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Mosaic Co (MOS): This Mining Option Appears Worth Digging Into

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So, mining stocks took a beating during 2013’s first four months, down by an estimated 20%. This recent approximation by the professional services firm PriceWaterHouseCoopers, however, need not be a disincentive for investors to seek equities in the resource-based space. There remain some pockets of potential gains to be had within the mining industry, one option from which is Plymouth, MN-based Mosaic Co (NYSE:MOS).

Mosaic Co (NYSE:MOS)

As per the PricewaterhouseCoopers report, this company is one of only three among the top 40 mining concerns in their study which achieved an increase in market capitalization last year. A Fortune 500 company with a current market cap of $24 billion, Mosaic Co (NYSE:MOS) operates in two segments, phosphates and potash.

Appreciable earnings in a historically slow quarter

The phosphates segment has mining and production facilities in Florida, as well as factories in Louisiana. Mosaic’s potash operation consists of five mines in North America and production facilities in Canada and the U.S. The company’s products are manufactured into crop nutrients which are supplied to customers in about 40 countries at an annual volume of close to 19 million tons.

This March, Mosaic Co (NYSE:MOS) reported $345 million net earnings for its third quarter of fiscal 2013, up from $273 million a year earlier. Earnings per diluted share, likewise, rose year over year to $0.81 from $0.64. Net sales, spurred by higher volumes, rose to $2.24 billion from $2.19 billion.

Emerging from this traditionally slow third quarter, the company is optimistic about its long-term prospects which, the company said, are buoyed by compelling global farm economics founded on “continuing attractive commodity prices and low costs for critical crop inputs.”

A chess game with BHP

In particular, Mosaic Co (NYSE:MOS) sees improving fundamentals in potash, following its signing of fresh supply contracts in China and India. A foreseen strong application season is also expected to draw down potash inventories at its North American dealers.

Expansion of Mosaic Co (NYSE:MOS)’s potash mining operations in Saskatchewan may also be on the horizon. Its rival in the area, the diversified mining company BHP Billiton plc (ADR) (NYSE:BBL), appears shelving a similar expansion plan programmed for $14 billion. BHP Billiton plc (ADR) (NYSE:BBL) CEO Andrew Mackenzie has been quoted as saying that his company is cutting its 2014 capital expenditure by $4 billion and by another $15-billion in the next two to three years. Mosaic Co (NYSE:MOS) has expressed its intention to add 2 million tons of potash capacity in its Saskatchewan operations if BHP freezes its expansion plan there.

Why diversified miners are divesting

Significantly, BHP Billiton plc (ADR) (NYSE:BBL)’s capex budget cuts  jibes with the PriceWaterHouse’s observation that mining companies are now under increased shareholder pressure to deliver investment returns and to shift their focus from growth to bringing in profits. Larger players, the research firm also noted, are focusing on squeezing the most returns out of their “tier 1” assets and divesting their non-core assets. Apparently in pursuit of this track, BHP announced completion of the sale of its interests in the two offshore West Australia joint ventures to PetroChina International Investment.

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