All I Want for Christmas Is Mosaic Co.

Mosaic Co. (NYSE:MOS) has recently announced the purchase of Brazilian-based Vale SA (ADR) (NYSE:VALE) in a cash and stock transaction that will boost its earnings, making this a great long-term play in the commodities space.

| More on:

Mosaic Co. (NYSE:MOS) is a U.S.-based producer and marketer of fertilizer products, including potash and concentrated phosphate crop nutrients. The company’s stock price has remained relatively stable over the past year, spiking recently on news that the company is acquiring Brazilian iron-ore and potash producer Vale SA (ADR)’s (NYSE:VALE) potash assets for US$2.5 billion in a cash and stock transaction, which is slated to be finalized next year.

Merger details

The US$2.5 billion merger between Mosaic and Vale is expected to be half cash, half stock, resulting in a Vale ownership interest in Mosaic of approximately 11% when the deal closes. This deal, pending regulatory approvals, would result in Mosaic taking over top spot from Potash Corporation of Saskatchewan Inc. as the largest global producer of phosphate crop ingredients.

Extending the market share is never a bad idea, and the company’s stock price has responded in kind–up 30% from its October low.

Reasons for considering the merger are abundant for Mosaic, a company that has developed strong sales in Brazil but was looking for a way to capitalize on the strong and growing Brazilian market for fertilizer. Mosaic currently operates a port in Brazil, and will now be able to vertically integrate its Brazilian and Peruvian potash assets accordingly. The purchase of Vale’s long-life, low-cost production assets are viewed by Mosaic management as a prudent move, even considering that potash is currently trading globally near a 10-year low.

Vale is a diversified mining company focused on iron-ore production with a number of other mining assets, including potash and phosphates. By divesting of these assets, Vale seeks to take advantage of further concentration of its efforts on its core businesses, while raising cash to invest in much-needed upgrades to existing mines.

Mosaic expects to finance the cash portion of the merger by raising approximately US$1.25 billion of debt next year. The anticipated increase in annual earnings from the acquisition is expected to range from $0.05 per share to $0.10 per share in 2018, generating approximately $80 million of free cash flow.

Mosaic long-term outlook

As one of the lowest-cost producers in the potash business, and considering the recent merger announcement in Brazil, Mosaic is positioning itself well to take additional global market share away from higher-cost producers in this low commodity price environment. This acquisition, while not cheap, may turn out to be a bargain in the long run due to the scarcity of low-cost potash production globally.

Should potash prices rebound accordingly, Mosaic will be in a fantastic position to capitalize on its cost-leadership strategy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chris MacDonald has no position in any stocks mentioned. The Motley Fool owns shares of Companhia Vale.

More on Metals and Mining Stocks

todder holds a gold bar
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell or Hold?

Investing in quality gold mining stocks that trade at a reasonable valuation could help you beat the TSX index over…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Buy?

Let's dive into whether First Quantum Minerals (TSX:FM) is worth buying at current levels, or if investors should sit this…

Read more »

nugget gold
Metals and Mining Stocks

Competitive? Beat the Market With These 2 Dividend-Paying Growth Gems

Investors looking to beat the market buying dividend stocks right now need to focus on this right sectors. Here are…

Read more »

nugget gold
Metals and Mining Stocks

A Canadian Billionaire Investor Sold Micron Stock and Bought This TSX Company Instead

Prem Watsa focuses on value over short-term growth.

Read more »

Concept of multiple streams of income
Metals and Mining Stocks

Is Franco-Nevada Stock a Buy for Its 1.2% Dividend Yield?

Gold royalty stocks represent a niche in the precious metals industry. They have different dynamics from mining stocks.

Read more »

todder holds a gold bar
Metals and Mining Stocks

The 1 Mining Stock Canadians Should Buy and Hold Forever

Newmont is a gold mining stock that trades at a cheap valuation, making it a top investment choice for those…

Read more »

Metals and Mining Stocks

Top Canadian Gold Stocks to Buy Now

Canadian gold mining stocks such as Barrick Gold and Kinross Gold are two top investments in October 2024.

Read more »

todder holds a gold bar
Stocks for Beginners

Is the Worst Over for SSR Mining Stock?

SRR Mining stock has been rising higher after recent earnings performance that made a bit of a comeback. So is…

Read more »