singaporeaninvestor

Mosaic Co (MOS)

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The Mosaic Co is a company that I have been following for a long time now.MOS is a fertilizer company with phosphate mines in Florida and potash mines in Canada. Fertilizer is an under followed commodity as most investors focus on oil, metals, and grains.

Mosaic is the world’s largest producer of phosphate. It is vertically integrated with it’s mines in Florida accounting for 10% of global production of phosphate rock.Another large producer of phosphate is the government of Morocco. The market price is set by non-integrated producers which benefits Mosaic as it’s integrated business means a lower cost of production than them.

Mosaic is also the 3rd largest producer of potash, trailing PotashCorp and Uralkali. The potash industry is run as an oligopoly which has set prices much higher than marginal costs of production. Uralkali has started to slowly break away from this cartel by offering lower prices. The lower prices mean that there are larger barriers of entry to new players due to the incredibly high capital costs for greenfield projects.

Most important to me is the argument that Jeremy Grantham makes on fertilizers. Phosphorus (phosphate) and potassium (potash) both cannot be made, cannot be substituted, are necessary to grow all life forms, and are mined and depleted. To further aggravate the situation, Former Soviet states and Canada have more than 70% of the potash while Morocco has 85% of all high-grade phosphates. Thus, there is a quasi-monopoly on these two fertilizers. Mosaic and PotashCorp are probably the only two easy-to-invest companies.

The general commodity decline over the past 2 years has led to Mosaic to decline along with the rest of the sector. Mosaic is rated 5 stars with a fair value estimate of $48 and a high uncertainty rating. This translates to a consider buy price of $28.88. I have established a position in MOS through a long stock and short put position.

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