In a recent article, "A Skål to Old King Coal," I discussed the shortsightedness of many investors in abandoning fossil fuels in favor of technologies that may one day provide renewable (and cleaner) energy but, today, account for less than 10% of all energy generated for heating, cooling, electricity, transportation and all other uses. (Of that 10%, 60% comes from hydroelectric sources that have been around for decades and which have their own environmental downside, as well.) Specifically, I discussed some opportunities, particularly for income investors, in coal royalty companies that have been laid low because most U.S. investors only look at U.S. consumption, which was in decline during this past unusually warm winter. I won't discuss that article further; you are welcome to refer to it if you find the topic of interest.
One of the ancillary companies I wasn't able to include in that article may be of greater interest to those seeking growth rather than income. I refer not to a coal company per se, but rather a chemical fertilizer company. And not just a fertilizer company, which is how it was once positioned, but what I believe will soon be recognized as one of the premier global chemical companies. I refer to old friend ICL, which long-time readers remember we have owned previously when it was better known as Israel Chemicals (ISCHF.PK) It's been so long since I started following it I can't remember where I first became exposed to them but I am always indebted to my colleague Vivian Lewis, editor of Global Investing, for keeping this and so many other great global companies on the front burner for me. In the past, I have always bought ICL at the cyclical low for potash and phosphate prices. But there is an interesting "coal" tie-in that is a relatively recent market for ICL and I believe is something that may prove to be even more important. First to the basics:
ICL may not be well-known in the U.S., but it is a well-respected multinational. It is a chemical fertilizer and specialty chemical company with nearly 12,000 employees worldwide, generating $7.1 billion in revenue last year. 52.3% of ICL is owned by the Israel Corporation, one of Israel's largest and best-connected companies. (To the point of receiving much criticism about the open door between government service and the company. Think Goldman Sachs. No, don't do that. Israel Corp isn't that venal!) Another 13.85% is held by Potash Corp (NYSE:POT), the Canada-based giant in providing fertilizer to emerging and developed nations. Their vote of confidence is quite telling.
Still, if U.S. investors need a more familiar American name to hang your hat on, you know that Scott's Turf Builder and Miracle-Gro you buy? Well, their Professionals subsidiary was bought by ICL last year, as were other key companies in Spain, Mexico and the U.S. Here's another: Like good Scotch whisky? ICL mines peat in the U.K. for you. ICL is in far more of the things that you buy than you might have expected.
To maintain its moat in all these areas in which it enjoys a commanding market share, ICL produces 8% of the world's potash and 33% of the world's bromine. In fact, as the company notes on its website, as it expands into downstream markets, it is increasingly the big kid on the block, over better-known Potash, Mosaic (NYSE:MOS), CF (NYSE:CF) and Yara (OTCPK:YARIY).
Their website provides good information on the various products they offer. There are two, however, that I think U.S. investors will soon become familiar with. And as they do, they'll be more comfortable buying this international firm. The first of these is Aquatabs, the world's leading water disinfection tablets, which the U.S. EPA just (in 2011) approved for use in the USA. This opens a huge new market for ICL and provides a product already quite popular in the rest of the world.
And the second is a way to play a resurgence of coal in electric power generation. The U.S. may have closed a couple of coal plants but India and China are opening them at the rate of one every week! The problem, of course, is pollution - particularly the toxic mercury that is a by-product of burning coal. ICL has taken the same bromine derivative that makes them #1 in fire extinguisher chemicals and is now "washing" the coal with this same substance. The result is that something they control 33% of the global market in is being used to stop the emission of mercury from flue gases. This is a potentially huge application; keeping mercury emissions down would be of huge benefit to the coal industry. And as icing on the cake, these bromine products are also used in drilling fluids for the oil and gas business.
Metaphorically, I've always preferred the companies that sell the picks and shovels to the miners and who make a profit on each sale more than I like taking the risk on the good luck of one or a dozen individual miners. I think ICL is such a company. We aren't in a rush to buy. Given that I expect the market to be entering a correction phase, we're buying slowly with an eye to buying more on any pullback. I think this is one to begin "salting" away.
Disclosure: We are not yet long ISCHF this time around but have a GTC limit buy order just 50 cents under the current price.
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