Before BHP Billiton (NYSE:BHP) made a bid for Potash Corp. (NYSE:POT), there wasn't a lot of thought from mining companies about entering into that sector, which was confirmed by Teck Resources (NYSE:TCK), which said they haven't been thinking along those lines.
A Teck executive did confirm there was a large demand for the fertilizer.
Senior Vice President for Corporate Development Ronald J. Vance said, "Potash is a commodity that is clearly in demand,” although it's “not something we’ve spent a lot of time thinking about, frankly.”
We'll probably see a bunch of copycats now following BHP, thinking they're missing out of something they must enter into. But BHP is unique in its size and financial position, and not that many miners could follow in their footsteps, even if they wanted to.
For most, like Teck, to go off their core business and enter into one they know nothing about, would probably end up being a disaster.
There's no doubt fertilizer will be a huge sector in the years ahead, but that has nothing to do with the mining industry.
BHP is obviously developing into a different kind of company, and they have the financial strength to do it. Most miners will do best to stick with what they know and let BHP do what they want.
Hopefully Teck will continue to ignore the faddish quality of the pursuit of potash resources and keep doing what they're good at.
Showing posts with label Investing in Potash. Show all posts
Showing posts with label Investing in Potash. Show all posts
Monday, September 13, 2010
Monday, August 30, 2010
Agrium (NYSE:AGU) Interested in Potash (NSYE:POT) Assets
If BHP Billiton Ltd. (NYSE:BHP) acquires Potash Corp. of Saskatchewan Inc. (NSYE:POT), Agrium (NYSE:AGU) has let it be known that they would be interested in buying up some of the assets of the fertilizer company once the takeover was completed.
Agrium Chief Executive Officer Mike Wilson said in an interview, “If those assets come out at a value that makes sense for Agrium, of course we would look at them. The company is interested in agricultural assets and businesses in any part of the world.
Units that could possibly be put up for sale would be those producing nitrogen and phosphates. Wilson said he would even be interested in some of their potash if it was put up for sale.
Wilson sees the overall outlook for nitrogen, phosphate and potash fertilizers as very good. Phosphate could come under pressure in 2011 because of increased supply. Wilson sees demand over the next year and a half absorbing that and new supply will be needed at that time.
Agrium is in midst of attempting to acquire Australian largest wheat exporter AWB Ltd., as they're waiting for approvals to go forward.
Agrium Chief Executive Officer Mike Wilson said in an interview, “If those assets come out at a value that makes sense for Agrium, of course we would look at them. The company is interested in agricultural assets and businesses in any part of the world.
Units that could possibly be put up for sale would be those producing nitrogen and phosphates. Wilson said he would even be interested in some of their potash if it was put up for sale.
Wilson sees the overall outlook for nitrogen, phosphate and potash fertilizers as very good. Phosphate could come under pressure in 2011 because of increased supply. Wilson sees demand over the next year and a half absorbing that and new supply will be needed at that time.
Agrium is in midst of attempting to acquire Australian largest wheat exporter AWB Ltd., as they're waiting for approvals to go forward.
Friday, August 27, 2010
BHP (NYSE:BHP) Starting its Wooing of Potash (NYSE:POT) Shareholders
Marius Kloppers, CEO of BHP Billiton (NYSE:BHP) is traveling to North America to work on convincing shareholders of Potash (NYSE:POT) that a deal between the two companies would be beneficial to both companies.
Working on keeping the bidding price within a reasonable range and managing the expectations of Potash shareholders, more than likely Kloppers will focus on the value of the $130 a share he already offered while he's in the region.
He wants to dampen the idea that there is going to be a further raising of the bid in order to acquire the fertilizer company.
Even so, Kloppers has implied there will eventually be a higher offer once regulatory hurdles are taken care of, which are expected to take as long as two months.
A higher bid could bring other challenges as well, as a bid of $47 billion would require BHP to get shareholder approval, based on stock market rules in the UK. That's because any acquisition over 25 percent of the market capitalization of a company in the UK much then get shareholder approval, which the $47 billion would be.
With the size of BHP, there has been a lot of pressure from shareholders for BHP to grow, and with few acquisitions out there which would have a significant and immediate impact on their bottom line, Kloppers will work hard to get the deal done.
Other BHP shareholders are concerned over the risks associated with the deal, including the amount of debt and if the continuing recession could damper the expected demand for potash in the near term.
Working on keeping the bidding price within a reasonable range and managing the expectations of Potash shareholders, more than likely Kloppers will focus on the value of the $130 a share he already offered while he's in the region.
He wants to dampen the idea that there is going to be a further raising of the bid in order to acquire the fertilizer company.
Even so, Kloppers has implied there will eventually be a higher offer once regulatory hurdles are taken care of, which are expected to take as long as two months.
A higher bid could bring other challenges as well, as a bid of $47 billion would require BHP to get shareholder approval, based on stock market rules in the UK. That's because any acquisition over 25 percent of the market capitalization of a company in the UK much then get shareholder approval, which the $47 billion would be.
With the size of BHP, there has been a lot of pressure from shareholders for BHP to grow, and with few acquisitions out there which would have a significant and immediate impact on their bottom line, Kloppers will work hard to get the deal done.
Other BHP shareholders are concerned over the risks associated with the deal, including the amount of debt and if the continuing recession could damper the expected demand for potash in the near term.
Wednesday, August 25, 2010
Two Charged in BHP (NYSE:BHP), Potash (NYSE:POT) Insider Trading
Two traders have been charged by the Securities and Exchange Commission for insider trading in relationship to the BHP (NYSE:BHP) bid for Potash (NYSE:POT).
One of the men, Juan Jose Fernandez Garcia, from Spain, works for Banco Santander SA as head of research. Banco Santander is the advisor for BHP in their Potash bid.
It wasn't clear, outside of alleged insider trading, what other connection Luis Martin Caro Sanchez, the other man charged, also from Spain, played in the deal, if any.
The charges are making trades on secret information, where illegal profits of $1.1 million were made in bets Potash stock would increase.
Early in August the two traders spent $61,000 on contracts which were at a set price, and which were close to expiring. The only way the two could have made money would have been for the shares of Potash to increase in value rapidly.
The pair attempted to move their money out of the country to Spain, but failed in the attempt.
Trades were made on the Chicago Board Options Exchange, and the charges were filed by the SEC in federal district court in Illinois.
One of the men, Juan Jose Fernandez Garcia, from Spain, works for Banco Santander SA as head of research. Banco Santander is the advisor for BHP in their Potash bid.
It wasn't clear, outside of alleged insider trading, what other connection Luis Martin Caro Sanchez, the other man charged, also from Spain, played in the deal, if any.
The charges are making trades on secret information, where illegal profits of $1.1 million were made in bets Potash stock would increase.
Early in August the two traders spent $61,000 on contracts which were at a set price, and which were close to expiring. The only way the two could have made money would have been for the shares of Potash to increase in value rapidly.
The pair attempted to move their money out of the country to Spain, but failed in the attempt.
Trades were made on the Chicago Board Options Exchange, and the charges were filed by the SEC in federal district court in Illinois.
Tuesday, August 24, 2010
Rio Tinto (NYSE:RTP) Plunges on Mine Strike, Potash (NYSE:POT)
Rio Tinto Plc (NYSE:RTP) has plunged today, dropping to $48 a share, a loss of $2.84, or 5.59 percent as of 2:47 PM EDT, as it possibility of a major and prolonged strike at one of its South African mines looms over the company.
A dispute over wages at their Richards Bay Minerals mine, which is a joint venture with BHP Billiton (NYSE:BHP), could result in what is being called an "indefinite strike," signifying both sides aren't going to give in any time soon.
The strike is scheduled to begin on Friday if no progress is made.
At issue is a demand for a 10 percent raise from the union representing the miners, while the company has offered an 8 percent raise over a period of three years. The miners only want a one year deal.
Rumors Rio could be the company to come to the rescue of Potash (NYSE:POT) is also weighing down the stock, on concerns over the debt it would have to take on, or dilution in stock it would take to acquire the fertilizer giant.
There is no confirmation Rio Tinto is interested in Potash, but a growing number in the market believe they are, and coupled with the possible strike, is pushing the share price of the mining giant down.
A dispute over wages at their Richards Bay Minerals mine, which is a joint venture with BHP Billiton (NYSE:BHP), could result in what is being called an "indefinite strike," signifying both sides aren't going to give in any time soon.
The strike is scheduled to begin on Friday if no progress is made.
At issue is a demand for a 10 percent raise from the union representing the miners, while the company has offered an 8 percent raise over a period of three years. The miners only want a one year deal.
Rumors Rio could be the company to come to the rescue of Potash (NYSE:POT) is also weighing down the stock, on concerns over the debt it would have to take on, or dilution in stock it would take to acquire the fertilizer giant.
There is no confirmation Rio Tinto is interested in Potash, but a growing number in the market believe they are, and coupled with the possible strike, is pushing the share price of the mining giant down.
Monday, August 23, 2010
BHP (NYSE:BHP) Control of Potash (NYSE:POT) Could Lower Prices
Setting aside the details of what it would take to acquire Potash Corp. (NYSE:POT) by BHP Billiton (NYSE:BHP), a secondary, and quite likely, positive factor could emerge if the deal ultimately happens.
Similar to OPEC, there are a couple groups of companies which control production and pricing of potash at this time, and if BHP gains control of Potash, that will probably completely change the dynamics, and result in lower potash prices at a time when demand should begin to increase.
BHP has already noted they're not interested in Canpotex, which is headed by the three potash majors: Potash Corp, Mosaic Co (NYSE:MOS) and Agrium Inc. (NYSE:AGU).
They will honor existing agreements, but go no further, meaning they'll operate at full production which is their usual practice, which will bring more potash to market, the reason prices would inevitably fall.
In a filing with U.S. regulators, BHP said, "BHP Billiton will work with the Canpotex shareholders in order to further understand existing agreements and establish the basis for a relationship that provides for continuous and undisrupted supply to export markets and ultimately permits BHP Billiton to market its potash independently."
BHP would eventually pull out of Canpotex once existing obligations were met.
What this would do would be to force their competitors to lower their production if they want the price levels to remain, which, again, would be great for the market, but not for margins and earnings.
For BHP it would be a chance to significantly increase market share, even beyond the levels Potash enjoys now.
It could be up to the shareholders of Potash to decide, depending on whether or not a better offer is made from the company, as the board of Potash officially rejected BHP's offer today.
Similar to OPEC, there are a couple groups of companies which control production and pricing of potash at this time, and if BHP gains control of Potash, that will probably completely change the dynamics, and result in lower potash prices at a time when demand should begin to increase.
BHP has already noted they're not interested in Canpotex, which is headed by the three potash majors: Potash Corp, Mosaic Co (NYSE:MOS) and Agrium Inc. (NYSE:AGU).
They will honor existing agreements, but go no further, meaning they'll operate at full production which is their usual practice, which will bring more potash to market, the reason prices would inevitably fall.
In a filing with U.S. regulators, BHP said, "BHP Billiton will work with the Canpotex shareholders in order to further understand existing agreements and establish the basis for a relationship that provides for continuous and undisrupted supply to export markets and ultimately permits BHP Billiton to market its potash independently."
BHP would eventually pull out of Canpotex once existing obligations were met.
What this would do would be to force their competitors to lower their production if they want the price levels to remain, which, again, would be great for the market, but not for margins and earnings.
For BHP it would be a chance to significantly increase market share, even beyond the levels Potash enjoys now.
It could be up to the shareholders of Potash to decide, depending on whether or not a better offer is made from the company, as the board of Potash officially rejected BHP's offer today.
Potash (NYSE:POT) CEO Vows Company Won't Sell Cheap
After the board of Potash (NYSE:POT) officially rejected the bid from BHP Billiton (NYSE:BHP), CEO Bill Doyle said in an interview the company is worth billions more than the offer from BHP.
Boyle noted, “Two years ago we hit $240 and in the meantime we have been adding capacity through our capital program of expansions.”
The highs for Potash would be valued at close to $71 billion if that's what the would bring.
Although current market conditions couldn't justify those numbers, taking into account the surety of increased demand for potash and other fertilizers in the years ahead does give Potash some support and justification for pushing up the price, and they very well could get billions more, especially if it ends up being a bidding war.
This could happen because of the sector they're in, as several emerging markets, especially China, don't have the fertilizers needed domestically to handle their growing demand, and so are looking for partnerships or deals to address that large need.
Rumors have several companies from China being interested in Potash, but price is a factor, along with leverage, which could punish a company for a long period of time if both are exorbitant.
Boyle noted, “Two years ago we hit $240 and in the meantime we have been adding capacity through our capital program of expansions.”
The highs for Potash would be valued at close to $71 billion if that's what the would bring.
Although current market conditions couldn't justify those numbers, taking into account the surety of increased demand for potash and other fertilizers in the years ahead does give Potash some support and justification for pushing up the price, and they very well could get billions more, especially if it ends up being a bidding war.
This could happen because of the sector they're in, as several emerging markets, especially China, don't have the fertilizers needed domestically to handle their growing demand, and so are looking for partnerships or deals to address that large need.
Rumors have several companies from China being interested in Potash, but price is a factor, along with leverage, which could punish a company for a long period of time if both are exorbitant.
Citigroup (NYSE:C) Prefers BHP (NYSE:BHP) Buyback Over Potash (NYSE:POT)
Citigroup (NYSE:C) said they believe a buyback of their stock by BHP (NYSE:BHP) would offer more value to shareholders then buying Potash (NYSE:POT), as it would generate more free cash flow per share.
With numbers for acquiring Potash now being thought to having to go as high as $145 a share, far above the bid now offered by BHP of $130 a share, Citigroup analysts see it being too "dilutive" for the giant mining company's shares.
Citigroup analyst Heath R. Jansen said in a note, “The optimum scenario according to our calculations is a buyback.”
Free cash flow represents the amount of cash left for the operations of a company after its capital expenditures.
Jansen added when he and his team went over the numbers, a merger of the two companies over the last decade would have resulted in a much more volatile company than without the merger.
BHP evidently isn't listening, as they've taken the approximate $40 billion cash offer directly to the shareholders of Potash.
With numbers for acquiring Potash now being thought to having to go as high as $145 a share, far above the bid now offered by BHP of $130 a share, Citigroup analysts see it being too "dilutive" for the giant mining company's shares.
Citigroup analyst Heath R. Jansen said in a note, “The optimum scenario according to our calculations is a buyback.”
Free cash flow represents the amount of cash left for the operations of a company after its capital expenditures.
Jansen added when he and his team went over the numbers, a merger of the two companies over the last decade would have resulted in a much more volatile company than without the merger.
BHP evidently isn't listening, as they've taken the approximate $40 billion cash offer directly to the shareholders of Potash.
Friday, August 20, 2010
Why There's Caution with Potash (NYSE:POT) from Companies
When thinking in terms of potash, Potash Corp. (NYSE:POT) is considered the crown jewel of the industry. But the recent offer from BHP Billiton(NYSE:BHP) to take control of the company does come with its challenges from other potential suitors.
It's not as simple as just making a higher offer in order to own the asset, as the offer itself could severely damage the company making it.
There's the leverage involved and ratings which follow, that could cause the rates of borrowing for a company to skyrocket.
Just as important, is if a bunch of companies get in a bidding war, which would be a win for Potash shareholders, but a huge loss for the combined entity going forward.
With the coming demand for meat from emerging markets with growing middle classes who can now afford it, and the general demand for food which will grow around the world, potash and other fertilizers will eventually shoot up in price as farmers fight to get access to it.
Some have attempted to make potash fertilizer as a commodity business, but I don't think that's the case, as there's a limited amount, and even though there will be competition which has the possibility of driving down margins, the demand is going to grow so great, it's doubtful any company supplying potash will have to cut prices and margins to be able to sell there product.
There of course could be pockets of time and unforeseen periods of economic frailty which could arise, but over time, it's pretty clear demand for potash and fertilizers in general will have difficulty in being met.
Even with all that though, there must be caution by companies looking to acquire Potash, as the deal itself will determine future success, and if the price rises to unsustainable levels, there won't be much room left for profits in the future.
It's not as simple as just making a higher offer in order to own the asset, as the offer itself could severely damage the company making it.
There's the leverage involved and ratings which follow, that could cause the rates of borrowing for a company to skyrocket.
Just as important, is if a bunch of companies get in a bidding war, which would be a win for Potash shareholders, but a huge loss for the combined entity going forward.
With the coming demand for meat from emerging markets with growing middle classes who can now afford it, and the general demand for food which will grow around the world, potash and other fertilizers will eventually shoot up in price as farmers fight to get access to it.
Some have attempted to make potash fertilizer as a commodity business, but I don't think that's the case, as there's a limited amount, and even though there will be competition which has the possibility of driving down margins, the demand is going to grow so great, it's doubtful any company supplying potash will have to cut prices and margins to be able to sell there product.
There of course could be pockets of time and unforeseen periods of economic frailty which could arise, but over time, it's pretty clear demand for potash and fertilizers in general will have difficulty in being met.
Even with all that though, there must be caution by companies looking to acquire Potash, as the deal itself will determine future success, and if the price rises to unsustainable levels, there won't be much room left for profits in the future.
Wednesday, August 18, 2010
Citigroup (NYSE:C) Raises Potash (NYSE:POT) Price Target
The bid for Potash (NYSE:POT) by BHP Billiton (NYSE:BHP) has resulted in Citigroup Inc. (NYSE:C) increasing their price target on the fertilizer giant to $170 a share, up from the prior target of $124 a share.
Citigroup's P.J. Juvekar wrote this in a note, "We are raising our price target to $170 per share which represents a 10% premium to POT's replacement value. We think top shareholders are unlikely to sell their stake at the current proposed price and that BHP will have to raise its bid for POT."
BHP has went hostile with their bid after being turned away by Potash, and is beginning a campaign aimed at Potash shareholders to sway them to support their offer, although it will end up being much higher than it currently is.
Citigroup also maintained their "Buy" rating on Potash.
Citigroup's P.J. Juvekar wrote this in a note, "We are raising our price target to $170 per share which represents a 10% premium to POT's replacement value. We think top shareholders are unlikely to sell their stake at the current proposed price and that BHP will have to raise its bid for POT."
BHP has went hostile with their bid after being turned away by Potash, and is beginning a campaign aimed at Potash shareholders to sway them to support their offer, although it will end up being much higher than it currently is.
Citigroup also maintained their "Buy" rating on Potash.
Monday, August 16, 2010
Potash (NYSE:POT) President Bullish on Company's Future
Potash (NYSE:POT) president Garth Moore gave his reasons for the bullish attitude he has for the company going forward, after recent quarterly results imply a possible global rebound for the potash market.
While few watching the fertilizer company and industry are in doubt of the inevitable growth in demand of the products, there is still a question of when that will come about, although the if isn't really there any longer.
Moore was asked in an interview what he sees driving the demand for potash, and ultimately his bullishness for the company and industry.
Three things were identified by Moore: Higher grain prices, low inventory held by farmers, and growing world population.
Higher grain prices are driven by perceived supply problems so far this year, but that has created better margins for farmers, which allows them to spend more on fertilizer. That could change quickly, but for now that's the reality.
That leads into low inventory, which, along with increased margins, could generate stronger demand from farmers.
Most important to Moore is the demographics involved, which inevitably will lead to increased demand, and that is the growing global population.
It's different this time around because, even though there has always been growing global populations, there hasn't been the disposable income to make a difference in reference to demand, as many had to continue living at sustenance levels.
Now the middle classes in emerging markets have the income to pay for more protein-based foods, and that will come from meat, which the grains must feed, and which fertilizers must help grow.
Moore is right in that these will drive fertilizer prices up, but the ongoing recessionary pressure around the world could still hold prices and demand down until there's a real recovery.
That could take several years, depending on how much damage central banks like the Federal Reserve, and governments as well, do with their quantitative easing policies.
Sooner or later there can be no doubt fertilizer prices will rise, and with it the share price of fertilizer companies which have positioned themselves to take advantage of it.
Potash is among those that have, and investors with patience will eventually be rewarded.
While few watching the fertilizer company and industry are in doubt of the inevitable growth in demand of the products, there is still a question of when that will come about, although the if isn't really there any longer.
Moore was asked in an interview what he sees driving the demand for potash, and ultimately his bullishness for the company and industry.
Three things were identified by Moore: Higher grain prices, low inventory held by farmers, and growing world population.
Higher grain prices are driven by perceived supply problems so far this year, but that has created better margins for farmers, which allows them to spend more on fertilizer. That could change quickly, but for now that's the reality.
That leads into low inventory, which, along with increased margins, could generate stronger demand from farmers.
Most important to Moore is the demographics involved, which inevitably will lead to increased demand, and that is the growing global population.
It's different this time around because, even though there has always been growing global populations, there hasn't been the disposable income to make a difference in reference to demand, as many had to continue living at sustenance levels.
Now the middle classes in emerging markets have the income to pay for more protein-based foods, and that will come from meat, which the grains must feed, and which fertilizers must help grow.
Moore is right in that these will drive fertilizer prices up, but the ongoing recessionary pressure around the world could still hold prices and demand down until there's a real recovery.
That could take several years, depending on how much damage central banks like the Federal Reserve, and governments as well, do with their quantitative easing policies.
Sooner or later there can be no doubt fertilizer prices will rise, and with it the share price of fertilizer companies which have positioned themselves to take advantage of it.
Potash is among those that have, and investors with patience will eventually be rewarded.
Saturday, June 26, 2010
Goldman (NYSE:GS) See Potash Demand Growing at 4 Percent Annual Rate
Goldman Sachs (NYSE:GS) sees the rate of demand for potash fertilizer to grow at an annual rate of four percent over the next several years, citing increasing emerging market food demand as the catalyst.
For the most part, during that time, new capacity shouldn't put any downward pressure on potash prices, as it'll take time for it to come online, so in the short-term is shouldn't be a factor.
In the long term, on the other hand, it could also not be that relevant, as eventually the global economy will rebound, and even if it takes several years, demand will increase, and even with more supply prices could hold up because of that increase in potash demand.
The more important question for existing potash producers is how they'll respond to BHP Billiton's (NYSE:BHP) entry into the market, which over time will definitely be a major player in potash.
Some have started looking for acquisitions to build up scale in order to compete on price if BHP goes that route as their strategy. That's a way away yet, but it is something that must be included in long term strategies by potash companies, who will regret ignoring BHP if that's how they think and respond.
For the most part, during that time, new capacity shouldn't put any downward pressure on potash prices, as it'll take time for it to come online, so in the short-term is shouldn't be a factor.
In the long term, on the other hand, it could also not be that relevant, as eventually the global economy will rebound, and even if it takes several years, demand will increase, and even with more supply prices could hold up because of that increase in potash demand.
The more important question for existing potash producers is how they'll respond to BHP Billiton's (NYSE:BHP) entry into the market, which over time will definitely be a major player in potash.
Some have started looking for acquisitions to build up scale in order to compete on price if BHP goes that route as their strategy. That's a way away yet, but it is something that must be included in long term strategies by potash companies, who will regret ignoring BHP if that's how they think and respond.
Friday, June 25, 2010
Goldman (NYSE:GS) Continues "Neutral" Rating on Potash (NYSE:POT)
This week Goldman Sachs (NYSE:GS) reiterated their "Neutral" rating on Potash (NYSE:POT), while also setting a price target of $131 a share.
Potash, which is the largest producer of potash fertilizer, has lagged the overall market, as they are down close to ten percent on the year, while the broader market has dropped five percent.
The weak economy continues to hinder the stock, as ongoing uncertainty and conflicting data, which could be interpreted more than one way, generated a sense of chaos and inability to project accurately as to where the economy is really going, and how much demand for products like the potash fertilizer the company produces will grow.
If the company does reach the projected $131 target, it's not going to be in 2010, as in the short term there's not a lot to be positive about in the current economic climate.
Potash was at $95.37 as of 3:39 PM EDT on Friday, a gain of $0.17 or 0.18 percent.
Potash, which is the largest producer of potash fertilizer, has lagged the overall market, as they are down close to ten percent on the year, while the broader market has dropped five percent.
The weak economy continues to hinder the stock, as ongoing uncertainty and conflicting data, which could be interpreted more than one way, generated a sense of chaos and inability to project accurately as to where the economy is really going, and how much demand for products like the potash fertilizer the company produces will grow.
If the company does reach the projected $131 target, it's not going to be in 2010, as in the short term there's not a lot to be positive about in the current economic climate.
Potash was at $95.37 as of 3:39 PM EDT on Friday, a gain of $0.17 or 0.18 percent.
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