Agrium Inc.

AGU : NYSE : US$90.05
Target: US$104.00

Agrium Inc. is a leading global producer and marketer of
agricultural nutrients, industrial products, specialty
fertilizers, and a major retail supplier of agricultural
products and services in North America, South America
and Australia.
All amounts in US$ unless otherwise noted

Agriculture — Fertilizer
Investment recommendation
Following a plant outage-plagued 2014 that significantly hurt EPS
potential in the current year, we feel the stability of Agrium’s base retail
segment and the growth in wholesale volumes and earnings bode well
for the company going forward. The strong EPS growth profile due to
substantial volume increases and an improvement in costs over the next
two years offers good value to shareholders. We estimate retail EBITDA
to improve by 9% in 2015, nitrogen wholesale to realize a 750kt (21%)
sales volume improvement (and lower opex costs), and a 900kt (76%)
improvement in potash sales volumes in 2015 as their expansion enters
service, which allows for a normalization of the original tonnage and
additional sales via the retail business for the expanded tonnage. All of
the various plant outages in 2014 created a trough earnings situation
that should materially correct itself in 2015. We then expect to see
further growth into 2016 via the Borger nitrogen expansion, the
continued ramp up of the Vanscoy potash expansion and via retail sales
Investment highlights

 Agrium reported adjusted Q2/14 EPS of US$4.31 versus our
estimate of US$4.15, consensus of US$4.11 and guidance of
US$3.85-4.35. Total gross margin was slightly above expectations at
US$1.60 billion versus our of US$1.56 billion estimate. Notably,
Retail gross profit was US$1.35 billion versus our US$1.31 billion
and Other gross profit was US$23 million versus our estimate of nil.
However, Nitrogen gross profit was weaker than expected at
US$137 million, versus our estimate of US$166 million, due in part
to lower volumes resulting from previously disclosed plant outages.
We continue to rate the shares of Agrium a BUY but have lowered our
target price to US$104 (from US$106 previously) based upon an 11.5x
multiple to our blended 2015E/2016E EPS.

MBAC Fertilizer Corp.

MBC : TSX : C$2.07
Target: C$3.55 

MBAC Fertilizer Corp. is a Canadian-domiciled development corporation focused on becoming a significant integrated fertilizer producer in Brazil. The company has ownership of assets within various regions of Brazil, but its immediate focus is on the development of the Itafos phosphate deposit in Goias state. Longer term, MBAC intends to produce phosphate from multiple locations across Brazil.
All amounts in C$ unless otherwise noted.

Investment recommendation
The net result of this press release to our model is favourable later in the decade as Santana ramps up to capacity in 2017E. The lowering of our capital expenditure estimate and of our operating cost assumption (albeit not to the company’s estimated levels) are net positives. However, given that our target price is based upon our 2015 EBITDA estimate and that our multiple takes into consideration the strong growth potential from additional forecast future production, our target price remains unchanged.
Investment highlights
The capital cost estimate is US$427 million (including a US$50 million contingency). There are some costs borne at the Itafos project (a US$323 million project) that would not be duplicated at the Santana project (a water dam, pre-planning/design for a doubling of output, etc), but other costs such as infrastructure to the site would be substantial (and hence why the overall cost was always expected to be higher at Santana). However, that is offset by a much higher grade and lower operating cost mine. The company expects to produce 500ktpa of SSP 0-19-0 product (which is a more valuable grade of product than what is being produced at Itafos (1-17-0) due to the much higher grade of the Santana ore body). Estimated operating cost per tonne at Santana in the BFS is US$113 versus our original estimate of US$140.
The reaction to the release was negative, not to the BFS, but to the lack of an update on Itafos, which is ramping to full operational capacity and should be at the desired level in Q4/13. We assume that the company will sell 50kt of SSP in 2013. We do highlight that every 25mt of sales only impacts our estimated cash balance by less than C$2 million. As a result, at this stage, we are more focused on the ramping up of the facility in Q4 than whether or not they meet or miss our sales estimate by 25kt in 2013, given how little an impact that is to their financial situation as estimated in our model. Further commentary on their financial position is discussed below and we believe funding is no longer a concern.
We continue to rate the shares of MBAC a BUY with a 12-month target price of C$3.55 based upon a 9.5x multiple to our 2015E EBITDA of C$80.9 million.

Agrium Inc.


Agriculture (Photo credit: thegreenpages)

AGU : NYSE : US$94.99
Target: US$118.00

Agrium Inc. is a leading global producer and marketer of agricultural nutrients, industrial products, specialty fertilizers, and a major retail supplier of agricultural products and services in North America, South America and Australia.

All amounts in US$ unless otherwise noted.

Investment recommendation
Although the mid-point of Agrium’s guidance was below expectations, we don’t believe the market agreed with consensus given the spring planting delays to date and as a result, we see the guidance as a only a slight negative. The slow progress of the US spring planting has impacted the company’s outlook for the second quarter but not by as much as it could have been, as the weather has turned for the better.

Given Agrium’s earnings growth potential over the next few years, its relatively less volatile earnings profile and its exposure to a wide array of agricultural product offerings, we believe the overall demand across the agriculture input market will allow the stock to be a relative outperformer in the sector. Monsanto remains our top pick due to its earnings growth, market share increases and new product offerings. We continue to rank Agrium as our second preferred equity to own. We would then follow that with Mosaic and Potash Corp (in that order). We remain with our neutral view on the potash producers, as we believe the potash market lacks sufficient catalysts regarding an upside surprise in industry volumes or pricing in 2013. However, we believe Mosaic offers opportunities for a significant amount of cash to be returned to shareholders in the near term.
Investment highlights
Agrium reported adjusted Q1/13 EPS of US$1.03 versus our and consensus estimate of US$1.08. Total gross margin was weaker than expected at US$716 million versus our expectation of US$791 million. Softer nitrogen gross profit (US$173 million versus our US$197 million) and a weaker retail segment (US$376 million versus US$413 million) were responsible for the discrepancy. Management guided Q2 EPS to a range of US$4.60-5.40. The company also announced an NCIB bid.
We continue to rate the shares of Agrium a BUY but have lowered our target price to US$118 from US$120, based upon a 12x multiple to our blended 2013E/2014E EPS.

Monsanto Company Target $ 121



MON : NYSE : US$104.51
Target: US$121.00

Monsanto is a leading global provider of seeds, biotechnology traits, and glyphosates. The company operates two segments: Seeds and Genomics and Agricultural Productivity. The seeds and genomics segment consists primarily of soybeans, corn, cotton, and vegetable seed brands, as well as biotechnology traits that help control weeds and insects. The agricultural productivity segment consists of crop protection, including glyphosates

Investment recommendation
Monsanto remains our top large cap equity to own: From an industry viewpoint, we continue to expect a large planting in both the US this spring and in Latin America next fall, which should set up the company for a strong F2013 and a positive start to F2014. We further believe that the concern farmers have had over sourcing the best seed this year as a result of last year’s drought-plagued crop should allow for an increase in margins. We believe Monsanto will be able to capitalize on these macro events more than its peers due to its yield leading products, both current and those in the pipeline, and the benefit that we should continue to see roll out in both North and South America through our forecast period. We expect the company to improve upon its market share, and going forward, we see no equal when it relates to the level of product launches the company should be able to introduce both in the near and medium term. We also believe the company has done a good job of diffusing a potential negative RR1 soybean event in Brazil next year through its disclosure, the removal of the related forecast earnings guidance from the current fiscal year (and next), and the proactive signing of farmers to the next generation product. As a result, we believe the company’s shares will continue to outperform its peers and the market in 2013.
Investment highlights
Monsanto reported adjusted Q2/F13 EPS of US$2.73 versus our estimate of US$2.38 and consensus of US$2.57. Gross margin was reported at US$3.07 billion, above our US$2.88 billion estimate (Figure 1). Operating costs were US$958 million versus our expectation at US$988 million. The company increased its ongoing F2013 EPS guidance to US$4.40-4.50 versus US$4.30-4.40 previously, our estimate of US$4.45, and consensus of US$4.57
We continue to rate the shares of Monsanto a BUY, but have increased our 12-month target price to US$121.00 from US$113.00 previously, based upon a 23.5x multiple to our blended F2014E EPS of US$5.16.

Agrium Q4 Report

Potash mining for fertilizer

Potash mining for fertilizer (Photo credit: Wikipedia)

AGU : TSX : $103.24
AGU : NYSE : US$101.10

Agrium traded lower after reporting relatively in-line Q4/12 results, EPS of US$2.16 versusprevious guidance of “slightly above US$2.00″.
The company did not offer Q1 or full-year guidance (historically, AGU only provides Q2 and Q4 guidance at the end of Q1 and
Q3 earnings, respectively).

Retail gross profit of US$509 million was lower than US$524-million estimate. Crop protection was better than expected at US$203 million (versus our US$168 million) due to better volumes and pricing as well as supplier rebate programs. Seed, merchandise  services and other was US$151 million versus Carpenter’s US$186 million due primarily to the pricing pressure associated with the livestock and wool segments within the Australian retail division.

Overall, the realized retail gross margin was 25.8%, in line with estimates. AGU’s nitrogen segment performed better than expected with a reported gross margin of US$326 million versus Carpenter’s estimated US$293 million. Volumes sold were in line with  estimates at 1.1mt but the average margin per tonne of US$290  In potash, gross margin of US$79 million was in line with US$78-million estimates as realized sales volumes of 341kt were in line with  estimates of 334kt and the average margin per tonne was in line at US$233 versus our US$235/t.

In phosphate, gross profit of US$47 million was lower than US$57 million estimates as a result of a lower margin per tonne (US$166 versus  estimates of US$199) resulting from higher operating costs.

We prefer the non-potash equities over the potash equities given expectation of a supportive agriculture macro environment and an expected near record U.S. planting this spring.

BHP Billiton Move Into Potash – A Billion Dollar Blunder

Former Billiton corporate logo.

Former Billiton corporate logo. (Photo credit: Wikipedia)

October 24

BHP Billiton  (BHP : NYSE : US$70.06), 

As BHP Billiton continues to move ahead with its massive Jansen potash mine in Saskatchewan, a Bay Street analyst has cautioned that building the mine is BHP’s worst option if it wants to diversify into potash.

The analyst noted, “We believe that the best decision for BHP is not to build or buy its way into the potash industry, and instead return cash to shareholders. However, we expect BHP will not go down this route.” He thinks that the economics of Jansen are not attractive. 

Using a US$450-per-tonne price, they project an internal rate of return (IRR) of only 10%, with the company needing a lofty US$600 per tonne to achieve a modest 12-15% IRR. The problem is that building Jansen could put pressure on prices, because it would bring more product into a market that is already well supplied right now.

The analyst believes that potash demand is adequately covered out to the mid-2020s without Jansen. And while they wrote that the decision to build Jansen can be justified by taking a much longer-term view and focusing on the period beyond 2025, they noted that is “inherently riskier” because of the forecasting challenges.

MBAC Fertilizer Corp. Buy Target $5.35

MBAC Fertilizer Corp.  MBC ( TSX)  $ 3.15

Sept. 14

Investment recommendation

Although preliminary in nature, the PEA highlights a robust project, the result of a very high grade REO deposit that is at surface and adjacent to existing infrastructure. Due to the risk surrounding the timeline and the financing of the project, we have applied a discount rate of 20% on Araxa. Given that the company will be looking to finance the Santana project in H2/13, estimated for initial production in 2015 at a cost of $445 million (our estimate), MBAC will likely require a financial partner for the Araxa project if it expects its timeline to be met. Initial discussions with potential financial partners (which consist of Japanese and Korean electronics companies – the end users of REOs) have identified several entities that are interested, but would prefer a further de-risking of the project through feasibility studies and pilot plant testing. To that end, given that MBAC intends to conclude both its pilot testing and PFS during Q2/13, followed by a bankable feasibility study expected by the end of 2013, we should be provided with greater clarity on financing options and better timelines and cost assumptions at that time. Given the metrics provided by the PEA, coupled with our own assumptions, and assuming a 20% discount rate on the Araxa project, our NAVPS estimate for the company increases by 15% as a result of the PEA release.

Investment highlights

Production planned fro Q1 2016 – increased capacity over time .

 PEA estimates Phase I CAPEX at US$406 million (which includes US$105 million in contingencies) with an additional US$214 million for the Phase II expansion (a sulphuric plant upgrade) for a total forecast CAPEX of US$620 million.


We continue to rate the shares of MBAC a BUY, but have increased our 12-month target price to C$5.35 from C$4.70, based on 1.0x our NAVPS estimate of C$5.37.

Jim Rogers reveals the next great commodity investment‏

English: Deere & Company World Headquarters bu...

English: Deere & Company World Headquarters building in Moline, Illinois, USA (Photo credit: Wikipedia)

During a recent interview with Investment U, Jim Rogers revealed his favorite place to invest now.

It’s not gold. It’s not technology.

It’s not copper, or oil… or emerging-market stocks.

It’s dirt. More specifically, Rogers likes agriculture.

The sector’s performance is starting to back him up, too.

During one recent 12-month span, the bellwether DB Agriculture Fund (NYSE: DBA) soared 26.4%, outpacing the S&P 500 by 63%.

When the debt downgrade hit U.S. Treasuries in August 2011, DBA dropped 4.42% while the broad market tumbled 16.67%.

Agriculture, right now, is proving more profitable – and safer – than the broad stock market.

Take a look:


DB Agriculture Powershares Chart
Rogers sees the trend continuing for the foreseeable future.

If his latest analysis of the global economy is accurate, “everybody who has a second home in Iowa would be rich,” says Rogers.

Rogers has long been known as the world’s leading commodity investor. (His track record, as you may know, includes co-founding the Quantum Fund, which soared 4,200% in 10 years versus 50% for the S&P. He’s also penned numerous bestsellers, which should be required reading for any serious investor.) And earlier this year he restated his belief that all commodities are in a bull market that has years to run.

But he singled out agriculture as the best sector right now.

Rogers’ Rationale: Why Agriculture Could Soar

This is a man known for doing his homework. And that’s what has led him to this conclusion.

For starters, agriculture has been a backwater sector for decades. That has created value.

“Over the last 25 or 30 years, agriculture’s been a horrible way to make money throughout the world. As a result, we have virtually no farmers,” Rogers pointed out in a recent interview withInvestment U Executive Editor Garrett Baldwin.

“According to the U.S. Government, the average age of farmers in America is 58 years old. In 10 years, they’re going to be 68 years old… if they’re still alive.

The shortage of farmers will lead to a shortage of farm production. And these shortages equal opportunity with commodities.

“If you get out the Department of Education’s numbers for the past 50 years,” says Rogers, “You’ll see a dramatic decline in the number of students studying agriculture, mining and petroleum engineering.”

“We don’t have any new farmers,” Rogers says. “Second of all, the [experts] are pretty old and are going to be going out of business. It’s a huge mess we have that’s developing in the world, and you’re going to see more and more shortages develop.

“We already have very low inventories on a historic basis for agricultural products. And even if we have a great local crop this year or next, so what? It’s going to be consumed very quickly because the inventory levels are already so low.”

In the future, Rogers sees farmers driving Porsches… and Wall Street brokers driving junkers.

He’s very serious about this.

“You know, the stock brokers are going to be broke,” says Rogers, foreshadowing what he sees as an increasingly diminished role for the financial sector. “All the farmers are going to be stunningly rich.”

How to Invest in the Coming Agriculture Boom

The bottom line for investors, Rogers says, is to participate in the coming agriculture boom however you can. That can include investments like stocks, of course.

But for those with flexibility, he suggests more creative ways to build wealth.

“You want to buy a lake house, buy it in Iowa or Oklahoma. Don’t buy it in Massachusetts,” he says.

Rogers continues: “Buy where the people are going to be rich. Open yourself a chain of restaurants in the agriculture area or department stores or hotels. Anything that you want to do in an area where people are making lots of money, you’ll make a lot of money, too… just because they’re rich.”

On a more conventional-investing level, Rogers sees plenty of opportunity, as well. “Certainly, the seed manufacturers and tractor manufacturers, backhoe dealers, everybody who has anything to do with production of raw materials is going to get rich.”

Some ways to invest include…


Deere & Company (NYSE: DE): The maker of John Deere tractors and equipment is the blue chip of the sector.

AGCO (NYSE: AGCO): Another farm-equipment manufacturing powerhouse, but on a smaller scale… AGCO could have plenty of room for growth, holding a large chunk of Brazil’s tractor market.

CNH Global (NYSE: CNH): The second-largest maker of farm equipment on earth, but less than half of Deere’s market cap.

Seeds and Fertilizers:

Potash Corp. (NYSE: POT): Like Deere, a stalwart of the sector, selling fertilizer and seed products across the U.S. and Canada.

Monsanto (NYSE: MON): Produces seeds for global markets, along with proprietary genetics and other products.

Syngenta AG (NYSE: SYT): This seed giant puts the focus on hybrid and synthetic seed technologies.


Plum Creek Timber (NYSE: PCL): This real estate investment trust owns timberland across the U.S. and pays a very healthy dividend.

Weyerhaeuser Company (NYSE: WY): For over 110 years, Weyerhaeuser has set the standard for the timber industry.


PowerShares DB Agriculture ETF (NYSE: DBA): Tracks the Deutsche-Bank Agriculture Index and is one of the oldest agriculture ETFs in the world.

Market Vectors Agribusiness ETF (NYSE: MOO): MOO contains a basket of stocks tracking the DAXglobal Agribusiness Index.

IQ Global Agribusiness Small Cap (NYSE: CROP): A more aggressive fund that tracks the index by the same name. Holdings include Tractor Supply, Viterra and Nufarm Limited, Australia.

But perhaps the single best investment for average investors would be Rogers’ own fund:ELEMENTS Rogers International Commodity Agriculture ETN (NYSE: RJA).

This ETN tracks Rogers’ own index by the same name. The fund has been outpacing DBA in recent years.

Potash Corporation of Saskatchewan Inc. Target $54

Potash Corporation of Saskatchewan

Potash Corporation of Saskatchewan (Photo credit: Wikipedia)

Potash Corporation of Saskatchewan Inc. 

POT : NYSE : US$44.99 Buy , Target US$54.00

July 27
• EPS and guidance in line with our estimates; maintaining BUY rating and US$54.00 target
Investment recommendation
We remain with our potash relative trade: As we have highlighted previously, we believe the relative gap between Agrium and the potash producers should narrow as the potash producers are now operating in a relatively stable market that has the potential to become somewhat more bullish heading into the fall and 2013.

It was the lack of this stability that had led Agrium to its substantial relative outperformance in the early part of this year. This is not a negative comment on Agrium, nor a bullish potash industry comment; it is an anticipated reversal towards the mean where the potash producers should outperform Agrium on a relative basis as the potash market stabilizes.

Case in point, after a poor potash shipment figure in Q1, overseas volumes from North American producers reached
a record in Q2. We expect this trade to continue to develop through Q3.
Investment highlights
• Potash Corp. reported adjusted Q2/12 EPS of US$1.01 versus our estimate of US$1.00, the consensus estimate of US$1.02 and guidance of US$0.90-1.00.
The adjusted results exclude $0.41 in one-time items, including a $341  million impairment charge ($0.39) related to its investment in Sinofert. Full year 2012 adjusted EPS guidance was left unchanged at US$3.20-3.60 versus  consensus of US$3.48.

Within the potash segment, sales volume guidance was unchanged at 8.8-9.2mt (versus our8.6mt estimate) while estimated gross margin guidance was provided at US$2.6-2.8 billion versus US$2.6-2.9 billion previously and our estimate of US$2.7 billion. The nitrogen and phosphate segments were guided to a combined gross profit of US$1.4-1.6 billion versus our original estimate of US$1.42 billion and prior guidance of US$1.3-1.5 billion.
We continue to rate the shares of Potash Corp. a BUY with a 12-month target

price of US$54.00, based upon a 14x multiple to our F2013E EPS of US$3.83

BHP Postpones Expansion Projects – The China Slowdown Syndrome

Former Billiton corporate logo.

Former Billiton corporate logo. (Photo credit: Wikipedia)

May 31

BHP Billiton Ltd.‘s (BHP-N61.56-2.46-3.84%) move to reconsider major spending plans may delay the construction of a promised potash mine in Saskatchewan, another sign the commodity “supercycle” is gearing down as slower global growth cools demand.

The Jansen project, estimated to cost as much as $12-billion, has the potential to become the largest potash mine in the world and is one of three major projects BHP was slated to consider for approval later this year. But comments by the global mining giant’s chief executive officer, Marius Kloppers, suggest the company could postpone such developments.

“You should not expect in the next six months any new major approval of projects,” Mr. Kloppers said in an interview with Caixin Media Co.

“The economics of some of these projects has changed,” he said. “I think for the next two years, 18 months perhaps, we will just wait and see how things develop.”

Resource companies around the world have become nervous as growth in China and India cools, easing global demand for commodities. The mining industry has enjoyed an extended stretch of high prices, but this so-called supercycle has escalated capital costs and prompted some governments to raise royalty rates in an effort to cash in on the boom. Now that supplies are more closely aligned with demand and costs remain hot, megaprojects may be losing their allure.

A delay at Jansen is a “reasonable possibility,” said Joel Jackson, an analyst at BMO Nesbitt Burns. But BHP must also be mindful of its relationships in Saskatchewan, he noted.

The Jansen project played a key role in BHP’s attempt to acquire Potash Corp. of Saskatchewan Inc. (POT-T40.63-0.35-0.85%) for $38.6-billion (U.S.) in 2010 in a hostile bid. The takeover was blocked by the federal government, which had sought guarantees from BHP that it would proceed with the Jansen development. But BHP, needing to carry out due diligence, was not in a position to give such assurances.

BHP may still issue a go-ahead for Jansen by year-end, but current trends in the potash market serve as a headwind.

Shares of Potash Corp. have tumbled amid uncertain demand from major buyers of the mineral, used in making fertilizer to boost crop output, and Potash Corp. itself has curtailed some production this year.

China consumes about 50 per cent of the world’s steel-making products; 40 per cent of the world’s aluminum and copper; and between 5 and 20 per cent of the world’s uranium, oil, and potash, according to BHP.

Mr. Kloppers’ concern extends to two other major projects: a copper-uranium expansion and an iron-ore expansion project, both in Australia. The three, along with other expansion plans, have an estimated price tag of around $80-billion (U.S.), a pricey sum at today’s commodity prices as the company emphasizes maintaining its dividend and solid credit rating.


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