Now that Uralkali and Belaruskali are throwing cheap potash around, I wonder whether it is a good idea to simply match them in order to maintain market share around the world. For example, what is wrong with just letting U and B have at it all they want but eventually they will be tapped out? So POT, as the swing producer, will be able to supply those who don't get any of the cheap stuff only with much higher margins. You can sell a lot less and still do better than if you sold more as long as the price is right. Right now, POT is expecting to produce only about 9 MMT next year. They can sell all of that without shipping 1 ounce of potash to either China or India. So why bother especially when indications are that applications have been running a lot higher than purchases by distributors, indicating de-stocking?
I agree with you that CEO Doyle's employment of the word "sacrosanct" to describe the status of the current dividend gave Premier Wall an opening to take a shot at the company's policy. And of course Dallas Howe ultimately repudiated the use of that term although he made it clear that the company's dividend policy did not have any bearing on the merits of the layoffs now occurring. Actually I thought that Howe's response was very well thought out and cogent. If you think about it, other than perhaps having relied on some more elegant word smithing, Howe essentially told Premier Wall that the company's dividend policy was not about to modified in order to rescind some or all of the personnel cuts made in Saskatchewan. In other words, the current dividend is sacrosanct. CEO Doyle does not tend to sugar coat his thoughts; I like that about him.
By the way, we are down more than 50% from the all time high which taking into account the last 3 for 1 stock split would be ~$80 and change. It looks like more than 60% to me. But that is not here or there. We are investors and want what is best for the company. It is possible that had the company not negotiated the substantial increases in salaries and benefits during the last go around 3-4 years ago, perhaps the layoffs would have been fewer. Still, things are slow right now and unlikely to pick up any time soon so I find it hard to find fault with what they did. It is easy to Monday Quarterback something like this which I try to avoid. I don't think anybody could have anticipated the current turmoil they are going through now.
I believe that future dividend increases will largely be a function of how the company is doing. So if things pick up, I don't think they will hesitate to bump up the dividend and/or buy back more shares. Still, my guess is that at least until all the CAPEX is finished, we are probably not going to see another increase. Hope I am wrong.
Jumpy, didn't the company hand out big raises and a nice package to everybody a few years ago? They haven't gone back to the unions asking for give backs. So those that remain will keep what they got instead of trying the Skippy peanut butter approach and spreading the pain to everybody. I am neither blaming POT nor applauding their most recent move but I do understand it. I put most of the blame on Crazy Ivan and his madcap sidekick, the Loon from Belarus.
Instead, he urges that the dividend be cut. It isn't going to happen as it would cause market chaos in the shares. It would also turn a business decision into a political one. Wall probably felt the need to make the request anyway for PR purposes.
In its key potash operations, some 570 people will be let go.
Among its operations, Potash said it would suspend production at one of two Lanigan mills in Saskatchewan by the end of the year, but keep the business in “care and maintenance” mode.
Production will be cut at the Cory facility, also in Saskatchewan, while the production operation at Penobsquis, New Brunswick, will be halted.
These are charitable trusts. They need the money to fund their eleemosynary activities. They are not investors looking to hold out for better returns in the future.
I offered a direct response to the poster whose headnote was that MOS was "ready to rock" on buyback news which is expected before year end. I disagreed with that contention for the reasons I indicated. It is true that a declining stock price means that MOS will be required to pay less in order to repurchase its shares but declining stock prices are never good news and a declining market cap has negative collateral consequences, inter alia, because the more the stock price falls, the impetus for shareholders to get out increases, which in turn makes it that much more difficult for the stock to rebound with any conviction. The higher the share price, the more likely it is that the Cargill shareholders will not hold off beginning the selloff of their positions. If the buyback does not happen because everybody is waiting for the stock to recover, it is more likely that it will continue to decline as short term traders figure further waiting is not worth it. Notice that November 26th has come and gone and the stock has gone nowhere. I still say it will have minor liftoff at best when and if a stock buyback is announced. The key remains improvement in earnings and revenues which, unfortunately, are not on the horizon.
If you take a look at all the insider trading activity since August of last year, you will find that aside from the most recent purchases and one purchase by 1 director in early 2013, all the activity has consisted of free stock and stock sales. And there has been quite a lot of free stock handed out to directors during that period. Perhaps the most recent purchases is an indication that something is changing at least as perceived by those in the know.
The significant point about the recent MOS purchases by the directors in question was that the purchases were not pursuant to the exercise of options such that the shares were acquired for a song. By contrast, all the 4000+ MOS shares picked up by directors in October were picked up for nothing as they were pursuant to stock options previously held.
There is very little reason to expect MOS's share price to materially increase as a result of the expected buyback of shares held by the Cargill charitable trusts et. al. Ordinarily, an open market share buyback spurs interest in shares because the public knows that the company is expanding the universe of those looking to buy shares but this is not the case here. MOS will be repurchasing non-public shares whose only palpable effects will be that dividends no longer will need to be paid on such shares and the EPS on the stock will improve but those effects, even on a 10% repurchase of shares, should be modest.
MOS will see a rise in its stock price when the market for its products improve. Those expecting big things before that happens will likely be disappointed. I am a long term MOS shareholder who is glad that MOS is likely to repurchase 30% of its outstanding stock between now and 2015. But that is not why I plan to continue to hold my shares.
Jeffrey Zekauskas, the analyst at JPMorgan thinks so. He points out that the replacement value of POT is about twice its current selling price. An interesting observation but even if true, I am not sure that means much in today's world. Another observation he recently made though has more resonance. He believes that the ownership change at the top of Uralkali and the extradition of soon to be replaced Uralkali CEO Baumgertner presages a return to a 'price over volume' approach to selling potash. It may take some time before this becomes a reality but he can't see the end of all the political disruption between Russia and Belarus winding up with no fundamental change in the current marketing dynamic. On that point, I now think that it is better than a jump ball that a reevaluation of Uralkali's marketing strategy will occur.
One more point of note. Zekauskas said that following the conclusion of its ongoing CAPEX program, POT will have a 7.5%-8% sustainable free cash flow even under present conditions. And that sounds as if those of us who hold POT shares will get more money jingling in our pockets.
Potash is priced in dollars everywhere either explicitly or implicitly so the economic cost of potash is largely a function of exchange rates. A case in point is India where a massive decline in the value of the rupee has made potash much more expensive than it used to be and is partially responsible for all their whining. Consider now what is happening in China. Two days ago, the Chinese announced that they no longer see any good reason to continue to increase their foreign currency reserves [READ: U.S. dollar denominated assets]. Moreover, they are moving ever closer to free convertibility of the Yuan, although for the moment that will take the form of expanding the band in which their currency is allowed to trade. These 2 items presage a decline in the value of the dollar and a rise in the value of the Yuan. Combine this with announced Chinese agricultural reforms and what we should see in the years to come is China purchasing more potash at prices which, to them, are less expensive than previously because their currency buys more potash at lower prices given the rise in the Yuan-U.S. dollar exchange rate. Given the ever increasing size of the Chinese middle class, the ability to grow more food as well as the ability to more comfortably finance the purchase of foodstuffs from overseas, the likelihood that BHP CEO Andrew MacKenzie was not blowing smoke when he said that he expects 3% annual average growth in potash applications over the next 17 years. Those countries whose exchange rates strengthen vis a vis the U.S. dollar will be less concerned about whether the BPC cartel is reconstituted or not. Those whose currencies continue to languish or decline vis a vis the U.S. dollar will continue to have a dog in this hunt.
So now you descend from mere stupidity to lying. I have had enough. Into the IGNORE dumpster you go.
Your assessment is dependent on a very muscular, upward change in POT's revenues and earnings which I don't think is likely in a year. I am not saying you will never be proven right, just that your assessment is premature.
You really never cease to give your magical thinking a rest. India is broke. They can't build anything, let alone a phosphate mine in Russia. And even if one were to appear one day, it wouldn't materialize in a year. You are now in the running for the least informative and most comical poster we have on this Board. Keep it up and it is almost certain that you will move onto the Dunce's Chair complete with a suitable fool's cap.
It is really hard to appreciate how mentally deficient you are in examining a fairly straightforward market cap situation at MOS. The public float of MOS includes all of its outstanding shares--including the non-publicly traded shares held by shareholders of Cargill. Any purchase of such shares by MOS will reduce its outstanding float. That you cannot understand such a fundamental point about the effect of a share repurchase is sad. Repurchased shares become treasury shares but regardless of whether they are cancelled or not [they probably will be cancelled], they cease to be regarded as shares taken into account for GAAP and EPS purposes.
The Russian press is reporting that Uralkali CEO Baumgertner will be heading home soon as Belarus has agreed to extradite the executive back to Russia. If true, this news follows hard upon the news of Kerimov and his buddies selling their controlling interest in Uralkali to Prokhorov et. al. So it looks as if the temperature has definitely started to come down over there.
BHP CEO Andrew MacKenzie is reported as having said that he expects the growth of global potash applications to increase by 3% a year over the next 17 years, justifying BHP's endeavor to get into the business.
Whether this guy knows what he is talking about is another story.
Rich, trying to figure out precisely what is in the minds of Russians and Belarussians when they do what they do requires more psychoanalytical capabilities than I possess. The implication of what you have said is that Uralkali intentionally did what it did in order to forestall potash operations of others which in the long run would be detrimental to its business. Assuming this is a correct assessment, you would have us ignore what Uralkali publicly stated as its reason to leave BPC [ie. cheating by Belaruskali] as well as Belarus' response to same regarding what they really believed was going on [ie., cheating by Uralkali]. I am OK with that. But let us say that your surmise is correct and that, as you say, if you were Uralkali's CEO, you would have done just what they did. But if we go down that road, I see a contradiction between a reestablishment of the cartel, which would raise prices and thereby once again invite the undesirable competition, and the continuation of the current 'volume over price' marketing strategy which, although it hurts their bottom line, does help keep the wolves at bay. The problem with maintaining the current, lowered potash prices is that neither Uralkali nor Belarus can be happy about the reduced revenues, albeit made up for to some extent with increased volumes.
Now, the solution to the conundrum which is out of everybody's control, would be a sizable increase in global potash applications such that prices can be maintained at a level which will deter greenfield activity while at the same time providing sufficient revenues to pick up the slack caused by the lower prices. Is this what you are envisioning? I know that all the producers are talking about materially increased global potash applications beginning in 2014. So is that it? Did I figure it out?