PotashCorp: an investor's guide to the fertilizer giant (Part 2 of 8)
A look into PotashCorp’s Assets
Companies in the fertilizer industry have a competitive advantage in that there are high barriers to entry due to high capital requirements. Mines and processing plants require billions and many years to be implemented. In the case of PotashCorp (POT), 68% of its assets correspond to property, plant and equipment (PPE). In the next paragraphs we will understand what PPE entails.
PotashCorp produces all of its potash in Canada at a 56% of nameplate capacity
The company has five mines and mills in the province of Saskatchewan and one mine in the province of New Brunswick. Four of the mines located in Saskatchewan shared relatively evenly most of 2013 potash production and represented 89% of total production. These facilities operated at a rate between 39% and 66% of nameplate capacity
The other two smaller ones had a rate of 78% and 90%. Nameplate capacity is the production level that a company could achieve if it were to use all of its assets at full capacity with the appropriate amount of labor. This rate is also regarded as operating rate. During 2013, PotashCorp run its potash facilities at an average of 56% operating rate. This gives the company the opportunity to cheaply increase production if needed.
While Mosaic (MOS), one of PotashCorp’s main peers, has most of its potash production facilities also in Canada, the company also has potash operating in the U.S. along with Intrepid Potash (IPI). Sociedad Quimica y Minera (SQM) operates its potash segment in Chile.
Nitrogen is produced in the U.S. and Trinidad at a 78% of nameplate capacity
PotashCorp hast three nitrogen plants in the U.S., one located in each of the states of Georgia, Louisiana, and Ohio. The company also operates a large-scale nitrogen production facility in Trinidad. On average, the company used its nitrogen facilities at a rate of 78% of nameplate capacity during 2013.
Phosphate is solely produced in the U.S. at an 87% of nameplate capacity
PotashCorp has two phosphate rock mines located in North Carolina and Florida, similar to peer Mosaic (MOS). The company also has processing plants, where raw materials are converted into fertilizers or other products, in these states plus one more in Louisiana. PotashCorp also has phosphate feed plants in Nebraska, Illinois, Missouri, North Carolina and Florida. On average, PotashCorp run its phosphate facilities at an 87% operating rate during 2013.
The fertilizer giant also has presence in South America, Israel, Jordan and China through significant investments in other fertilizer companies such as SQM, ICL, APC, and Sinofert. These investments are divided between equity-accounted investments (20%-25% stake) and available-for-sale investments (less than 20% stake in company). By the end of 2013, these totaled $3 billion or 17% of all assets.
Browse this series on Market Realist:
- Part 1 - PotashCorp: An investor’s guide to the fertilizer giant
- Part 3 - Understanding how PotashCorp makes money
- Part 4 - The Nitrogen business of PotashCorp
- Basic Materials Industry
- nameplate capacity