Mosaic Company: Paving The Way For 11 Million Tons Of Capacity

Apr.14.14 | About: The Mosaic (MOS)


The decrease in the inventory levels of fertilizers in North America signifies improved demand. Similarly, depletion of inventories in India is most likely to contribute to the rising demand.

The acquisition of the phosphate business of CF industries comes in handy as it ensures increased production of up to 11 million tons.

The deal with CF industries will serve to increase the supply of ammonia up to 15 years and this will ensure ample production to offset the global demand.

The share repurchase authorization of $1 billion is surely a positive for shareholders.

The Mosaic Company (NYSE:MOS) is one of the leading fertilizer makers and is well positioned to capitalize on the rising global demand for grains and oil seeds. It is engaged in every phase of crop nutrition development from the mining of resources to the production of crop nutrients, animal feed and industrial products.

The weakness in the prices of Potash and Phosphate continued in the fourth quarter. However, on the positive side phosphate sales volumes achieved record quarterly volumes of 3.4 million tons. During full year 2013, the company shipped almost 51% of total shipments to North America, 31% to Asia, 15% to Latin America and 3% to others.

The Asian fertilizer industry is primarily driven by China and India, which have consumed almost 55% and 29.3% of the region's total consumption during 2012. Going forward, the depletion of inventories in India is likely to boost the demand in these markets. As a whole, the Asian fertilizer industry is expected to grow at a CAGR of 6.1 percent during the next five years.

The amount of fertilizers stored in North America presents an overview of the dynamics between supply and demand. In February 2014, inventory levels for potash and phosphate in the US decreased by 4.23% and 12%, respectively.


The declining inventory levels indicate higher demand. Going forward, in response to lower prices, the demand for fertilizers will increase significantly this year. North American producer inventories are projected to further drop in 2014.

Acquisition Synergies

The company recently completed the takeover of CF industries' (NYSE:CF) phosphate business for $1.4 billion. The facilities acquired by Mosaic include the Hardee County phosphate rock mine, the Plant City phosphate complex, an ammonia terminal, phosphate warehouse, and dock at the Port of Tampa and former Bartow phosphate complex. Together these facilities are currently producing almost 1.8 million tons of phosphate.

The acquisition will bring benefits to the company. It will expand the phosphate business and production capacity to more than 11 million tons. The increased production is expected to add nearly 30 cents to the earnings per share in 2015.

It will also support the company's plan to mine the rock reserves of phosphate in Hardee and Desoto counties and expand the existing Wingate mine. In addition to the acquisition, Mosaic also negotiated a deal of a long-term supply of ammonia with CF industries. According to this deal, CF industries will supply ammonia between 600,000 and 800,000 tons per year for up to 15 years starting from 2017.

It is of worth mentioning here that Mosaic has financed the acquisition of the phosphate business with additional debt despite the fact that the company has ample cash on hand. So therefore, it makes sense to speculate that Mosaic will most likely increase its dividends.

Mosaic has been trading at a dividend yield of 2.06 percent. Moreover, management has authorized share repurchases amounting to $1 billion. The buyback is surely a positive for shareholders. In addition, the company has ample cash on hand and this will allow the company to increase its dividends.

Concluding Remarks

The global situation is improving for potash and phosphate producers. The demand in Asia is expected to facilitate robust growth while the lower inventory levels in North America also indicate improved demand. Given that Mosaic used to ship approximately 82% of its total shipments in the region, I believe that the scenario will ensure higher top and bottom line growth for the company.

In addition, Mosaic is all set to add 1.8 million tons of phosphate production capacity for $1.4 billion and will enjoy an increased supply of ammonia. Therefore, with the acquisition, Mosaic will have ample production to offset the global demand.

Currently, the company has been trading at a forward P/E of 13.97. Given the above mentioned growth prospects I believe that Mosaic is inexpensively priced. Moreover, the strong financial position will allow the company to increase its dividends at regular intervals. So the probability of higher dividend payments coupled with share repurchases will ensure a higher stock price in the quarters to come. Therefore, I recommend buying the stock.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.