POTASH CORPORATION OF SASKATCHEWAN NYSE: POT Vikram Sinnathamby October 1, 2009 1
Company Overview Produces crop nutrients: Potash (world s largest producer) Phosphates Nitrogen Established in 1975 by the government of Saskatchewan Became publicly traded in 1989 gov. no longer owns any of the firm. Most of management has been with the company since 2000 or earlier. 2
Company Overview Potash First main focus on potash due to highest margins. Competes with Mosaic (MOS) and Agrium (AGU). All three produce Potash (KCl), Phosphate (P), and Nitrogen, in varying proportions. According to management, on track to double potash production capacity by 2012, to 18 million tons. 3
Stock Overview 52 week range: $47.54 141.14. Oct. 1: 87.82 Market Cap: $26.9 B P/E: 11.11 EPS: 8.20 Average Volume: 7,631,840 Dividend: 0.4% 4
Balance Sheet PERIOD ENDING 31-Dec-08 31-Dec-07 31-Dec-06 Assets Current Assets Cash And Cash Equivalents 276,800 719,500 325,700 Short Term Investments 6,400 30,800 50,900 Net Receivables 1,098,800 596,200 442,300 Inventory 715,200 428,800 494,900 Other Current Assets 79,200 36,700 40,900 Total Current Assets 2,176,400 1,812,000 1,354,700 Long Term Investments 2,788,300 3,688,000 69,400 Property Plant and Equipment 4,669,400 3,746,400 3,409,800 Goodwill 50,300 50,300 50,300 Intangible Assets 21,500 24,500 29,300 Accumulated Amortization - - - Other Assets 183,500 162,400 2,125,400 Deferred Long Term Asset Charges - - - Total Assets 9,889,400 9,483,600 7,038,900 Liabilities Current Liabilities Accounts Payable 1,175,400 851,500 573,500 Short/Current Long Term Debt 1,401,800 90,200 558,300 Other Current Liabilities - - - Total Current Liabilities 2,577,200 941,700 1,131,800 Long Term Debt 1,799,200 1,339,400 1,339,800 Other Liabilities 697,100 435,900 495,900 Deferred Long Term Liability Charges 612,600 903,000 668,500 Total Liabilities 5,686,100 3,620,000 3,636,000 Stockholders' Equity Common Stock 1,402,500 1,461,300 1,431,600 Retained Earnings 2,184,000 2,161,300 1,996,100 Capital Surplus 227,600 169,800 113,100 Other Stockholder Equity 389,200 2,071,200-137,900 Total Stockholder Equity 4,203,300 5,863,600 3,402,900 Net Tangible Assets $4,131,500 $5,788,800 $3,323,300 5
Charts 6 months 6
Charts 2 years 7
Thesis Points 1. Demand for crop nutrients will grow in the long term. 2. Potash Corporation will be the most profitable potash producer. 8
Potash on the Decline 2004 2005 2006 2007 2008 USD/ton 200 280 290 400 717 9
Potash Demand MUST rebound Farmers hesitant to reapply potash due to low food prices, demand. Each harvest removes nutrients from the soil. Farmers have been working through inventory, both in soil and physical storage. When demand picks up, they will have to reapply potash. A question of when, not if. 10
Emerging Markets Population growth, especially in developing countries. Growing middle classes. Better diets, more protein. 11
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More meat = More grain As third world countries become developed, protein consumption increases. Meat (especially beef) requires a lot of grain to produce it. 13
Biofuel As gas prices increase, incentives increase for biofuels. As demand for ethanol and biodiesel increases, demand for the crops to produce them increases. 14
Arable Land As world population grows, less farmable land available potash improves efficiency. 15
Effectiveness of Potash 2001 study on cabbage plants in Tianjin, China 16
Effectiveness of Potash 17
Effectiveness of Potash An optimum of potash increases crop quantity, quality, profit. Also led to early ripening, which allows preferred pricing by farmer. 18
Fertilizer Use and Crop Production China India 19
Why Potash Corp? Competes mainly with Mosaic (MOS) and Agrium (AGU). 20
More Profitable POT MOS AGU Revenue $9.4 B $9.8 B $10.3 B Net Income $3.5 B $2.1 B $1.3 B Profit Margin 37% 21.23% 12.87% Operating Margin 49.07% 28.60% 19.34% 21
Aggressive Expansion Mainly competes with Mosaic, and will continue to do so in the future with focus on potash. Planning to expand more aggressively 18 million tons capacity by 2012, compared to 17 million tons capacity by 2020 for Mosaic, according to management s projections. Currently operating at 30% of capacity to keep prices up, can ramp up production when demand picks up. Repurchased $3.4 Billion of stock in 2008. 22
Moat Developing a new mine is expensive and time consuming. Both POT and MOS are expanding current mines rather than developing new ones. At least $3.5 Billion, 5-7 years. Not feasible unless potash is at least $950/ton. 23
No real substitutes No effective substitute for mined potash. Manure and biosolids work in some cases, but are expensive to transport and cannot be made in fixed proportions of KCl, P, and N. Remember cabbage example. 24
Buyout Rumors that mining giants BHP Billiton or Vale would acquire an established potash producer. Billiton is considering building its own mine, but it wouldn t start production until 2015. 25
Risks Eggs in one basket. Owns 28% of Arab Potash Company in Jordan, 10% of Israel Chemicals Limited, 20% of Sinofert in China. Monsanto Antitrust investigation Organic movement 26
Recommendations Wait until Chinese government set prices for 2010 (November or December). 27