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As this ongoing series of articles on Potash Corp. (POT) unfolds itself (see parts I, II and III), I continue to be amazed at some of the lingering bearish attitudes towards Potash and this company, that are prevalent in various articles and blogs. As I have done my best to explain the obvious in words and numbers, apparently to no avail, I now feel reduced to try to explain it in a children's story, that the average six year old should be able to relate to and understand.

In the safety of your living room, take ten red colored blocks out of your toybox, and place them in a row on the floor, each one touching the next. Ten! That's how many fingers you have, counting both your thumbs, but not your ears. Each block represents one unit, or 100 million dollars of the 2007 gross margin for the combined Nitrogen and Potash segments.

As there were only nine hundred million dollars, or nine units, plus 68.9 million dollars reported as gross margin, the tenth block only represents a fraction of 100 million dollars, 68.9 million dollars, or roughly 2/3s of a block. To understand what a fraction is, take a large red apple, cut it into three equal pieces, and eat the third piece. What you have left, a 2/3s fraction of the apple, equals what the tenth block represents, a 2/3s fraction of 100 million dollars, or 68.9 million dollars, or 2/3s of a unit. Units are what you are supposed to be thinking in, as a million dollars is too big a number for you to understand, and each one of your toy blocks equals one unit.

Now take ten orange colored blocks out of your toybox. If you don't have enough of these, you will have to ask mommy and daddy to start investing in your education,and buy some more toy blocks for your learning collection. Then using those fat and funny, uncoordinated fingers of yours, try to carefully place each orange block on top of each of the ten red colored blocks. Red! Remember that red apple, that you just ate a piece of? These ten orange colored blocks represent the nine million dollars, or nine units, plus the 12.3 million dollars, or 1/8th of a unit of the 2007 gross margin for Potash.

To understand how much 1/8th is, take one large orange and divide that into eight equal pieces. Then give mommy, daddy, and your little sister two pieces each, for them to eat, then eat one piece yourself, so everyone in the family gets two pieces of fruit to eat, so that everything is fair and equal to all concerned. That last piece of orange, which is 1/8th of the whole orange, equals 12.3 million dollars, or 1/8th of a unit, which is represented by the tenth orange colored block.

Now compare the sizes of 1/3rd of an apple to 1/8th of an orange. Notice how the size of the piece of apple left over, is much bigger than the size of the piece of orange left over. That's why the tenth orange colored block can easily balance upon the tenth, red colored block. That's how you compare the potash oranges to the combined nitrogen and phosphate red apples! Now you have a pyramid of Potash dollars resting on a foundation of combined Nitrogen and Phosphate dollars.

According to the "Wizards of Wall Street", and quite a few other all too serious adults, who are all trying to twist your little mind, you have constructed a very precarious and problematic, pyramid of Potash. They think your pyramid of Potash is soon going to come crashing down with a big bad bang, just like that time you foolishly tried to build that crazy twisting tower of red and orange colored blocks, half way to the moon.

Now they are calling your pyramid a big bubble that's soon going to break,and a lot of people are going to get very badly hurt. Just like that time those big nasty soap bubbles got too close to your face and burst, which caused you to get soap in your eyes, which hurt you and made you burst into tears. If you think your pyramid is safe and stable, then you are already much smarter than all those weird and whacky wizards, some of whom actually live on wall street, while most of the others, unfortunately, live quite happily off of wall street.

Now it's getting to be time for bed, and for the 199th time, your bed time story will be Goldilocks and the Three Bears; poppa potash bear, mother nitrogen bear, and baby phosphate bear, until you learn to value the importance of all the different sized things great and small, just like the Ancient Mariner had to do. Remember when he had that dreadfull dead albatross around his neck,and he felt that he couldn't live much longer, with the weight of all that guilt holding him down.

Then one night just before he almost died of his delusion; hungry and very thirsty, his tired eyes stared wearily at the water and saw all those squirmy little creatures that he used to love to hate, called phosphorescents, that lit up the southern ocean at night like millions of fireflies. What lights up these little creatures, as well as fire flies, is called phosphor, and all the ocean's phosphor eventually ends up as phosphates.... the least loved segment of Potash Corp.

When he finally realized the beauty and value of these tiny sea creatures, that are also part of the whole wide world, that awful dead albatross loosened his grip on the Ancient Mariner, slipped into the ocean and sank like lead. That's when the wise old Mariner told us what his suffering had taught him. He said, "The one who best loves all things great and small, is the one most loved by God, who made and loves all."

Part five coming soon.

Disclosure: Author holds a long position in POT


Source: The Precarious & Problematic Potash Pyramid at Potash Corp. (Part IV)