Mosaic (MOS) Sells Nitrogen Plant to Yara International (YARIY) for $1.6 Billion

For long time readers of the blog you know the reasons we love fertilizer [Oct 23: Analysts Stull Doubting the Fertilizer Stocks] and especially the potash (high moat) and phosphate makers (quite high moat) the best. Mosaic (MOS) has been our top holding and winner for much of the life of the fund. [Top Fund Winners and Losers] We don't like nitrogen quite as much simply because in due time anything China can produce, they will overproduce - and unlike potash and phosphates which have some extreme limitations on inputs/sources, nitrogen is more of a chemical process that China can (eventually) reproduce in great quantities - although input costs are rising there too. That is not to say that the greater trends that we like in all the fertilizer names won't benefit the nitrogen makers as well - it is just a 'relative' game. We want the best boat(s) in the rising tide for the long run.

So today's news of the finalization of a sale by Mosaic (MOS) of it's nitrogen plant, to raise capital to expand it's potash production? Just another feather in the cap for this name, which is simply among my favorites. Apparently management has the same vision/thesis I do - and with this move Mosaic becomes even more attractive (if that is possible) in my eyes.

• Norwegian fertilizer producer Yara International ASA (YARIY) is buying the Saskferco Products ULC nitrogen plant, jointly owned by U.S. fertilizer company Mosaic Co (MOS) and the provincial government of Saskatchewan, for C$1.6 billion ($1.6 billion).
• The plant, located in Belle Plaine, Saskatchewan, is one of the largest in the world and produces urea, anhydrous ammonia and urea ammonium nitrate. It is set to expand next year.
• Mosaic, which has a 50 percent stake in the 16-year-old plant, will use the proceeds of the sale to expand its potash mines in Saskatchewan, Mosaic's president Jim Prokopanko said in a statement. In June, the company had said it planned to expand potash mining capacity in Saskatchewan by 5.1 million tons in the next 12 years.
• Jim Prokopanko, President and Chief Executive Officer of Mosaic. "The timely sale of Saskferco will allow us to focus on our core potash and phosphate businesses

As an aside, Mosaic (MOS) is once again at its 50 day moving average - if trends hold true - it will break it a bit, but we won't be cutting it back this time around. ;) (probably meaning it will fall to $110 the one time we don't cut it back) I'd like to get Mosaic back to a 5%+ stake if we can see $120 again. Or if the market stabilizes, I'll pay higher prices gladly since this name will have a $2 handle on it by early 2009 in my opinion.

Now keep in mind going forward (as they have in the past) the markets will be spooked by the rising input costs - but the ability to charge customers even higher prices is what sets the few sectors we like apart from the rest who will be seeing profit margins pummeled. So when the market needs an excuse to get the big boys into fertilizer names this will be the excuse du jour. Even the Producer Price Index is beginning to show reality - highest rate of increase in 27 years. Whodda thunk it?

[May 1: Fortune - Mosaic, Why It's Up 342%]
[Apr 30: Mosaic CEO Interview]

Long Mosaic in fund and personal account