POTASH CORP. OF SASKATCHEWAN (Toronto symbol POT; www.potashcorp.com) is the world’s largest fertilizer producer. Its five potash mines in Saskatchewan and one in New Brunswick account for 20% of global potash capacity. Five of its mines have reserves of between 65 and 84 years. It also makes fertilizers from nitrogen and phosphate.
Earnings for Potash were $3.51 a share (or $3.1 billion) in 2011. However, earnings fell to $2.42 a share (or $2.1 billion) in 2012.
Cash flow per share was $4.16 in 2011, but fell to $3.12 a share in 2012.
The company expects global potash production of 55 million to 57 million tonnes in 2013, up from 51 million tonnes in 2012. That’s mainly due to rising demand for fertilizer in China, India and Brazil.
However, the extra supply will continue to dampen prices. In the first quarter of 2013, the company sold its potash for an average of $363 a tonne, down 16.6% from $435 a year earlier.
To stabilize prices, Potash Corp. and other producers have scaled back their output. At the same time, demand for more and better food is rising.
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Fertilizer stocks: Potash raises quarterly dividend three times in one year
In the past decade, Potash Corp. has expanded its mines to meet rising fertilizer demand. These projects are now largely complete. As a result, the company will spend $1.5 billion on upgrades in 2013, down 28.6% from $2.1 billion in 2012.
That decline in spending has freed up cash for dividends. Potash Corp. has raised its quarterly payout three times in the past year. The current annual rate of $1.40 U.S. a share yields 3.6%.
Potash Corp. has long-term debt of $3.5 billion. It holds cash of $585 million, or $0.68 a share.
The stock trades at just 13.0 times the $3.00 U.S. a share that Potash Corp. will probably earn in 2013. It also trades at a reasonable 10.4 times its projected cash flow of $3.75 U.S. a share.
In the latest edition of The Successful Investor, we look at whether the long-term prospects for fertilizer use will eventually offset the current slump in prices brought on by oversupply. We also look at the company’s financial outlook. We conclude with our clear buy-sell-hold advice on the stock.
(Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.)
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