Mosaic Co. has raised its dividend by 400% so far in 2012, demonstrating not only the agriculture giant’s increasing profitability and a robust outlook for the fertilizer sector, but also the company’s strong capital position.
Mosaic hiked its annual dividend to US50¢ from US20¢ in February, then doubled it to US$1 per share in mid-July.
As of May 31, 2012, the company had US$3.8-billion in cash and US$1.1-billion in debt, positioning it well for potential acquisitions.
“The company continues to generate significant amounts of free cash flow and we believe that a likely use of capital could be to acquire additional phosphate rock supply in politically stable jurisdictions,” Michael Goldberg, analyst at Stonecap Securities, said in a note to clients.
The analyst thinks Mosaic would be most interested in an advanced-stage project and would probably wait until a feasibility study is complete before making a move.
Mr. Goldberg believes the most likely candidates are TSX Venture-listed Arianne Resources Inc. and TSX-listed Stonegate Agricom Ltd. He said both represent significantly cheaper options for Mosaic than is current source, Moroccan national phosphates company OCP.
If it is looking for a large project, the analyst said Mosaic could purchase Arianne Resources’ Lac à Paul property in Quebec, which has the potential for 3 metric tons of annual production within 200 kilometres of a deep sea port on the St. Lawrence river, providing easy access to Florida.
Mr. Goldberg noted that Arianne’s pre-feasibility study estimates capital expenditures of $814-million and operating costs of $90 per metric ton to produce an extremely high grade product. The feasibility study is expected by 2013 with initial production as early as 2016.
Stonegate represents a smaller and simpler operation with its Paris Hills property in Idaho offering a potential 1 million metric tons of annual DSO phosphate production.
The pre-feasibility study estimates initial capex of $149-million and opex of $73-million per metric ton. The feasibility study is expected in late 2012 with initial production as early as 2015.