Potash (POT)

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scomac
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Potash (POT)

Post by scomac »

I was reading a brief article this morning on Globeinvestor Gold where an equity analyst was reducing his estimates for POT for the coming year. This got me thinking about how this analyst was reaching his conclusions versus my own anecdotal experience with respect to fertilizer pricing.

Prices I paid for fertilizer materials for the 2009 growing season:
  • NH2: $850/tne
    PO4: $1450/the
    K2O: $1100/tne
Prices I paid for fertilizer materials for the 2010 growing season:
  • NH2: $380/tne
    PO4: $450/tne
    K2O: $600/tne
I purchased more tonnes of fertilizer materials for the up-coming growing season than I did for the previous year and yet my total fertilizer bill was 55% lower. Our intrepid analyst expects POT to earn $5.15/share for 2010 or exactly 23X trailing earnings at the current price. I am hard pressed to see how this will come about based on the prices that I am paying right now.

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Re: Potash (POT)

Post by kumquat »

Without knowing the timing of your purchases I'd guess that you may have paid top dollar for 2009 inputs. While I can't find a good link to month by month pricing, I can point to pages 19, 25 and 31 of POT's annual report for 2008 available at http://s3.amazonaws.com/potashcorp/main ... nesses.pdf or by navigating POT's website.

In 2008, POT had a net income of ~3.5B ($10+ per share) with average pricing for it's products of:
KCL: $448
NH4: ~$550 depending if anhydrous or urea
P: ~$932

Gross margin numbers ($3B from K, $1B from P, $.7B from N) suggest that the bulk of POT's earnings came from KCL, lets guesstimate $6.5 per share. Let's look at that product.
If you markup $448 per ton by 33% (transportation, retail margin etc) you get $600. Does that number look familiar? POT can make lots of money at this price provided they sell enough of it. Seems you have increased your tonnage. If other customers are like you they probably will.

N & P are a bit different because, unlike KCL that you dig up and sell, N requires large amounts of natural gas and P requires large amounts of sulphur. The cost of these inputs will affect the profitability of the products, and both have fallen along with the price of the products. In all likely hood these operations will run at a profit if only a small one.

KCL, alone, has the potential to produce > $5 per share providing prices don't fall and volumes rise to traditional levels. Maybe it's time to look beyond the anecdotal numbers?
I don't intend to offend anyone, that part is just a bonus.

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scomac
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Re: Potash (POT)

Post by scomac »

kumquat wrote:Without knowing the timing of your purchases I'd guess that you may have paid top dollar for 2009 inputs.
Perhaps I did, but I know I'm not alone. The problem is that once retailers locked in their costs in 2008, they passed it along. It doesn't do a grower much good to buy fertilizer at a discount in July or August when you needed it in April and May.
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Re: Potash (POT)

Post by kumquat »

Suggesting you may have paid top $ was not a criticism, just an observation.

Most people heard of the $750 - $1K per ton numbers and assumed those were full year prices. Jan. 2008 pricing was closer to $200 and thus the surprise average.
I don't intend to offend anyone, that part is just a bonus.

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Re: Potash (POT)

Post by kumquat »

Seems that things are looking up.

I doubt the new estimates are the highest management considers possible.
I don't intend to offend anyone, that part is just a bonus.

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Re: Potash (POT)

Post by pitz »

Will the offers go away? Or is the Board practically obliged to do something, whether it be a sale, a marger, etc?

Why would shareholders accept less than its peak price a couple years ago? I mean, $40B isn't even replacement cost on the assets from a physical point of view (the mines, the shafts, the infrastructure), nevermind the value of the resource itself.
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Re: Potash (POT)

Post by scampbell »

Another point of view:

Fund manager Jarislowsky Fraser, Potash Corp’s. (POT) third-largest shareholder, indicated that they believe Billiton
Ltd.’s $130 per share offer is too low and that Canada should block the transaction. “I would prefer it if the government
says, ‘You’re not going to do that,’ because for me, if you invest in Canadian stocks and there is nothing left to invest
in, it’s not a full market. Pension funds need to have a diversified portfolio in Canadian stocks when their liabilities are
in Canadian dollars.”
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Maybe off topic but related.

Post by kumquat »

What do Index Fund managers do with the tender offer. If they accept, they are "active managers", aren't they? If they ignore, are they?

Ignoring and accepting what happens seems to me to be the way to follow the index.

What happens? Or does anyone know for sure?
I don't intend to offend anyone, that part is just a bonus.

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Re: Potash (POT)

Post by kenwood »

http://www.theglobeandmail.com/globe-in ... le1775835/
Potash Corp. of Saskatchewan Inc. (POT-N143.05-4.27-2.90%) shares sank Thursday amid growing signs that a takeover attempt by BHP Billiton Ltd. could be squashed by government concerns.
Potash Corp. BHP's bid is holding back its stock, and that without it the price would be trading in a range of $155 to $180, according to sources familiar with the matter. It believes the company is now valued at around $170 per share, not including a takeover premium.
If the takeover bid is holding back the stock price, and if there are concern it may be blocked by the government, then shouldn't stock price go up today (instead of down)?
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Re: Potash (POT)

Post by pitz »

kenwood wrote:If the takeover bid is holding back the stock price, and if there are concern it may be blocked by the government, then shouldn't stock price go up today (instead of down)?
Yeah, I don't understand either. Why on earth are the politicians making so much noise and squawking, when the market price of the shares indicates that the takeover bid has been largely rejected?

Who is dumb enough to tender into a $130 offer, when the current market trading price is significantly above that?

Am I missing something here, or have the politicians gone completely nuts in the rhetoric concerning this low-ball and completely innappropriate offer?
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Re: Potash (POT)

Post by adrian2 »

pitz wrote:Who is dumb enough to tender into a $130 offer, when the current market trading price is significantly above that?

Am I missing something here, or have the politicians gone completely nuts in the rhetoric concerning this low-ball and completely innappropriate offer?
There is a growing possibility the deal would fall apart, and this may be remembered in the same ballpark with Microsoft failed attempt of taking over Yahoo. I don't follow these guys too closely, but resent characterizations such as "completely inappropriate offer" -- there is no better one on the table, and if the deal falls through, back to $100 is not out of the question, IMO.
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Re: Potash (POT)

Post by newguy »

I know you've all heard the expression, but in this case do you really want to invest in something you can literally pull out of your ass? How long will it be before people overcome their aversion to a cheap, sustainable fertilizer?

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Re: Potash (POT)

Post by IdOp »

newguy wrote:do you really want to invest in something you can literally pull out of your ass? How long will it be before people overcome their aversion to a cheap, sustainable fertilizer?
I've wondered about that too, and once asked a relative who worked in the agriculture industry (at large, not a farmer) about it. He said one of the problems with raw sewage is that, surprize!, it's not clean enough. IOW, there's going to be a lot of drano, household chemicals and whatnot in it that would have to be removed first.

Still, if the US could eliminate the military and instead draft people to hunker down in the local farmer's field, the world might be better off for it. :)
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Re: Potash (POT)

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randomwalker
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Re: Potash (POT)

Post by randomwalker »

"Net benefit to Canadians" or net benefit to the Conservative Party? Let me see the Conservatives hold 13 of the 14 Saskatchewan seats in the House of Commons lol Too bad Hamilton and Sudbury don't vote the "Right Way." lol Political
"pragmatism" at its best.

The Potash contradiction: Cracks in neo-liberal ideology?
Posted by Murray Dobbin on October 20th 2010 at 10:15am

http://canadiandimension.com/blog/3435/
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Re: Potash (POT)

Post by zinfit »

A really bas decision. I am a Sk resident. I will never vote for Brad Wall or his party. This was definitly a case of showing no leadership and playing to the misinformed.
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Re: Potash (POT)

Post by schmuck »

hmm....as blonde informed us on another topic, "Everytime a Govt gets their nose-in-the-way...the consequence is worse than the pre nose-in-the-way"....dunno about all the patriotic bleeding hearts, but as a shareholder it feels like I'm getting my nose rubbed in it. :(

At least I had enough sense to get out of Taseko before the plug got pulled...musta learned something from the income trust thing.
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Re: Potash (POT)

Post by Nemo2 »

Man discovers rich deposit under outback dunny
A geologist sitting on a bush toilet in a remote part of the Northern Territory has discovered a potentially lucrative mineral deposit.

Rum Jungle Resources chief executive David Muller said the company was already looking for phosphate on a site near Barrow Creek, north of Alice Springs, but it was not expecting to find anything of value where it had set up its camp toilet.

"One observant geologist was sitting on it one day and kicking the rocks around and he suddenly identified some nodules and he thought, 'Oh we better assay this'," he said.

"And they put the hand-held spectrometer over it and sure enough it was full of phosphate, which is what we were looking for
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Re: Potash (POT)

Post by kenwood »

^ the article was published on Apr 1st.
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Re: Potash (POT)

Post by Nemo2 »

kenwood wrote:^ the article was published on Apr 1st.
And is still being shown on Rich find under outback dunny NIGEL ADLAM | April 2nd, 2011

Regardless, those of us who've been in Rum Jungle, (I have), might find it informative/amusing. :wink:
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Re: Potash (POT)

Post by JaydoubleU »

It would appear as thought the POT debate on the buy thread ought to be brought here:
like_to_retire wrote:

Then I saw that AltaRed owned them, but subsequently Scomac poo-poo'd them. I just wanted to hear what he had to say about the subject, and I admit he does make a lot of sense.

ltr


There's nothing wrong with either company; they're not going out of business any time soon. My issue is where do I as an owner fit in the grand scheme of things and it would appear to be well below the demands of replacement and growth. In that scenario, it strikes me that I'm likely going to have to rely on capital gains, not dividend growth to make an acceptable rate-of-return. If that's the way it's going to be, then we may as well shoot for a capital gain and avoid these things until they get to the point that they are a screaming buy. I'm thinking 2008 for example when TCK was trading for less than the working capital. Now that was cheap! The trade-off was that there was a wall of debt staring at them that they had to roll over at favourable terms or they would have been effectively cooked. Such is the way of an ill-timed acquisition.

I doubt that POT is anywhere near that cheap. There's still far too much feel good out there in the whole resource complex and agriculture in particular with the bloom still not entirely off of the China Rose. As far as alternatives to digging rock out of the ground to grow food, we could simply resort to spreading some of that endless supply of human feces that is getting "processed" each and every day. That "resource" is renewable and it won't have to be transported half way around the world.
Since the US has reported record levels of planting, and so far it is looking as though a bumper harvest is coming, it would seem to make some sense to wait until that harvest causes corn and wheat prices to fall (it already has, but a record harvest could trigger a crash), which would likely drag POT down with them. That might be a better entry point, no? Another idea is to hedge the investment with something like AFN, which works the opposite way, rising with higher yields and falling when the harvest is poor and / or planting acreage drops.

I've been watching POT but I'm not convinced the current aggressive dividend growth can be maintained. Nor in my view is the stock especially cheap, as scott has said.
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Re: Potash (POT)

Post by BRIAN5000 »

scomac wrote:
BRIAN5000 wrote: For a complete opposite view of scomac's (not saying he's wrong he may be right, not saying articles are right or wrong) read the Investment Reporters take on POT and TCK and also the Successful Investors.
Perhaps you could provide a synopsis of those analyses for those of us who don't subscribe to those publications. :wink:
If I could remember it well enough to do a synopsis I would but I read these in the local library and its hard enough to remember what I had for breakfast.

August and September are the worst months for mining stocks so I hope to get a little more cheaper shortly.

POT pays dividends in US dollars and is an early cycle 2 payer both of which are just a bonus.
Nor in my view is the stock especially cheap, as scott has said.
I'm not sure if anyone is saying its cheap certainly not myself.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
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Re: Potash (POT)

Post by AltaRed »

BRIAN5000 wrote:I'm not sure if anyone is saying its cheap certainly not myself.
I think it is perhaps more a question of whether, from current levels, this stock might provide, on average, 6-8% total return in the future. If one wants only to buy 'cheap', then I'd' say that would be more like a $25-30 stock price, perhaps yet to come in a temporary stumble, or maybe not.
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Re: Potash (POT)

Post by Peculiar_Investor »

AltaRed wrote:If one wants only to buy 'cheap', then I'd' say that would be more like a $25-30 stock price, perhaps yet to come in a temporary stumble, or maybe not.
Careful what you wish for, Uralkali Breaks Potash Cartel to Grab Market Share on Price Drop - Bloomberg. According to Premarket: Potash plunges as Russia quits cartel - The Globe and Mail
U.S-traded shares of Potash Corp. fell 18.2 per cent before the opening bell and shares of Mosaic Co. tumbled 17.7 per cent after Russia’s Uralkali dismantled one of the world’s largest potash partnerships by pulling out of a venture with its partner in Belarus, a move it expects will cause global prices to plunge by 25 per cent.
Might want to check any outstanding limit orders before the markets open today.
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Re: Potash (POT)

Post by Shakespeare »

Remind me again why I don't own resource producers (except in VT).

That's Vanguard VT, not Vermont.
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