CS has an 'underperform' rating with a target price of $29.00 CS was bullish for a very long time during which time they proved to be very wrong. So now they are going the other way.
Perhaps the K&S Board member who spoke to journalists should consult with some of the farming experts on the Board before talking about farmers replenishing their fertilizer inventories. Better that than just popping off with such obvious nonsense.
Board member Andreas Radmacher told journalists, inter alia, that with farmers replenishing fertilizer inventories, it is unfortunate that until their Legacy mining operation comes on line in 2016, their production is stuck at about 7 MMT. Too bad, that is, because he says they could deliver a lot more otherwise. For the moment though, demand exceeds what they can supply That tells us something about current demand. He also threw out a 60 MMT figure for the global potash market for 2014. Sounds like an outlier to me but it is encouraging.
Ongoing tightness in the granular potash market
From time to time, as everybody who reads my posts knows, I have been pouring cold water on any prospective takeovers of POT and MOS, the behemoths everybody focuses on because of their importance. But consider for the moment Allana Potash. No, this is not a BUY recommendation regardless of what follows. Allana has a market cap of about $100 million. Although it hasn't produced anything yet, it does have a project in Ethiopia [viz., Danakhil] that looks promising beginning some time towards the end of 2016. The company just received its water rights from the Ethiopian government for the solution mining operation they are pursuing. Potash demand in Africa has been growing at a fairly healthy clip and there really aren't any other African sources for potash. So why do I bring all this up? As it happens, Israel Chemicals Corp. [ICL], a company in which POT holds a 14% interest, already holds over 16% of Allana and also holds warrants which, if exercised, could bring that percentage up to 35%. Finally, ICL has an off take for 800,000 metric tons of MOP from Danakhil which represents about 80% of expected production. Robin Bromby, in an article, mentions that Allana has obtained a BUY recommendation from a London broker, Whitman Howard, who believe that based upon Allana's current price, ICL might very well prefer to complete a takeover of Allana prior to a commencement of production at Danakhil.
So far, all I have done is report what others think might occur. But let's imagine that it does occur. POT would benefit indirectly if ICL became the principal potash supplier in Africa. This would occur in connection with share price appreciation but more importantly with potentially greater dividends being paid out by ICL. It is entirely possible that POT may have had all this in the back of their minds when they sought to acquire ICL themselves. But even if a takeover of ICL never occurs, POT should see some benefit if a deal occurs.
Now hold on there. I did not plagiarize anything but I did offer an executive summary in my own words of published remarks I did not attribute to the author of the information. As a published author myself, I am well acquainted with academic dishonesty and have always made sure that my published material was properly footnoted as to the source of the material. But in the instant case, I did not feel as if I needed to burden anybody with references; what the author in question did was furnish the reader with that which could have been obtained from the very charts he had looked at. But our little Yahoo Finance posting board has not yet reached that elevated state that every item gleaned from every source other than one's own brain needs to be footnoted. When I believe there is material to be read that I neither copy nor thoroughly elucidate, I always inform everyone where they can go to take a look at what it was that I was looking at. Not this time though because it wasn't warranted. So I plead innocent to the charge. I suppose like Dave Barry, I can preface what I find worth noting by simply saying "I am not making this up." I have no quarrel with anyone who chooses to copy material they find which is relevant to our ongoing discussion. I did not feel that this time it was worth anybody's time once I synthesized what I thought was worthwhile.
POT's data showed that shipments of granular potash during the quarter have materially exceeded what Brazil and North America have had shipped to them compared with the comparable period during the past 2 years. Indeed, POT's sales in Brazil were at record levels so far this year which is understandable given that Brazilian potash imports have increased by 7% on average for the past 5 years.
There is a good reason why I drop kicked the nitwit in question into my IGNORE pile. For some reason, he seems to swell up with unusual indignation regardless of what I have to say. Or at least that was what prompted me to draw to an end with him months ago. I take it from your response to him and your comment to me here that you figured that I still pay attention to what he has to say. Perhaps one day he will see the futility of trying to 'get my goat' insofar as I never read his vitriolic screed.
In the past, he has made unwarranted assumptions about just how well I have done investing in POT, which I have been doing since early 2007, and other positions I maintain. I have previously told everyone that whereas I had, at one point either quadrupled or quintupled my quite large investment in POT, I lost all those gains and then some in the fall of 2008, not having parted with even a single share. I did, however, double down in 2009 [foolishly but it worked out]. At the moment, I am back to having a small gain on everything aside from all the dividends I have received over the years. So although the investment has been something of a disappointment for me thus far, all of my other non-AG investments have done extremely well and they all pay me quarterly just like POT. Still, I prefer to let folks know that I am no wizard when it comes to investing instead of falsely bragging about just how smart I am.
I do agree with you though that he fails to make even a passing attempt at offering up posts that are useful and true. A shame really. I don't really understand what motivates people to merely vent and spew vile retorts. But until this fellow changes his ways, I have no intention of reading anything he posts. And I will try to continue coming up with thoughts that might resonate for those investing in POT.
I knew you were not unaware of my continuing naysaying regarding a takeover of POT by BHP. For the sake of completeness though I felt it necessary to provide a complete statement of my unchanged views. And I was not unaware of Boyd Erman's piece back on April 15th in which he contended that a deal was still possible and that BHP should revisit it. Notice that I used the same $40 billion figure he used to come up with a deal price even though POT's market cap is now higher than it was back then. But if you look at the math he used to make this deal come true, there are problems he hints at regarding the very viability of what he is advancing. For example, if BHP were capable of making such an acquisition, then why is he immediately looking to sell off POT's phosphate and nitrogen operations? That $10 billion figure he comes up with is not tax effected. As a result, POT, which probably has very little tax basis in either of these activities, must now come up with $2-3 billion of tax payments the economic cost for which is borne by BHP as it becomes a deal cost. Ditto the problem of getting rid of the international fertilizer producers which have been held for many years and undoubtedly have a very low tax basis. So what he is really proposing is a 'bust up' transaction to try to help defray the cost of the acquisition by using the assets of the target company. The problem though is that the cost of breaking up POT is significant.
And when it is all over, and there is nothing left but potash assets, is it now a winner acquisition? Well, it all depends upon a rebound in potash prices which nobody can guarantee. So BHP would be betting the ranch on something it does not and cannot control. This is not how boards of directors operate, speculating on a future that if it does not materialize can jeopardize the very entity they are supposed to be the prudent stewards of.
Boyd Erman is paid to write catchy articles. I will give him that but that is about it.
BHP has a much greater problem than identifying a "net benefit" associated with a prospective takeover of POT, something they could not demonstrate heretofore and are therefore unlikely to be able to identify at any time hereafter. And Canada has yet to promulgate regulations explaining what is required to meet their 'net benefit' test. Which means that the likelihood of failure remains what it was; namely, high. Nevertheless, the greater problem for BHP as I see it is that a takeover of POT would cost them about $40 billion, allowing for a reasonable premium over the current share price. But BHP's balance sheet has massively deteriorated since they launched their previous bid and as such, the financing for such an acquisition is just not there. It is one thing to believe that POT would make a worthwhile acquisition and quite another matter for any putative acquirer to be able to come up with the financial wherewithal to make it happen. BHP is endeavoring to significantly reduce its CAPEX over the next several years. Another attempt to acquire POT would be inimical to that endeavor. So my guess is that the new CEO will never recommend such a course of action, particularly because neither the BOD nor the BHP shareholders would likely warm to the idea. And BHP isn't alone in terms of having a seriously weakened balance sheet. Rio Tinto and Vale are in a similar situation.
So I have thought about it and have concluded that the time for taking over POT has passed. I am glad that JP Morgan sees the prospective increase in POT's free cash flow because I am a shareholder interested in seeing the company prosper so that it can continue to increase shareholder value--especially via increased dividends which is what CFO Brownlee stated is the preferred mode right now.
Just curious. Would you be interested in $50 per share for your holdings? I know I wouldn't. And I am not sure if anybody would even offer that much right now.
My own view regarding Jansen, which I posted when it was more relevant, was that it made great sense in conjunction with an acquisition of POT, given that the Jansen CAPEX could then be offset by the potash income POT generates in Saskatchewan. As a stand alone proposition, only materially higher potash prices that are sustainable would make it economically feasible today and it doesn't look as if we are going to see sky high prices any time soon. So I would put that one in the 'nice try' category.
The old BPC cartel is probably going to return in some form but it may be a while before it does. In the meantime, supply and demand considerations favoring the suppliers may make that eventual reunion less consequential. And if we see a shake up in the Indian subsidy arena, things may start jumping even sooner. There are so many ways that this company will ultimately prosper and see its share price return to more loftier heights. For the folks though who think that staying long is holding shares over a weekend, nothing will likely satisfy them. But for those like me who watch with bemused indifference to the daily ebb and flow of things, focusing instead on the Long Game, the future is bright.
You could be right on the money but who can say when we are dealing with Crazy Ivan? What is clear is that they have a self-interested motive in overstating their operational capacity and pretending that they are cutting production when they aren't. Potash prices are already moving higher in South America; not sure about North America. I guess the next big thing to emerge is what the new contract price will be with China now that the 6 month deal they previously negotiated is coming to an end. As for the larger proposed projects, we had a lot of bold talk regarding them but at the moment there is nothing on the horizon to shake up the supply calculations. What excess capacity exists is largely in the hands of the Canpotex 3. I would count Uralkali in this mix as well but I don't really know how much they can expand in the next 2-3 years. K&S will develop their Canadian greenfield mine but that is still some years away. Nobody talks about Brazil in terms of their losing their only domestic potash supply after next year when 600,000 metric tons go poof. So Brazil will go from 90% dependent on exports to 100% dependent with no new mining operations taking its place. Meanwhile, the analysts keep talking about excess capacity, forgetting that most of the slack is in the hands of the Canadians. I can't wait to hear that magical word directed at distributors which we haven't heard in years: Allocation.
It is always a good idea to take anything spoken by a Russian oligarch with a healthy grain of salt. Uralkali produced all out in 2013 and reached 10.5 MMT. Independent analysis of Uralkali's operational capacity indicated that they could get it up to 11 MMT but that is about it. So now they say they will cut projected volumes from 12 MMT to 11 MMT. Yeah, right. Whatever CAPEX they are currently undertaking, if any, is unlikely to have given them the capability to increase their operational capacity to 12 MMT in 6 months. But, as we know, talk is cheap. I believe the reality is that their projection of 11 MMT for 2014 is indicative of their going all out. In other words, they really haven't cut production by even an ounce. Why lie about it? PR. Make buyers believe that output cuts are the harbinger of higher prices and when they come people will believe that the higher prices are merely consonant with lower production. Only because others are saying the same thing about global potash sales for 2014 that I have no quarrel with what Osipov had to say on the subject.
Right now the buzz is in the demand for granular potash as opposed to regular potash. China and India generally purchase the latter. But in North and South America, granular potash, which has more uniform sized pellets and blends more readily with phosphate and nitrogen applications, is what is used. And there is a $28 premium on granular potash over against regular. There are still plenty of analysts calling for a drop in potash demand during the balance of the year over against the robust 1st half. Given what we are learning about declining and lower inventories in North America coupled with higher demand for granular [e.g., prompting the rescission of the layoff notices at the Penobsquis mine at New Brunswick] the joke, this time, may be on the naysayers.
After 3 years of negotiating for exclusive rights to about 100 acres of property at Terminal 5 at the port of Vancouver, BHP decided to walk away from it. This was the port where BHP was going to transport all that potash it was going to produce from its Jansen mine. BHP had been paying the port to keep the property off the market but now that the deal is off, the port will be looking for other potential lease partners. BHP has been taking a 'go slow' approach to developing its Jansen project. Failure to secure the lease is an indication that this go slow approach is not a track likely to change.
I have looked at the POT chart on both a daily and weekly basis. It is clear in either case that POT has cleared all relevant resistance levels in the 30's and it has done so on above average volume, albeit not on massive volume. No one knows whether that means the stock will break out further to the 40's. However, with key resistance levels having been taken out, the chances of that happening have increased. Most stocks follow the market so if the general market commences a decline, the likelihood is that POT will also decline absent a favorable catalyst that no one can predict will occur. For the moment, however, the overall market is in an uptrend. Working against POT though is that the AG sector is not only not on fire but actually remains disfavored at the moment. And when the sector is out of favor, it is harder for any stock within the sector to shine.
It sure has been awfully quiet on that front. Reading some of the posts, one might have gotten the impression that BHP would be making a tender offer right around the corner. But not only has there been no tender but BHP recently announced that it has walked away from a lease deal at the Port of Vancouver where it supposedly was going to export all that potash it was going to develop over at its Jansen mine. If BHP can't even afford to lease port facilities, they certainly don't have the wherewithal to try for a buyout of MOS which every day is telling the world that what it wants to be is the preeminent phosphate producer and supplier, not a potash giant.
I said the takeover would not happen. Events are telling me I was correct. IN 5-10 years from now, MOS might prove to have been a good investment on a stand alone basis. Anyone buying it for any other reason is likely to be disappointed.
Articles have been appearing in the WSJ and elsewhere about the enormous appetite which China has for pork. The recent purchase by the Chinese of Smithfield Foods, the largest U.S. pork producer, is an indication of where things are headed. The Financial Times recently coined the phrase "Meat is the new coal" as a way of illustrating what happens when fat intake in China has tripled between 1980 and 2009 due to the consumption of livestock products. And as their middle class continues to grow big time, it is going to take quite a lot of grain production to feed this growing Chinese meat eating population. According to the Food Policy Research Institute, it takes 8 kilograms of grain to produce 1 kg. of beef or 2kg of grain for 1 kg of poultry meat. And let us not forget about fruits and vegetables which the Chinese also consume in large quantities and which, like grains such as corn, require considerable applications of phosphate and potash. In order to increase the food supply to accommodate the kind of consumption figures regarding China, it looks to me as if POT was not crazy to have undertaken the CAPEX program soon about to come to an end. When the world is going to need fertilizers, we know where they will be able to find it.