Mosaic (MOS) Looking to Sell Its Nitrogen Segment ~ market folly

Wednesday, June 25, 2008

Mosaic (MOS) Looking to Sell Its Nitrogen Segment

Yesterday in the news we saw that Mosaic (MOS) was looking to unload the Nitrogen segment of their business. As per CNN, they are seeking the sale of Saskferco, "a private company primarily owned by Mosaic and Investment Saskatchewan, a provincial corporation that seeks to boost Saskatchewan's economy."

At first glance this might not be anything to scoff at. But, at the same time, part of me wonders if the Nitrogen segment of their business is not seeing the continued strong demand like their potash and phosphate segments. Mosaic said they are looking to sell this segment so that they can focus on expansion of their primary business in phosphate and potash.

Maybe Mosaic just wanted to separate themselves from the Saskatchewan investment company who represented the other half in the joint venture of Saskferco. Yet, part of me wonders if they have noticed a developing trend within the industry. Because, after all, they are right smack dab in the middle of fertilizer's secular growth. I'm going to go sort back through their earnings reports (along with other fertilizer companies) to see if the Nitrogen segments in any of these companies were showing signs of slowing or flat out hurting earnings. We know these companies are facing rising input costs. But, that has not been a detriment to them because their revenues are rising faster than their input costs. I'm wondering if possibly the input costs associated to Nitrogen specifically are finally starting to impact the bottom line in that segment.

Again, I might be reading into this too much. But, it almost seems as if they may be 'cashing out' at the top of the Nitrogen trade, while they think the underlying trend in potash and phosphates will continue. This would not surprise me one bit as they have a front row seat to the whole agricultural boom we are witnessing.

My bets all along have centered around potash; phosphate and nitrogen were just added bonuses. I'll report back with what I find, if anything. At any rate, good to see them focusing on what I believe to be the main secular growth trend here: the potash itself. That is the nutrient with the brightest future simply because it has the most pricing power. There is ridiculously strong demand for it and very low supply of it. And, additional supply is many years away from coming online (due to construction of mines etc). Most likely this is just a case of me over-analyzing things. But, hey, due diligence is my middle name!


TraderMark said...

Nitrogen is something China can replicate - its a chemical process that can be replicated once you get the plants up

potash is mined
phosphorous requires rock which is getting more expensive

this is a bright move

this is why the nitrogen makers (i.e. CF and TRA) trade at a discount

I consider this a great move by MOS in terms of long term strategy. I own CF because it trades at like 12x earnings for 100% growth but in 3 years I won't be owning a nitrogen maker because anything that can be replicated, China will overproduce.

Hope that helps.

j. (marketfolly) said...

cool thanks for the info.

figured there was a logical reason for them to be selling it off. makes sense, with CF and TRA trading at lower multiples then.

like i said in the post, the potash is what my thesis was based around since it takes forever to really get new mines built/cranking and so thats why POT was the first one i bought back in august. discovered MOS later. nitrogen and phosphates were just an added bonus.

i agree that it will benefit them in the long run, as potash is where the real story is. glad to see the ceo validates our thoughts.