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Don Coxe Investment Recommendations April 2008
INVESTMENT RECOMMENDATIONS
1. In long-only equity portfolios, continue to underweight Wall Street banks
and others that have been reporting high exposure to perfumed products
of indeterminable value, including those which last year revealed—under
duress—high exposure to SIVs. Within the financials, emphasize those
whose loan losses are of the traditional, cyclical variety—not in derivatives
or in untraditional banking businesses. Good banks that have stuck to
their knitting—and whose CEOs compensation has suffered along with
their stock prices—should be retained.
2. In long/short portfolios, be long commodity stocks and short bank stocks
that make headlines for untraditional losses. That trade hasn’t been
working lately, but it remains an overall portfolio risk-reducer. The list of
banks that have shown great skill and profitability by going heavily into
new kinds of products and new kinds of accounting is roughly as long
as the list of major copper, oil and gas producers that profited by selling
heavily forward.
3. A financial-led bear market within a financial-led recession can be
particularly perilous if central banks run out of ways to reflate the
system—and surprisingly benign if the central banks’ rescues remain
timely. To date, the central banks have been up to the job—if propping
up a badly-behaving financial sector is a key component of their job
descriptions. Result: the overall stock market has outperformed our
expectations. We still don’t like the risk/reward ratio.
4. Dividends become more attractive as central banks cut rates. The problem
for investors is that many of “The Great Dividend-Paying Stocks” are
financials that have been reporting ghastly blunders. In many cases, their
payout ratios have climbed far above the 50% threshold that has made
these stocks better investments than bonds. Opportunities remain—and
dividends may be the only positive return most US stocks will deliver this
year.
5. Although North American consumers have yet to see the cost pass-through
in major foodstuffs of $6 corn and $8 wheat, it will come sooner or later.
Based on past periods of food inflation, one of the first consumer cutbacks
is on eating out. Restaurant stocks are especially unappetizing when food
costs soar out of control.
6. Gold has pulled back from its high because the dollar stopped falling
and the bank bailouts seem to be working. Remain overweight gold as a
clear-cut hedge against further bad news on both those fronts.
7. The Canadian dollar decoupled from the euro, failing to rally to new
peaks—which makes little sense to us. US clients should continue to use
Canadian government bonds and Canadian short-term investments as
alternatives to Treasurys and US cash.
8. Within the commodity group, continue to accumulate the leading
agricultural stocks. Given the spectacular performance of the fertilizer
stocks, the best bargains currently on offer are in the farm machinery
companies. The global food crisis will almost surely cripple the opposition
to GM seeds, which means the seed stocks have great upside room.
9. Within debt portfolios, continue to emphasize inflation-hedge bonds—
preferably in strong currencies. Treasurys remain overvalued, despite the
recent strong run-up in yields from barely-observable levels.
Don Coxe Investment Recommendations April 2008
INVESTMENT RECOMMENDATIONS
1. In long-only equity portfolios, continue to underweight Wall Street banks
and others that have been reporting high exposure to perfumed products
of indeterminable value, including those which last year revealed—under
duress—high exposure to SIVs. Within the financials, emphasize those
whose loan losses are of the traditional, cyclical variety—not in derivatives
or in untraditional banking businesses. Good banks that have stuck to
their knitting—and whose CEOs compensation has suffered along with
their stock prices—should be retained.
2. In long/short portfolios, be long commodity stocks and short bank stocks
that make headlines for untraditional losses. That trade hasn’t been
working lately, but it remains an overall portfolio risk-reducer. The list of
banks that have shown great skill and profitability by going heavily into
new kinds of products and new kinds of accounting is roughly as long
as the list of major copper, oil and gas producers that profited by selling
heavily forward.
3. A financial-led bear market within a financial-led recession can be
particularly perilous if central banks run out of ways to reflate the
system—and surprisingly benign if the central banks’ rescues remain
timely. To date, the central banks have been up to the job—if propping
up a badly-behaving financial sector is a key component of their job
descriptions. Result: the overall stock market has outperformed our
expectations. We still don’t like the risk/reward ratio.
4. Dividends become more attractive as central banks cut rates. The problem
for investors is that many of “The Great Dividend-Paying Stocks” are
financials that have been reporting ghastly blunders. In many cases, their
payout ratios have climbed far above the 50% threshold that has made
these stocks better investments than bonds. Opportunities remain—and
dividends may be the only positive return most US stocks will deliver this
year.
5. Although North American consumers have yet to see the cost pass-through
in major foodstuffs of $6 corn and $8 wheat, it will come sooner or later.
Based on past periods of food inflation, one of the first consumer cutbacks
is on eating out. Restaurant stocks are especially unappetizing when food
costs soar out of control.
6. Gold has pulled back from its high because the dollar stopped falling
and the bank bailouts seem to be working. Remain overweight gold as a
clear-cut hedge against further bad news on both those fronts.
7. The Canadian dollar decoupled from the euro, failing to rally to new
peaks—which makes little sense to us. US clients should continue to use
Canadian government bonds and Canadian short-term investments as
alternatives to Treasurys and US cash.
8. Within the commodity group, continue to accumulate the leading
agricultural stocks. Given the spectacular performance of the fertilizer
stocks, the best bargains currently on offer are in the farm machinery
companies. The global food crisis will almost surely cripple the opposition
to GM seeds, which means the seed stocks have great upside room.
9. Within debt portfolios, continue to emphasize inflation-hedge bonds—
preferably in strong currencies. Treasurys remain overvalued, despite the
recent strong run-up in yields from barely-observable levels.
Don Coxe Investment Recommendations April 2008
INVESTMENT RECOMMENDATIONS
1. In long-only equity portfolios, continue to underweight Wall Street banks
and others that have been reporting high exposure to perfumed products
of indeterminable value, including those which last year revealed—under
duress—high exposure to SIVs. Within the financials, emphasize those
whose loan losses are of the traditional, cyclical variety—not in derivatives
or in untraditional banking businesses. Good banks that have stuck to
their knitting—and whose CEOs compensation has suffered along with
their stock prices—should be retained.
2. In long/short portfolios, be long commodity stocks and short bank stocks
that make headlines for untraditional losses. That trade hasn’t been
working lately, but it remains an overall portfolio risk-reducer. The list of
banks that have shown great skill and profitability by going heavily into
new kinds of products and new kinds of accounting is roughly as long
as the list of major copper, oil and gas producers that profited by selling
heavily forward.
3. A financial-led bear market within a financial-led recession can be
particularly perilous if central banks run out of ways to reflate the
system—and surprisingly benign if the central banks’ rescues remain
timely. To date, the central banks have been up to the job—if propping
up a badly-behaving financial sector is a key component of their job
descriptions. Result: the overall stock market has outperformed our
expectations. We still don’t like the risk/reward ratio.
4. Dividends become more attractive as central banks cut rates. The problem
for investors is that many of “The Great Dividend-Paying Stocks” are
financials that have been reporting ghastly blunders. In many cases, their
payout ratios have climbed far above the 50% threshold that has made
these stocks better investments than bonds. Opportunities remain—and
dividends may be the only positive return most US stocks will deliver this
year.
5. Although North American consumers have yet to see the cost pass-through
in major foodstuffs of $6 corn and $8 wheat, it will come sooner or later.
Based on past periods of food inflation, one of the first consumer cutbacks
is on eating out. Restaurant stocks are especially unappetizing when food
costs soar out of control.
6. Gold has pulled back from its high because the dollar stopped falling
and the bank bailouts seem to be working. Remain overweight gold as a
clear-cut hedge against further bad news on both those fronts.
7. The Canadian dollar decoupled from the euro, failing to rally to new
peaks—which makes little sense to us. US clients should continue to use
Canadian government bonds and Canadian short-term investments as
alternatives to Treasurys and US cash.
8. Within the commodity group, continue to accumulate the leading
agricultural stocks. Given the spectacular performance of the fertilizer
stocks, the best bargains currently on offer are in the farm machinery
companies. The global food crisis will almost surely cripple the opposition
to GM seeds, which means the seed stocks have great upside room.
9. Within debt portfolios, continue to emphasize inflation-hedge bonds—
preferably in strong currencies. Treasurys remain overvalued, despite the
recent strong run-up in yields from barely-observable levels.
CS.TO - unrealized loss on derivative instrument of $12.4 million (a non-cash item) related to our forward copper sales and before current and future income taxes of $2.8 million.
Earnings after the above were $0.5 million or $0.01 per share.
Can someone explain this accounting treatment?
Kipp
Capstone Reports Record Operating Profit of $15.9 Million for the First Quarter
http://biz.yahoo.com/iw/080429/0391838.html?printer=1
Tuesday April 29, 6:45 pm ET
VANCOUVER, BRITISH COLUMBIA--(MARKET WIRE)--Apr 29, 2008 -- Capstone Mining Corp. ("Capstone") (Toronto:CS.TO - News) announces its financial results for the first quarter of 2008 including production and sales for the Cozamin mine located in Zacatecas State, Mexico. All dollar amounts are stated in U.S. dollars unless otherwise indicated.
Overview and Highlights
- Record operating profit of $15.9 million or $0.20 per share
- Record revenue of $29.5 million. The average realized price for sales of copper, zinc, lead and silver in the quarter was $3.59/lb, $1.21/lb, $1.33/lb and $8.40/oz respectively.
- Earnings of $15.7 million or $0.19 per share before recording an unrealized loss on derivative instrument of $12.4 million (a non-cash item) related to our forward copper sales and before current and future income taxes of $2.8 million. Forward copper sales average price through 2011 is $3.18. Earnings after the above were $0.5 million or $0.01 per share.
- Copper production during the quarter was 6.0 million lbs compared with 2.8 million lbs for the three months ended February 28, 2007.
- At March 31, 2008, Capstone had working capital of $56 million and no bank debt. In addition, the fair market value of Capstone's share ownership of Silverstone Resources Corp. is approximately $65 million, which is not included in working capital.
- Copper cash costs for the quarter were $0.98/lb of copper (net of by-product credits and including smelter, refining, transportation and all site costs).
- Total costs (the aggregate of cash costs, royalty, depletion and amortization and accretion) for the quarter were $1.18/lb.
- Capstone continued its share buyback plan and purchased an additional 219,900 common shares on the open market at an average price of CDN$2.78. The shares have been returned to treasury and cancelled under its normal course issuer bid.
POE "NOT FOR DISSEMINATION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES."
I don't know why most of the updates start with that statement but I sure like it. We are able to get the news way ahead of the market from Stockhouse posters.
Does anyone know why they make that statement on the P.R. updates?
Kipp
POT SMOKING SHORTS
KCL - POT earnings come out Friday and I hope they keep the stock at $200+- for a long time. I hope KCL hugs $4.00 for a while. It makes a nice base with high volume and a stronger stock for long term holders.
That pump was the worst kind, with I read it before posting the link, wouldn't have bothered.
The world needs fertilizer.
Kipp
Intrepid Potash Soars in Debut
By LYNN COWAN
April 22, 2008 2:24 p.m.
The heightened demand for crop fertilizers world-wide made for runaway growth in the share price of Intrepid Potash Inc.'s IPO Tuesday.
The potash producer opened at $46.25 a share on the New York Stock Exchange, up 45% from its initial public offering price of $32. It sold 30 million shares at a price above its expected $27 to $29 range, which was set by underwriters Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley.
The deal reopens the U.S. IPO market after a month's hiatus; the last deal to debut in U.S. markets was Visa Inc. on March 19. Demand for the deal was expected to be high, thanks to rapidly rising fertilizer prices and enormous stock gains this year by established public companies like Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc. Intrepid Potash's underwriters raised both the number of shares sold by 6 million and the price range by $3 on the deal last week. The stock was changing hands recently at $48.80.
"You talk about bringing a deal out in a perfect situation. This was a slam dunk from the get-go," says Sal Morreale, who tracks IPOs for Cantor Fitzgerald LP, which wasn't an underwriter on the deal. "This deal is behaving extremely well in a rocky market."
Based in Denver, Intrepid Potash mines two primary fertilizers: potash and langbeinite, a sulfate of potash magnesia that is a low-chloride fertilizer. In 2007, it sold 22% more potash and 66% more langbeinite than in 2006. It forecasts a 3% and 24% production increase in each, respectively, in the first quarter of 2008 compared with the same period in 2007.
Prices for each fertilizer have been skyrocketing, thanks to global demand for more variety in food crops from emerging economies like China, and to a lesser extent, the increase in crops used for fuel like ethanol and biodiesel.
The price of one type of potash, red granular, rose 132% from September 2007 to the beginning of this month; last week, a consortium of major potash producers inked a deal to sell their commodity to China at triple last year's price.
Intrepid Potash was formed in November by Intrepid Mining LLC, which itself was created in 2000 to acquire a mine from Canadian giant Potash Corporation of Saskatchewan. The mine it bought had been declining in production, but Intrepid nearly doubled the amount produced by using horizontal drilling technology that is normally used in oil and gas fields, but had never been tried on potash. Intrepid Mining then acquired more potash assets from other producers. The company says its potash and langbeinite mines have a remaining reserve life ranging from 28 to 124 years, and it plans to re-open an idled mine in New Mexico.
Along with the usual hazards of operating mines, Intrepid Potash warns in its prospectus that potash prices can be volatile. In 2006, protracted negotiations between China and international producers delayed purchases of potash by the Chinese, which led to a buildup of inventory in North America.
Unlike many commodities like gas and oil, there is no active hedge market for potash, and so the company cannot protected itself from price volatility through hedging. And while the only known source of langbeinite is located in New Mexico -- and mined by Intrepid Potash and competitor Mosaic Co. -- a German company produces a similar low-chloride fertilizer, and the Chinese are working to synthetically produce langbeinite from brines.
In 2007, Intrepid Potash reported net sales rose 37% to $192.4 million and its gross margin doubled to $52.5 million, compared with 2006; income from continuing operations rose 23% to $29.7 million. The company's net income declined 17.6% to $29.7 million because the 2006 period included income from discontinued operations and gains from sales on assets; the company sold its oil and gas assets in the final quarter of 2006.
Post-IPO, management of Intrepid Mining owns 68% of the company's stock. The majority is held by Hugh E. Harvey, the company's executive vice president of technology, and Robert P. Jornayvaz III, its chairman and chief executive.
Although the U.S. isn't considered a major source of potash -- Canada and Russia mine the most -- Intrepid is the largest producer of potash in the U.S. Since 2004, it has supplied, on average, 8.5% of U.S. consumption of potash and 1.5% of the world's.
cl001 - These charts say copper is about $.02 per pound from BLAST OFF! Please post your up to the minute thoughts on copper stocks if you would....PLEASE!
http://www.kitcometals.com/charts/Copper.html
THANKS!
Kipp
Nuts, here is the KCL pump - http://www.allpennystocks.com/aps_us/special_reports/archives/042108.asp
Metal use in electric cars.
I was surprised at all the major car manufacturers that are bringing electric cars to market soon. Here is the link to my Google search results, check this out:
http://news.google.com/news?hl=en&tab=wn&ned=us&q=electric+car
My question is how much copper, lithium, lead, etc. will go into these motors and batteries. If there are millions of these things produced we are talking about significant metal demand from a new source.
Kipp
KCL on BNN at 19:15 mark.
KCL - Potash One Top Pick on BNN http://broadband.bnn.ca/bnn/?id=2238&vid=47033
Thanks nuts for POE info. I still have all of my shares and actually added when you did around $10.50ish. I couldn't see selling a company that goes from 2,000 to 6,000, to 10,000 bopd with oil going to $117. I can't even see selling it if oil goes back to $85. I can't wait for the earnings to come out so we can see how they are treating the royalty and windfall tax issues.
Kipp
cl001 - I sold most of my Chemtrade too. I think we got the majority of the move. I got a little more KCL, some FMA, and POE with the proceeds.
Kipp
farwest - Do you have a link to this outstanding post. I would like to email it to some folks and it would be nice to have the charts.
Thanks!
Kipp
LT Matt - Fast food joint drive through menu goes from $.99 burger to $1.99........$2.99........$3.99... quarter pounder becomes "Nano-Burger".
It's coming, no escape now.
Kipp
Cellulosic Ethanol To Power Fertilizer Demand
4/16/2008
It sounds all too perfect for grain producers. Not only are grain prices going through the roof but now a
significant end user of crop wastes like corn stover and wheat straw is emerging - the cellulosic ethanol
industry. This offers the additional promise of even more financial windfalls in the game of crop
production for farmers. But there will be major ramifications for the sustainability of grain production
once we commit to remove not only grain but every skeric of plant residue our crops push out of the
soil. There will be a major and significant increase in the amount of fertilizer nutrients farmers annually
mine from the soil substrate.
Potash demand in particular is likely to soar to unprecendented levels as this particular mineral fertilizer
is essential for plant structural integrity. The removal of 1 tonne of wheat or barley straw will see the
potassium equivalent export of 12kg of muriate of potash. If you remove 3 tonnes per hectare of straw
(an average global yield) that is a cumulative potash export of 36kg /ha on top of what is removed in the
grain. Can our global potash resources stand up to such a major ramp up in demand?
The story for nitrogen is somewhat similar. Again if we look at quantifying nutrient removal. 1 tonne of
cereal stubble will contain the nitrogen equivalent from 13kg of urea. So a cumulative removal of
39kg/ha of urea on top of that removed in the grain portion in a 3 tonne yield. Are our global natural gas
resources up to this gearing up of the demand base?
For phosphate there is also bad news as we see additional phosphorus units being lost from the cropping
system. 3 tonne of stubble removed sees the equivalent phosphorus export of around 33kg of
superphosphate.
With these figures in mind, there is the potential for fertilizer prices to soar to levels not ever seen nor
even imagined as this demand base kicks in. Yet again we saw more significant rises in the last week
with DAP surging past the US$700 per tonne mark.
What happens to our soils as they are left exposed to the vagaries of extremes in weather with no
physical defences from erosion? I shudder to think. Soil organic carbon levels will likely plummet as the
practise of straw retention becomes a major short term opportunity cost. The need for perennial based
agricultural systems will become a very important drive if we are to maintain some level of resiliance in
our agricultural production base. The only problem being that apart from pigeon peas in India, there are
no other perennial grain crops that are close to commercial exploitation.
Quite clearly cellulosic ethanol is likely to push agriculture to the brink of its true sustainability limits.
And it is likely to stretch demand for fertilizers to a new level where existing and planned new capacity
may struggle to satisfy the hunger of nutrient cleansed soil profiles from the Pampas of Argentina to the
Prairies of the United States.
Cellulosic Ethanol To Power Fertilizer Demand
4/16/2008
It sounds all too perfect for grain producers. Not only are grain prices going through the roof but now a
significant end user of crop wastes like corn stover and wheat straw is emerging - the cellulosic ethanol
industry. This offers the additional promise of even more financial windfalls in the game of crop
production for farmers. But there will be major ramifications for the sustainability of grain production
once we commit to remove not only grain but every skeric of plant residue our crops push out of the
soil. There will be a major and significant increase in the amount of fertilizer nutrients farmers annually
mine from the soil substrate.
Potash demand in particular is likely to soar to unprecendented levels as this particular mineral fertilizer
is essential for plant structural integrity. The removal of 1 tonne of wheat or barley straw will see the
potassium equivalent export of 12kg of muriate of potash. If you remove 3 tonnes per hectare of straw
(an average global yield) that is a cumulative potash export of 36kg /ha on top of what is removed in the
grain. Can our global potash resources stand up to such a major ramp up in demand?
The story for nitrogen is somewhat similar. Again if we look at quantifying nutrient removal. 1 tonne of
cereal stubble will contain the nitrogen equivalent from 13kg of urea. So a cumulative removal of
39kg/ha of urea on top of that removed in the grain portion in a 3 tonne yield. Are our global natural gas
resources up to this gearing up of the demand base?
For phosphate there is also bad news as we see additional phosphorus units being lost from the cropping
system. 3 tonne of stubble removed sees the equivalent phosphorus export of around 33kg of
superphosphate.
With these figures in mind, there is the potential for fertilizer prices to soar to levels not ever seen nor
even imagined as this demand base kicks in. Yet again we saw more significant rises in the last week
with DAP surging past the US$700 per tonne mark.
What happens to our soils as they are left exposed to the vagaries of extremes in weather with no
physical defences from erosion? I shudder to think. Soil organic carbon levels will likely plummet as the
practise of straw retention becomes a major short term opportunity cost. The need for perennial based
agricultural systems will become a very important drive if we are to maintain some level of resiliance in
our agricultural production base. The only problem being that apart from pigeon peas in India, there are
no other perennial grain crops that are close to commercial exploitation.
Quite clearly cellulosic ethanol is likely to push agriculture to the brink of its true sustainability limits.
And it is likely to stretch demand for fertilizers to a new level where existing and planned new capacity
may struggle to satisfy the hunger of nutrient cleansed soil profiles from the Pampas of Argentina to the
Prairies of the United States.
timhyma - We are in a real jam as far as fertilizer usage. Organic fertilizer is a tiny sliver of the total nutrient requirement for commercial ag. There are now 6,500,000,000 people on the planet and we have the lowest per capita grain inventories in 60 years. I see projections of the future population increase and really scratch my head as to how we are going to have the water, acres, yields, fertilizer, chemicals, etc. to increase overall grain production in a sustainable way. I hear technology and genetics will be the answer but a 300 bushel corn crop needs exactly 33% more water and nutrients than a 200 bushel yield.
The rant you don't want me started on is bio fuels. Burning our food so many people can drive 15mpg SUV's is going to inflict MAX PAIN on world food stocks/prices. It takes 4 barrels of oil to produce 5 barrels of ethanol. The third world is at the brink today and you aint seen nothin' yet as far as food price inflation.
Sorry I don't have a better outlook!
Kipp
KCL secondary overhang around $4.00 reminds me of when EuroZinc was at $1.90 on a $2.00 overhang. Once the shares get to new homes it will resume uptrend on potash strength. I may add more tomorrow but I am bloated up as it is.
Bobwins - FMA is not in the Ibox as far as I could tell. I did this summary if you want to add it in the copper section:
First Metals FMA.TO (FSTMF.PK)
www.firstmetalsinc.com
Shares Outstanding = 38,900,000
Options Outstanding = 9,800,000 (priced at $1.00 to $2.00)
Globex = 3,900,000 Shares
Fully diluted 52,500,000 Shares
FMA is currently producing 1500-1700 tons of ore per day. Trading at 1x 2008 cash flow! 100% Un-hedged @ $4.00+/lb copper!
FMA is the cheapest Copper PRODUCER in the market. Jennings has $2.15 target using very conservative $3.10 Copper. Extrapolating $4 Copper the target price is over $3. Last trade was $1.10 Here is Jennings report: http://www.jenningscapital.com/pdfs/FMA02262008RaisingCopperPrices.pdf
nuts, from Midwest Labs home page go to "publications" then "brochures". It is the first one on the list. It is a pdf.
https://www.midwestlabs.com/index3.html
The links don't follow you around like other sites.
Kipp
nuts - Everything you ever wanted to know and more about crop fertilization is found here:
https://www.midwestlabs.com/index3.html
Open the "Agronomy Handbook" and print the tables on page 100 and 101. "Plant Food Utilization" This shows you how much nutrient each crop needs. Fertilizer uptake is not 100% efficient so more fertilizer than the plant actually needs must be applied. Nitrogen utilization is only 60-75% of what gets applied in total.
BUT, the "legumes" get their nitrogen from the air! It is free! That is why soybeans use less fertilizer overall. Well-known legumes include alfalfa, clover, peas, lentils, and peanuts. Here is more info:
http://en.wikipedia.org/wiki/Legume
There is no one size fits all answer to how much fertilizer is applied.
Wikipedia gives a good run down of fertilizer:
http://en.wikipedia.org/wiki/Fertilizer
This should be enough information overload to keep you up all night!
Kipp
nuts, this is Illinois data from March.
http://www.farmdoc.uiuc.edu/manage/crop_budgets.pdf
I will get the breakdown of how many pounds per acre of fertilizer but this is a very good breakdown of the farmer budget. It's what we use as a guide for our own farm.
http://www.farmdoc.uiuc.edu/manage/crop_budgets.pdf
Kipp
KCL mention here:
http://network.nationalpost.com/np/blogs/tradingdesk/archive/2008/04/17/role-of-potash-as-strategic-resource-could-push-china-to-make-acquisitions.aspx
Role of Potash as strategic resource could push China to make acquisitions
Posted: April 17, 2008, 10:10 AM by Jonathan Ratner
Economy, Market Call
Demand for potash and other nutrients has got its own dose of Miracle-Gro in the past few years as emerging economies boost their protein intake. So if countries like China are snatching up oil and gold assets, what’s to stop them from making acquisitions in the fertilizer market since the supply of these materials appears to be of equal, if not greater, strategic importance?
Wellington West analyst Robert Winslow sums it up perfectly: “After all, potash minerals represent fertilizer, fertilizer represents food, and food represents political stability at a time when food scarcity has become a concern of governments across the globe,” he said in a note.
So it is no surprise that shares of fertilizer producers have been skyrocketing – most notably Potash Corp, which vaulted to third spot in terms of market cap in Canada on Wednesday at more than $62-billion. The gain of nearly 6% to almost $200 per share was primarily the result of the settlement of 2008 potash price negotiations that will see China pay Canadian marketing company Canpotex Ltd. roughly US$575 per tonne, up from around US$175 the previous year. But even without the one-day increase, Potash Corp. shares have been reaching for the sky over the past 18 months.
Canoptex is controlled by Potash Corp., Agrium Inc. and Mosaic Co., but names like Viterra Inc. (formerly Sask. Wheat Pool) and farm equipment distributor Cervus Inc. are only a sampling of the many other companies benefitting from the ag boom. Meanwhile, the possibility that China might purchase potash companies supports Mr. Winslow’s bullishness on junior players in the sector like Athabasca Potash Corp., Anglo Potash Ltd., Potash One Inc. and Western Potash Corp.
As for the price of potash, RBC Capital Markets analyst Fai Lee has a conservative view that there will be no further increases in China and India, so prices will stabilize around US$700 per tonne. However, he did boost his price target for Potash Corp. shares by US$50 to US$300. His 2008 and 2009 earnings per share (EPS) estimates rise from US$7.51 and US$9.52, to US$11.15 and US$15.02, respectively.
But some are far more bullish on spot potash, suggesting it could climb as high as US$1,000 per tonne by the end of 2008. So by putting a realized potash price of US$900 into Mr. Lee’s model, as opposed to US$600 for 2009, the analyst’s 2009 EPS estimate climbs to approximately US$21.
Another important factor for the potash market is the fact that China’s total imports could be more than 3 million tonnes lower in 2008 than the previous year. This could weaken its bargaining power when negotiations roll around next year, which could be considered another factor behind potential acquisitions.
Jonathan Ratner
nuts - I will post links that will answer all of your questions. It will take me a few so hang on.
Kipp
Nuts, Good to have you back! I hope you are feeling better?!?!
I can tell you the fertilizer season is just getting going in the corn belt. There is a little bit of talk of bad weather hampering fertilizer application. There is also talk of it getting late to plant corn in some areas and there could be a switch to soybeans. I am watching this and will let you know if there is any truth to it. Thanks for sharing with us.
Kipp
Bobwins, I see PetroBank on this BNN schedule, can't find a link???
http://www.bnn.ca/schedule/
Kipp
Nuts, MAA, did you ever post more of your thoughts on this one?
Kipp
POE.V moving on high volume today. No news I can find. I suspect leak of another gusher.
Kipp
bbotcs - Slide 21 did it for me. 5% or 8% decline in production when demand is increasing at today's production level is huge. The IEA shows annual increases in demand ramping up higher than where we are today.....where do they get off on showing production increasing?????? Mexico and Russia have come out in the last week saying they are in and will stay in decline, they have hit the peak production point and will have to invest like crazy to slow the rate of decline. THE EASY OIL IS GONE!
Here is a link to the slide show for those who missed it early this morning.
http://www.321energy.com/editorials/simmons/simmons041108/show041208.html
Kipp
Carnarvan showing no POE news?
http://www.carnarvon.com.au/
Hmmm, something is up, I think they may have hit another Thailand gusher.
Kipp
POE.V - Look at that volume! News?
New Simmon's Peak Oil Slide Show
http://www.321energy.com/editorials/simmons/simmons041108/simmons041208.html#
New Simmon's Peak Oil Slide Show
http://www.321energy.com/editorials/simmons/simmons041108/simmons041208.html#
$1,000/ton POTASH!
April 14 (Bloomberg) -- Agrium Inc., North America's third- largest crop-nutrient maker, and two rivals rose to records in U.S. and Canadian trading after Russian producer OAO Uralkali said potash prices may surpass $1,000 a metric ton this year.
Agrium jumped C$4.90, or 6.7 percent, to C$78.09 at 4:15 p.m. on the Toronto Stock Exchange after earlier touching an all-time high $78.25. The shares have advanced 67 percent in the past year as crop-nutrient prices rose and fertilizer producers sought to keep pace with expanding demand.
Potash, a form of potassium, may reach $1,000 a ton ``rather fast'' because world output trails demand by 1.2 million tons, Oleg Petrov, sales chief for Berezniki, central Russia-based Uralkali, told investors today on a conference call. A price topping $1,000 a ton would be a fivefold increase from 2007. Both Potash Corp. of Saskatchewan Inc. and Mosaic Co. set new highs.
Agrium, which sells potash and other nutrients, also gained after UBS AG analyst Brian MacArthur raised his price target on the Calgary-based company's New York-traded shares by 9.2 percent to $95, citing higher fertilizer prices. MacArthur also lifted his target for Potash Corp., the largest maker of crop nutrients, by 11 percent to $235 a share.
Potash and other nutrient prices will rise after China imposed duties of 100 percent or more on phosphate and urea exports, Toronto-based MacArthur said today in a note to clients.
``Panic will likely continue to unsettle the market'' for potash, MacArthur said. He rates Agrium shares ``buy.''
Price Forecast
MacArthur also forecast phosphate prices to surpass $1,100 a ton, to $1,105 this year. Urea, potash and phosphates are all used to make fertilizers.
Saskatoon, Saskatchewan-based Potash Corp. rose C$2.66, or 1.5 percent, to close at a record C$185.35 in Toronto after earlier reaching $188.02. MacArthur also rates Potash shares ``buy.''
Mosaic, North America's second-largest producer of crop nutrients by market value, rose $4.79, or 3.9 percent, to close at a record $126.40 in New York Stock Exchange composite trading. Mosaic, based in Plymouth, Minnesota, touched an all- time high $127.78 earlier in the session.
FEED - Posted by: istockguy on VMC main board
In reply to: None Date:10/3/2007 12:44:57 PM
Post #of 99511
FEED: Chinese animal nutritional product company.
Anyone know anything about this one? Starting to run too...
About AgFeed Industries, Inc.
AgFeed Industries is a China-based animal nutritional product company incorporated in the United States. Through its operating subsidiaries in China, AgFeed is a leading manufacturer, marketer and distributor of premix animal nutrition products targeting China's growing animal feed market. China's animal feed market was approximately $40 billion in 2006 according to China Feed Industry Association.
AgFeed Industries Reports Record Fiscal 2007 Financial Results, Growth in Net Income of More Than 450%, Affirms 2008 Financial Guidance
Wednesday March 12, 6:00 am ET
SHANGHAI, CHINA--(MARKET WIRE)--Mar 12, 2008 -- AgFeed Industries, Inc. (NasdaqGM:FEED - News), a market leader in China's premix animal nutrition and hog raising industry, today announced record sales and earnings for 2007, primarily from the production and sale of premix animal feed products. AgFeed entered the hog production industry in November 2007 through the acquisition of a breeder hog farm. AgFeed sales in 2007 from hog production were not material.
The following are some of the key financial highlights of the Company for the fiscal year ended December 31, 2007.
FINANCIAL HIGHLIGHTS:
-- Revenues grew 321% to approximately $36.16 million from $8.59 million in 2006.
-- Gross profit increased to $10.40 million from $3.15 million in 2006.
-- Net income grew 467% to $6.66 million from $1.18 million in 2006.
-- Earnings per share (basic) of $0.26, is an increase of 271% compared to 2006.
-- Earnings per share (fully diluted) of $0.25, represents an increase of 257% from 2006.
-- Comprehensive income of $7.33 million increased by 482% compared to 2006.
-- As of December 31, 2007, AgFeed had approximately $7.7 million in cash with no long term debt.
Songyan Li, Chairman of AgFeed, commented, "In early 2007, AgFeed projected record sales and earnings for fiscal year 2007. We have delivered such results. AgFeed is now the largest premix animal feed company in China in terms of sales in a highly fragmented industry. We anticipate our feed business will continue to grow at a significant rate in 2008. We also anticipate doubling our independently owned exclusive AgFeed product chain stores to 1,000 stores in 2008."
Dr. Li continued, "Our feed segment and hog production are vertically integrated to produce the maximum efficiency between our two business lines. AgFeed's in-depth knowledge about the feed and hog raising industries, sufficient funding, favorable market environment and high quarantine standards at our hog farms will position AgFeed as a well managed, highly profitable market leader in China's vast feed and hog raising industries. We look forward to another year of success in 2008."
SUBSEQUENT EVENTS
-- In December/January 2008, the Chinese government granted the hog raising industry perpetual income tax free status, along with government grants and subsidies in light of severe hog shortage problems in China.
-- In January 2008, AgFeed acquired a majority interest in five commercial hog farms. Currently, AgFeed owns six hog farms and anticipates that its annual hog production at these facilities will reach 120,000 hogs in 2008.
-- In January 2008, Mr. Robert Rittereiser became the Chairman of AgFeed's Advisory Board to advise the Company's strategic initiatives. Mr.Rittereiser is the former CFO and Chief Administrative Officer of Merrill Lynch and former President and CEO of E.F. Hutton & Co. Mr. Rittereiser joins Edward McMillan as a key strategic advisor to AgFeed. Mr. McMillan served as President and Chief Executive Officer of Purina Mills Inc., the United States' largest manufacturer and distributor of animal nutrition products, from 1988 until 1996.
-- In March 2008, the Company completed a $41 million financing through AgFeed's financial advisor, Deutsche Bank Securities, Inc.
SUCCESSFUL INTEGRATION OF OUR RECENT HOG FARM ACQUISITIONS
In January 2008, AgFeed acquired the majority ownership in five producing commercial hog farms with an estimated aggregate annual hog production capability of 100,000. AgFeed has successfully integrated these businesses within the last two months. By April 2008, AgFeed anticipates acquiring several additional hog farms that will enable the Company to reach its previously announced fiscal 2008 hog production target of 400,000. This would rank AgFeed as the 2nd largest commercial hog farm owner in China.
AGFEED AFFIRMS FISCAL YEAR 2008 FINANCIAL GUIDANCE
AgFeed believes the Company has sufficient capital to achieve its previously guided 2008 financial performance as follows:
-- Revenues are estimated to be about $135 million which would represent an approximate increase of over 250% from the previous year.
-- Net income is estimated to increase by around 350% to approximately $30 to $33 million over 2007.
-- Earnings per share (EPS) on a fully diluted basis would be between $0.96 and $1.10.
-- Favorable foreign exchange rate could benefit AgFeed. The Company has used an exchange ratio of RMB7.18 to US$1 in its 2008 guidance. Currently, the exchange rate is RMB7.10 to US$1.
-- Live hogs are sold in China based on a hog's weight. AgFeed's commercially produced hogs weigh on average between 100 and 110 kilos. The Company's revenue estimates are based on RMB8 per half a kilo, which is below the current live hog market price of more than RMB9 per half a kilo. Due to an increased demand for pork related to China's Summer Olympics and the continuing hog supply shortage, AgFeed anticipates that China's hog prices will remain high in 2008.
About AgFeed Industries, Inc.
Through its China-based operating subsidiaries, NASDAQ-listed AgFeed Industries (www.agfeedinc.com) is a market leader in China's fast growing pre-mix animal feed and hog raising industries. The pre-mix market in which Agfeed operates is an approximately $1.6 billion segment of China's $40 billion per year animal feed market, according to the China Feed Industry Association. There are approximately 600 million hogs raised in China each year, compared to approximately 100 million in the U.S. Approximately 75% of China's total hog supply is from backyard individual hog farmers, while approximately 65% of China's total meat consumption is pork.
Safe Harbor Statement
All statements in this press release that are not historical are forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company's expectations. AgFeed's actual results may differ from its projections. Further, preliminary results are subject to normal year-end adjustments. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect AgFeed's current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in AgFeed's filings with the Securities and Exchange Commission.
AGFEED INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 2007 AND 2006