Mosaic Co (MOS): Reading Between the Lines of Potash Corp./Saskatchewan (USA) (POT)’s Pursuit of Israel Chemicals

Why is Potash Corp./Saskatchewan (USA) (NYSE:POT) looking to Israel for growth?

I find it very interesting that Potash Corp./Saskatchewan (USA) (NYSE:POT) is looking to acquire more potash production in Israel, not in its home base of Saskatchewan. The proposed deal in Israel is not especially cheap for Potash Corp./Saskatchewan (USA) (NYSE:POT). Yet, the company is choosing this option over acquiring any of the three emerging potash producers in the province, Karnalyte Resources, Ecanto Potash, and Western Potash.Why might that be?

I believe that the mining industry in Saskatchewan is strained by existing producers of potash, uranium, gold, copper, coal, zinc, salt, etc. Add to that dozens of junior miners in these sectors looking to build their companies.

The stranglehold that the Big three – Potash Corp./Saskatchewan (USA) (NYSE:POT), Mosaic Co (NYSE:MOS), and Agrium Inc. (USA) (NYSE:AGU), have in the Canadian potash business suggests that, collectively, they may be as big as they are allowed to get. The marketing arm of these companies, called Canpotex, claims to have about 35% market share of global shipments.

This move by Potash Corp./Saskatchewan (USA) (NYSE:POT) to grow outside of Saskatchewan does not bode well for the three aspiring producers mentioned above. Either they will have to reach production as stand-alone companies, forced to compete head to head with Canpotex for rail, port, skilled labor, power and water, or they will seek to be acquired.

However, the Big three don’t appear interested in these juniors at this time. They are in no rush, they can wait and see how the market develops. This leaves little room for error among the juniors.

And then there’s the pink Elephant  in the room…

In additon to Canpotex, Karnalyte, Ecanto and Western Potash, there’s another small problem, BHP Billiton Limited (ADR) (NYSE:BHP)‘s Jansen project. Of course I’m kidding when I use the word, “small” when referring to Jansen. It is billed as a $12 billion cap-ex project. Late last year, BHP announced that it’s considerably slowing the buildout of that project due to market conditions. Some say it’s pretty much on hold, which begs the question, why doesn’t BHP acquire one of the three junior potash companies in Saskatchewan?

The juniors are 2-3 years away from first production as against BHP’s Jansen project, which is probably 4-5 years away if it gets developed at all. The juniors’ projects range from 2-3 million metric tonnes of potash per year as compared to Jansen growing to a whopping 16 million tonnes.

Cap-ex for the three juniors is $2-$3 billion. BHP could spent a fraction of the cap-ex required for Jansen and be in production a few years earlier. Instead, like the Big three, they are waiting to see how the potash market behaves this year and next.

Conclusion:

Saskatchewan has been a great place for miners to operate. But the province could be facing too much of a good thing. Investors need to be careful when junior potash companies promote the benefits of their green field projects in Saskatchewan.

The juniors have far less flexibility. There’s a big difference between being located near key infrastructure and having access to that infrastructure! Competition for rail, ports, skilled labor and water will only get worse. These are possible reasons why the majors, such as PotashCorp, are taking a wait and see approach, and also looking elsewhere.

The article Reading Between the Lines of PotashCorp’s Pursuit of Israel Chemicals originally appeared on Fool.com and is written by Peter Epstein.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!