Penn Wealth Publishing

2019.06.30 Penn Wealth Report Vol 7 Issue 03

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10 penn wealth Report volume 7 issue 03 30 Jun 2019 Penn Wealth Report Copyright 2019. All Rights Reserved. investment intelligence The Mosaic Company Chemicals: Ag & Fertilizer e content of this report reflects the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guarantees can be made and the firm is not liable for any losses incurred by subscribers. is is not a solicitation to buy. Always consult your investment profes- sional before investing any money. Diammonium phosphate, or DAP, is the world's most widely used phosphorous fer- tilizer. Eight years ago, US DAP was going for $650 per ton; today it sits at $313 per ton. e spot price of potassium chloride, the most common type of potash, was near $500 per ton eight years ago; it has now bounced off its recent low of $215 and has risen back to $265 per ton. ese rates are extremely important to e Mosaic Company (MOS $21-$24-$37), the world's leading integrated producer and marketer of concentrated phosphate and potash. How important? Look at the accompany- ing graph and note the red line, representing the share price of MOS. It was sitting at $72 when these two commodities began their price descent. We recently picked the shares up at $24 for the Intrepid Trading Platform—a 67% discount from where it sat eight years ago. While Mosaic may surge and retreat along with fertilizer chemical prices, our prediction that those commodities will go higher in 2019 is only one reason we bought the firm. Since taking the helm in 2015 (after leaving Barrick Gold in 2009 to serve as Mosaic's COO), CEO Joc O'Rourke has worked to increase the company's brown- field and greenfield footprint, and improve the efficiency of the busi- ness. e latter is no easy feat for a company in such a highly commod- itized industry. One of the rea- sons Mosaic is able to improve efficiencies lies in the fact that it is a vertically integrated company—the ability to control the process from upstream extraction to downstream marketing and sales eliminates some of the costs incurred by competitors. Additionally, Mosaic's recent brownfield expansion at its Esterhazy potash mine in Saskatchewan, a mine riddled with flooding problems in the past, should reduce production costs at the important facility. Moving from the sub-arctic tundra of Canada to the hot and humid climate of Brazil, Mosaic has been developing an impressive array of production facilities and operation centers in that country. After touring plants and meet- ing with management teams in Brazil, analysts at Cowen came back with a greater appreciation for the upside potential of the region—they reit- erated their outperform rating and lifted their tar- get price on the shares from $26 to $30. Financials. Last year, Mosaic made $500 million in profit on $10 billion in revenues. After CapEx to improve/increase facilities and streamline costs, coupled with an increased demand for agricultural products such as MicroEssentials® and an increase in com- modity prices, we have placed an initial target price of $35 on shares of Mosaic. You could invest directly in commodities to play a comeback in prices, but why not just buy the best ag chemicals firm at a steep discount? ...our prediction that commodities will go higher in 2019 is only one reason we bought the firm.

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