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With hedge fund manager, CNBC regular and long-time veteran of the Russian markets Tim Seymour at the helm, Emerging Money (http://www.emergingmoney.com) provides education, trading analysis and comprehensive views of emerging markets around the world. As economies in the BRIC group and beyond... More
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  • Fundamentals still favor potash stocks 1 comment
    Oct 22, 2010 5:46 PM | about stocks: POT, MOS, AGU, BHP, IPI

    Regional brokers now believe potash could be worth over $500 a ton by 2015 as demand from Asia expands. This is naturally supportive for POT and the rest of the group. Australia and New Zealand Banking Group issued a note alerting clients to the prospect that potash -- a key component of high-yield fertilizers -- could hop 56% from its currently depressed $320 a ton over the next five years.

    With no new potash supplies coming online before that point, rising demand from China and India could give producers like POT significant pricing power in the next few years. If so, POT is almost certainly worth more than the $130 a share that miner BHP Billiton BHP has offered to buy the company outright.

    This is also good news for smaller producers: MOS, AGU, IPI and the rest. This is why we have been so active in alerting investors to the potash trade -- well ahead of the POT merger buzz. The underlying prices are going higher, the supply/demand dynamics are fine. Price increases are going through. Potash is king.


    Sinochem still looking for a piece of POT


    The gigantic Chinese chemical producer Sinochem is still looking for ways to get direct ownership of at least a strategic share of PotashCorp, the world’s biggest potash miner.

    Sinochem has reportedly moved beyond simply consulting with HSBC to bring Deutsche Bank and Citigroup onto its advisory team as it prepares for a possible hostile bid for  POT.

    China buys roughly 7% of POT’s output and has no major native potash supplies of its own.

    Although Chinese interests have reportedly been directed to investigate ways to block or counter BHP Billiton’s BHP $39 billion offer for POT, a full rival bid may be unlikely. Canadian regulators have expressed doubts that they would allow the world’s leading potash deposits to go to a non-allied nation.

    Disclosure: no positions
    Stocks: POT, MOS, AGU, BHP, IPI
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  • EliteYoda
    , contributor
    Comments (81) | Send Message
    Nice article. Right on man, Potash Corp is the crown jewel of Canada and I do not think it will fall at the low ball $130 bid by BHP. Sheesh, the share price was at a respectable $130 right before the markets tanked when the Euro debt crisis started this year and that was at a time when the potash market had just started to see signs that maybe a long term cyclical bull for the mineral was starting again and sure enough with all the droughts and shortages the potash price per tonne has started to rise again. The other fertilizers in the space have so far reported earnings tripled and POT leads the space so I think Q3 earnings should get very very interesting.
    I have a sneaking suspicion that Sinochem had decided to test out their strategic moves before doing anything official so they could get a read on the market and canadian regulatory environment. I think if BHP gets reg approval then Sinochem may just make an FU bid against BHP right at the last minute; just my opinion.
    BHP waiting to raise offer until they get reg approval, that much is certain; now arbitrauer/speculators holdings are at a mere 3-5% so I dont think a vote will go through for the $130 bid.
    Even though the media says a bidding war is 'unlikely', I think it just shows that they are impatient and do not know much about the sector. The grain and fert space is not like the tech sector, it moves extremely slowly but always in the 'proper' direction. In longest time frame scenario, I think Canada could delay by another month, then BHP could delay by at least one more month then Sinochem could make things very interesting with a counter because IF BHP gets reg approval, it will be very difficult for Canada to then say china cannot be owners especially after they had said there were willing to make major concessions on the deal. OTPP basically slammed the door in their faces with a very rigid demand of 20% guaranteed returns and total control of POT which forced Sinochem to retreat for now. For china its not the money, they dont care if they pay 50Billion or 80Billion for potash corp, they just know they need to control a company which controls nearly 1/2 of the future potash of the entire world, it would be wise to block BHP now so that they dont have to pay ridiculously huge potash prices in the future which could turn out to cost them more in the end vs if they just bought out potash corp outright for even $240/share. I also think that the '$500/tonne' by 2015 price target for potash is actually somewhat conservative. It reached heights of near $1000/tonne just few years ago and china/india populations are exploding and weather problems and droughts causing crisis all over the world. With speculation thrown into the mix I can see potash prices doubling each year for the next 5-10 years so 2015 I would say prices around $1100/tonne and 2020 at around $2000/tonne! I know its sounds ridiculous but this is a mineral that cannot be reproduced artificially and is absolutely needed, cannot do without it and it is in short supply and barriers to entry are enormous. This is a no brainer, own Potash Corp! :)
    Disclosure: Potash shareholder since 2007
    23 Oct 2010, 07:10 PM Reply Like
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