Chris Damas

Mosaic's Potash Attracts Vale's Eye

I would like to point out that foreign newspapers occasionally break stories of "impending deals" when a stock is down and perhaps needs a boost to allow people to profit. The stories often come to nothing (except perhaps to enrich the people buying in advance of the planted takeover rumour).

For example, last year the South China News ran a story that CNOOC or Sinopec was going to buy Talisman Energy and we are still waiting for that bid.

I find a Vale takeover of Mosaic possible but unlikely for two reasons:

It is hard for me to believe they would want to buy additional assets in North America at this particular time.

Vale Inco is currently experiencing (predictable) labour difficulties at the Sudbury mine they bought with the Inco takeover. Vale has found operating in Canada higher cost - our dollar has been strong. Environmental regulations are stringent in Canada.
Much easier to buy mines in developing countries.

Secondly, as has been pointed out - Cargill owns a majority position in Mosaic. So a takeover at supposedly "bottom of the cycle" prices would not be possible without Cargill shopping the stock around. And there is no sign that phosphate or nitrogen fertilizer products are at their cyclical lows.

CF Industries, Agrium Deal Offers Investors Two Potentially Profitable Plays

This isn't particularly useful advice.

Either buy CF and hope the deal goes through or (as I suspect), or not buy the CF shares because the deal will not go through.

Is there any further insight the author would like to profer on this subject?

My feeling has been all along that Agrium did not understand CF is an "ol boy" company created by its shareholders (CHS, Growmark, Agriliance, Conagra). These companies are CF's biggest customers. Some of them are still on the Board.
The Board must approve any bid for the stock.

You can figure out the rest.

Canadian Banks Should Follow Dividend Cut Trend

So many people talk about bank dividend yields without very much knowledge of the operations. "Banks" are highly complex financial risk-takers as we recently found out.

Sophisticated investors see through the yields to the value of the underlying operations. Wells Fargo rallied after the cut on Friday. But JPM has declined since the initial rally after cutting their payout. But the market has also declined.

The Bank of Montreal recently reported 40 cents in cash earnings making their actual Q1 payout ratio an unsustainable 175%. But they added back charges for "unfavorable capital market environment" to come up with $1.09 a share. Then the CFO says that $1.09
should be a pretty good proxy for core earnings. Can you say the good part of the bank is "core" and the bad bets are "non-core"? Investors aren't that stupid.
A cut would probably make all the high yield dividend collectors that didn't understand the operations dump the stock.
That includes a number of "professionals".

VeraSun Energy:Buyout Candidate, If Obama Wins

I'm afraid you'll have to do your own research and come to your own conclusion on whether ADM should make an offer for VeraSun. Your professor would not appreciate someone doing the work for their students.

I note ADM will announce it's first quarter on November 4th so you can get a better appreciation of what the company's status and plans are. They say they are pursuing advanced biofuels with ConocoPhillips but don't give any detail.

Since writing the piece above, the Wall Street and major bank credit meltdown triggered the Paulson $750 billion "bailout" plan, and both stock markets and commodity prices have declined sharply. A number of deals have probably gone off the table due to fears of a global recession and/or lack of financing.

On the other hand, we have seen gross crush spreads on corn ethanol turn positive (before overhead, taxes and interest on debt). New crop corn is bid $3.55-70/bushel at VeraSun's plants which is almost half of what they said their cost would be for Q3. I think ethanol is seasonally weak this time of year as production overtakes the mandate, but should firm up when the 2009 10.5 billion gallon mandate kicks in for 2009.

November delivery at Chicago EtOH recently went higher than RBOB for the first time in over a year.
Tempering my enthusiasm for US ethanol is the fact the devaluation of the Brazilian real from 60 cents at the beginning of September to about 42.5 cents will give them a big incentive to export excess ethanol, especially through the Caribbean loophole.

On the positive side, Obama seems likely to get into the White House and there is also the possibility of a Democratic hat trick (President, House, fillibuster-proof Senate).

Which could mean corn ethanol producers and all the businesses they support will be coddled and protected like an overly-protected nephew or niece is supported by a rich relative.

VeraSun Energy:Buyout Candidate, If Obama Wins

Verenium doesn't look like it is in such good shape. I have a problem when the CEO is being paid $41,000 per month while the company is losing money.

The VeraSun plants are in the midwest far from the biomass that the VRNM process would typically use, such as wood waste. So I don't think BP would be interested.

Add to the possible suitor list, Abengoa Bioenergy.

VeraSun Energy:Buyout Candidate, If Obama Wins

Nowhere in my article do I say VeraSun's survival depends on an Obama win. Read it again.

Potash Corp: Dynamics of Supply and Demand Drive Earnings Growth

"I'll go out on a limb and predict. When POT has sustained trades at or above $182 it will rapidly climb to $200. Whe we get sustained trades at or above $202, we're off to the races to $240+ as the largest shorts will be taken out. We may not see the $182 level today, but we will tomorrow and $202+ by Monday/Tuesday.

This is of course depends on the non-substitution of burnt wood and chicken droppings (kind of "really-old tech") for premium, balanced fertilizer needed to increase crop yields to feed the planet."

Sorry, was that $202 or was that $172 on Monday...I am confused.

(From an old-tech stock trader that doesn't like to lose money).

Potash Corp: Dynamics of Supply and Demand Drive Earnings Growth

For a long time I have felt many writers on this site have been smoking POT in their bullish aspirations.

I heard the same rationale for soaring P/E ratios in 2000 when Nortel was the rage.

Has anyone considered that there are natural substitutes for high priced Western sources of K and P?

Potash can be had by burning wood - hence the name potASH. And guess what is a good source of Phosphorus? Chicken shit. Yes, manure. Even solid waste from sewage treatment plants is rich in P and can be used for farming.

It could very well be that the Chinese and Indian demand dries up above $1,000/ton and the dreams of unlimited wealth from these simple chemicals just dust in the wind.

Verasun Energy: Expect Future Growth and Profitability

"In 2007, for the first time since 1977, oil imports from the Middle East decreased. This is due to the use of 6.5 billion gallons of ethanol, replacing 228 million barrels of [not] imported oil"

Comments:
Crude oil and fuel are not the same.
1 barrel = 42 gallons so 6.5 billion gallons = 154.8 million barrels.
Ethanol has 67% energy value of gasoline so on a 1 Btu for 1 Btu basis, only 103.7 million barrels crude.
How much crude oil are required to produce a barrel of RBOB (gasoline blend stock)? You might want to check that.