CVR Partners (UAN).
CVR Partners was derived as a partnership from CVR Energy Inc. which spun off the company to operate the fertilizer side of the business. CVR should be a perfect fit into the portfolio as it has many positive catalysts. The company is the only fertilizer producer in North America that uses a special petroleum coke process to make its product. What a coincidence that the coke happens to come from a refinery which is owned and operated by none other than CVR Energy, the parent company. Needless to say, this coke will be readily available from the parent and also tends to be much less expensive and much more stable in price when compared to natural gas, which other competitors have to use. Also CVR is located much closer to customers so it will enjoy a transportation cost advantage when compared to other companies. The company is also in the midst of an expansion project which is expected to be completed in the first quarter of 2013. This expansion should increase production by a substantial amount. Early on, CVR committed to have distributions of $1.92 for the first year and if so that will be a 9.1% yield.
The unique advantage
CVR is located in the U.S. Corn Belt, which increases proximity to Union Pacific's main line. Because of this, CVR enjoys a transportation cost advantage of approximately $25 per ton over competitors located in the U.S. Gulf Coast.
Note the interesting connection here. Corn requires a lot of nutrients, and it touched its highest price levels this year. This naturally encourages farmers to grow more corn, which means higher demand for CVR's products. CVR has a double advantage here, as it also saves a lot on transportation costs to the Corn Belt because of proximity.
