China will either have to rely on a greater importation of food or increase yields on uncontaminated farmland or a combination of both. Either way, it is hard to see why this news will not benefit the crop nutrient suppliers like POT. The report was based on a 7 year survey covering 2.4 million square miles and indicated that air pollution too contributes to the problem insofar as heavy metal particles in the air and water seep into the land which then gets into the food. China's Ministry of Land and Resources, which had previously declared over 8 million acres of land no longer fit for farming, has had nothing to say about reports that the majority of the remaining arable land is of poor to moderate quality. Some effort towards soil remediation is under way but it is a technically demanding process that can take decades. One indication of what happens when one consumes cadmium in excess of the widely accepted standard of 0.4 milligrams per kilo of rice over a long period is that it can cause crippling pain in the bones plus liver and kidney damage. 2013 levels exceeded that already.
The following piece goes hand in glove with your post:
(Reuters) - Belarussian President Alexander Lukashenko signaled to Russian potash producer Uralkali on Friday that he was interested in ending a nine-month dispute that has hurt both sides.
Uralkali, the world's largest potash producer, left a powerful trading joint venture with Belarus in July, triggering a slump in potash prices and a row with Belarus, which eventually led to a change in the company's owners.
"The main thing is that we get out of all this mess together ... with minimum losses," Lukashenko said at a meeting with new Uralkali co-owner Dmitry Mazepin, local state agency Belta reported.
It was the first public meeting between Lukashenko and Mazepin after the Russian tycoon's firm Uralchem bought a stake in Uralkali in late 2013.
"To some extent, it is a special historical meeting after what happened in our relationship with the former shareholders of your company," Lukashenko told Mazepin.
He said Mazepin had come to Minsk to "discuss problems, which still exist", but did not say whether the discussion included the possibility of creating a new trading alliance between Uralkali and Belarus state potash firm Belaruskali. Uralchem could not be reached for further comment.
The conflict has benefited neither potash producers, nor the potash market, Mazepin told Lukashenko.
"I am a businessman, I am not a politician," Mazepin said, according to Belta.
Renewed cooperation between Uralkali and Belaruskali could help both firms and the global market, Uralkali's other co-owner, the Onexim group, has said.
I spent most of yesterday and today out with my dogs when I wasn't at the gym so I hadn't read BHP's 1Q14. I appreciate though your posting the salient features from that press release relevant to our potash interests. It proves that those guys are CAPEX conservative, not CAPEX crazy. They see that this is no time to rapidly develop something going miles to nowhere. The rumor I am waiting for is the one indicating that the controlling shareholder of SQM is ready to sit down with POT to make a deal for POT to acquire a controlling interest in SQM, antecedent to acquiring the whole company. Better to put money into a deal like that with ongoing businesses which would enhance their portfolio rather than to hand money over to somebody for an interest in a hole in the ground.
You are right; they are entertaining. So far I have seen only 1 commentator pour cold water on all this takeover chatter. However, he did not demur based on any of the reasons I have advanced heretofore as to why this will not be a happening thing. Instead, he contended that the problem with a takeover of POT by BHP while BHP continued with the development of Jansen would give BHP an extraordinary amount of global control over the market such that anti-trust considerations would come into play. It is an argument but not one that I believe would spell the death knell of the acquisition. Still, if there is merit in the argument, it would mean that the price BHP might have to pay to get into the potash arena via POT would be the relinquishment of Jansen which I doubt they would ever be that desperate to do especially if they were obliged to offer a significant premium over the current share price. It is precisely the combination of POT and Jansen that makes the whole thing attractive.
The rubes bit on the first day speculation like this article started to appear but things cooled off rather quickly thereafter. But if speculation like this is what it will take for POT to get back into the 40s near term, I am OK with that. I will continue to sit here with all of my shares, knowing that the whole thing is stuff and nonsense but I can't hate it when my net worth keeps climbing.
Armchair business strategists think nothing of throwing $40-$50 billion of somebody else's imaginary money at an acquisition. But those in the C Suite do not have that luxury. Their job description does not include making good copy for the likes of us.
I concur. CEO Doyle loved what he was doing and even though he will be staying aboard until he hits the magic 65 next year, I am pretty sure that he wanted to go out as the top banana rather than as the senior advisor to the new head cheese whom he will help train. Even so, his prior and current stewardship and advisory activities between now and when he departs for good will be responsible for whatever ups and downs that are encountered because the stage is now set for a new phase in the company's history now that the multi-year CAPEX program will soon come to an end. At some point the new guy on the block will show us what if anything he can do to further enhance shareholder value but that may take a while. The next CC will be the last one he chairs. I plan to listen in.
So this is what all the excitement was about a few days ago. Definitely dubious but still a lot more plausible than BHP coming up with the scratch to take over POT. If POT believed that Jansen might seriously threaten it, taking a position in it as a JV partner would preclude that eventuality as the author indicates. But if the threat is not taken seriously, I agree that POT, which already has at least another 4-5 MMT of brownfield capability of its own which it could develop if there were a need for further expansion beyond what is slated to be completed next year, would never go for this. And I don't believe they are worried about Jansen for the reasons you outlined. The author suggested that another reason why POT might go for something like this is that it would strengthen potash prices across the board. I doubt that because I don't believe current prices are affected by the existence of a potash exploration project that might never materialize but in any event will not be producing anything for many years to come. For the foreseeable future, POT will remain a 'value' stock given its good margins, sound financial condition and high dividends. Those including myself believe that over the next 5-10 years, POT might once again return to being a growth stock. Most folks don't have the patience for that to happen which I understand. CEO Doyle will be at the helm until July 1st and a senior advisor for the year following. I just don't see him getting snookered by anything BHP might propose, especially allowing the company's stock to be diluted for a whole lot of nothing. Perhaps that is a bit too harsh. With an interest in a JV, CAPEX of the JV could offset POT income from operations so there would be some tax benefit generated but I doubt that would justify such a move.
A taxable account given that you would then benefit from the partnership taxation rules and avoid the UBIT rules. One potentially appealing strategy is to accumulate units in an IRA with a view towards transferring same to a taxable account once there are no penalties associated with the transfer. Better if the units are in a ROTH IRA and are transferred after one has reached 59 1/2 and the ROTH meets the 5 year existence requirement. All units moving from any IRA account to a taxable account get a tax basis equal to the FMV of the units.
Glad to see that we are on the same side of this nonsense takeover chatter. The market indices were all up big time today while POT gained exactly 7 cents on below average volume. So the enthusiasm lasted all of one trading session which in the current environment is about what one might expect. As for the Asian sovereign wealth funds and their gumba buddy pals, I don't doubt that they could come up with the scratch to make an acquisition possible. However, I doubt that Canada would ever approve any deal in which the Chinese government, directly or indirectly, would control POT. And those types would also have a hard time meeting the net benefit test unless throwing a lot of money around represents a sufficient benefit. I have always viewed Jansen as an integral part of a POT takeover with all the CAPEX from that monster operation offset by potash income out of Saskatchewan. The big surprise, which blew up in BHP's face, is that it got stomped. Had that not occurred, they could have become the dominant global player in agricultural nutrients. Without POT, Jansen will have to be a slow bleed for BHP with the hope that in time global prices rise sufficiently to make the project economically justified to bring to a conclusion. Either that or bring in some partners to lay off some of the risk. Another reason why I don't see BHP making a move for POT in the near term even if they were inclined to do so is that the Canadian government has still not promulgated regulations explaining what it takes to meet their net benefit test. Once they come out though, presumably there will be sufficient guidance that anybody with sufficient swag will be able to judge whether they have a shot as opposed to flying blind.
BHP cannot pay $60 per share for POT nor would they. It would cause them to teeter on bankruptcy in a few years time if commodity prices did not ramp upwards to the range you mentioned which nobody believes is going to happen for years to come. Companies don't ordinarily take such risks if they are not in extremis Nor could they finance it because the numbers do not work and the lenders are not crazy. Have you looked at BHP's financial condition? I have. There are good reasons why the stock has declined considerably and why the company has declared its intention to back off CAPEX big time for the next several years. So I doubt that BHP could even offer $50 per share for financial reasons. If you are correct though about shareholder sentiment, no deal would ever get done because BHP is probably constrained to offer no more than they did before or less. And even at those prices they would be hurting financially. Nothing I have said or believe though contradicts the notion that BHP would very much like to acquire POT. Of course they would. But it is just like me looking into the Jaguar showroom. Sure I would like the car but I can't realistically afford the freight. Avoiding a net detriment to Canada is not the same thing as demonstrating that there is a benefit accruing to the country which is the standard. I hope everybody enjoyed the article but have to believe that its shelf life will be quite limited.
Rich, if BHP continued to hold onto Jansen with a view towards using POT income to offset Jansen CAPEX costs, that would be a net detriment to Canada, not a net benefit. So I am not sure how they would get around that short of divesting themselves of Jansen which I doubt they would do. But let us leave that speculation aside. For the various reasons I have previously enunciated, I continue to be a naysayer regarding this thing ever getting off the ground. I cannot gauge shareholder sentiment, especially the institutional investors. We know that the ARBS would move in once again looking for a big payday. And that of course would be inimical to BHP ever succeeding given the enormous cost involved. They are already saddled with a somewhat shaky financial position which is why they have embarked on a multi-year CAPEX reduction program. Attempting to put another deal together would wreck that and if margins did not improve materially, such an acquisition would be a big time loser that would massively cause a deterioration in their debt rating by the agencies. I just can't see their BOD taking the risk that such a move would entail. But in the meantime, let those who believe that a deal is just around the corner such that they bid up the stock price on nothing but fumes. I am not selling no matter what but don't hate seeing the share price move upwards regardless of my belief that it is all an illusion until such time as the fundamentals warrant such a move.
As for dealing with the P and N businesses in a tax efficient manner, in a prior life, I used to structure deals like these for a living. Indeed, the transaction to accomplish all this tax free in Canada is called a 'Canadian Butterfly' and I have done them before. The problem is that if there is a change in control of POT, the rump businesses cannot be spun off to the current shareholders without a corporate level tax as well as a shareholder level tax. Which means it won't get done.
The ones who have to be unhappy about the article coming out are those with a short interest in POT shares. As of the most recent reporting, there are still over 23 million POT shares held short and given the average daily volume, it would take about 5 days for them to cover. Here they figured that with overcapacity in the industry, price cutting on potash the order of the day, no resumption of the BPC cartel, new capacity coming on line in the next few years, potash prices still sitting in the doldrums with little prospect of any meaningful improvement near term absent some unexpected embargo of Uralkali's potash exports, taking the short side of this trade seemed like a reasonable idea. But if enough crazy people decide to bet on a potential takeover, the hapless shorts will just have to lick their wounds and cover rather than get buried. The curious thing about people coming to their senses is that it often takes time. We will just have to see how long this craziness lasts. I have no dog in this hunt and would much prefer to just bump along with my POT shares based upon long term considerations. But if folks insist on enriching me undeservedly, I am OK with that. It isn't as if there is a gun to their heads. And if one thinks about it, the considerations which have made this stock a not unreasonable short prospect are precisely the reasons why BHP would have to be stupid to throw big time money at it.
Selling off assets with virtually no basis will produce a huge corporate level tax raising the cost to any deal. BHP can ill afford a takeover of POT and would likely get turned down again anyway given that they still can't come up with an explanation as to how such a takeover would benefit Canada. So this article was good for giving the stock a nice pop today but that is about it. Anybody buying this stock expecting it to get taken over better have money to burn and infinite patience.
The sanctions you are talking about have to involve the Europeans. If not, then not much will change because Uralkali hardly does any business in N.A.
Nothing substantive has changed. The Canadian authorities who turned BHP down the last time would look like total idiots approving a deal now under these circumstances. BHP flushed a lot of cash down the toilet last time making a bid for POT. Now that they are committed to bringing their CAPEX down, making another futile effort will just leave a stink behind that the BHP shareholders will not be too fond of. And it will darken the rep of their new CEO given that he will be seen to be speaking out of both sides of his mouth. And if BHP were to decide to make another attempt, they would once again try to lowball their bid and would never offer a 50% premium to the current share price. They also couldn't afford it.
The 'net benefit to Canada' is still the standard for approving a takeover of POT. BHP failed last time because it could not make a credible case. It still can't. If folks want to bid up the value of my shares based upon rumors like this, fine. But I contend that it is still just a lot of hot air.