reflection Mosaic prospects

Spin-off no reflection on Mosaic prospects

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Explaining Cargill’s decision to offload its 64 per cent stake in his company, Jim Prokopanko, Mosaic’s president and chief executive, was at pains to stress that it did not represent a vote of no confidence in the company’s prospects.

“Cargill remains optimistic about Mosaic’s future opportunities and its ability to keep growing and delivering value for its shareholders,” he says.

Among industry executives and analysts, that view is widely shared. The long-term prospects for fertiliser companies, making it possible for the world to feed a growing population, are very healthy.

The short-term prospects, with phosphate and potash prices rising as part of the general commodity surge, look even stronger.

For Mosaic, the severing of ties with its parent company also increase the chances of a bid for the fertiliser maker, once the structures required to secure the deal’s tax-free status have expired.

Excitement over Mosaic’s prospects have already caused the shares to more than triple from their low point in November 2008, and almost to double over the past six months, to close at $85.07 on Tuesday, although they are still well down from their peak of more than $150 in June 2008 at the peak of the pre-crash commodities boom.

Mosaic is the world’s top producer of processed phosphate fertilisers, with a capacity of 10.3m tonnes a year, more than the next three producers combined.

It is also one of the three biggest producers of potash, with capacity of 10.4m tonnes a year from mines in Saskatchewan, Canada, and Michigan and New Mexico in the US.

Together with PotashCorp of Saskatchewan and Calgary-based M, it makes up the Canpotex export cartel, one of the two large exporters’ groups – the other being the Russian/Belarusian BPC – that negotiates with countries such as China, India and Brazil.

Potash prices have been highly volatile in recent years, soaring and then crashing in sync with the commodity cycle of 2006-08, but like other commodities they are now on the rise again.

Last week, China signed a deal with BPC to buy up to 600,000 tonnes of potash at $400 per tonne, 14 per cent higher over the year.

Both Canpotex and BPC are moving to six-month pricing for their sales to China, having previously struck annual deals: a sign of suppliers gaining the upper hand in a rising market.

Jeffrey Stafford, an analyst at research company Morningstar, predicted 2011 sales growth “north of 40 per cent, fuelled by price and volume gains in both phosphate and potash”.

In the longer term, he added, he expected fertiliser prices to decline slightly, as more capacity is brought into production.

Without Cargill’s holding overshadowing Mosaic, the company has more freedom either to make acquisitions or to agree to be acquired itself.

Australia’s BHP Billiton failed last year in its $39bn bid for Mosaic’s bigger rival, PotashCorp, and is still interested in a large deal. It is certain to take an interest in Mosaic’s future.

PotashCorp shares closed on Tuesday at $173,63, far above the $130 a share offered by BHP. Although BHP’s bid was eventually scuttled on political grounds, PotashCorp’s management resisted BHP’s advances by arguing that the bid failed to take adequate account of a likely, long-term surge in fertiliser demand.


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