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CF may have all eggs in basket for quick Terra completion

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CF Industries Holdings Inc. (CF) may finally have all of its eggs in its basket to conclude its long trail to acquire Terra Industries Inc. (Terra), just in time for Easter. If 90 percent of Terra shareholders tender into CF’s offer, the deal can be completed quickly. Otherwise, it may be delayed by a Terra shareholder vote or the tender offer could be extended.

CF’s exchange offer for the outstanding shares of Terra common stock will expire at 12:00 midnight, New York City time, on April 2, 2010, unless extended. Under the terms of the merger agreement, following completion of CF’s exchange offer, a subsidiary of CF will merge into Terra, and any Terra stockholders who have not tendered their shares into CF’s exchange offer will receive the same consideration paid in the exchange offer.

The New York Stock Exchange will be closed on the expiration date because of its observance of Good Friday. CF urged shareholders to take note of this as brokers, dealers, commercial banks, trust companies, and other nominees may also be closed for business or have limited staffing on the expiration date.

CF noted on March 31 that it received a standard, unqualified, “no action” letter from the Canadian Competition Bureau confirming that the Commissioner of Competition does not intend to challenge CF’s acquisition of Terra. As a result, the “waiting period” applicable to the transaction under the Canadian Competition Act has been terminated.

In the meantime, on March 29 Terra declared a dividend of $0.10 per common share, payable April 22, 2010, to holders of record as of April 1, 2010. Under the merger agreement with CF, if the deal is consummated prior to April 22, 2010, the payment date for the first quarter dividend, CF will pay the dividend on behalf of Terra on the payment date.

Last week CF filed its proxy statement for its 2010 annual stockholders’ meeting, which will be held May 12 in Wheeling, Ill. The close of business on March 30, 2010, is the record date for determining stockholders entitled to vote at the meeting. Two specific items before the shareholders include the election of two members of the board of directors to serve until the 2013 annual meeting of stockholders, and the ratification of the selection of KPMG LLP as the company’s independent registered public accounting firm for 2010. The board has unanimously proposed Robert Arzbaecher and Edward Schmitt, two current board members, as nominees.

Vale to sell minority stakes in Bayóvar to Mosaic and Mitsui

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Vale S.A. said March 31 that it has reached an agreement with The Mosaic Co. and Mitsui & Co. Ltd. to sell minority stakes in the Bayóvar project in Peru through a newly-formed company that will control and operate the project.

Subject to the terms and conditions set forth in the definitive share purchase agreement, Vale has agreed to sell 35 percent of total capital to Mosaic for US$385 million, and 25 percent of total capital to Mitsui for US$275 million. Following the consummation of these transactions, Vale will retain control of the Bayóvar project, holding 51 percent of the voting shares and 40 percent of total capital of the newly-formed company.

Bayóvar is a phosphate rock project located in Sechura, department of Piura, Peru. It consists of an open-pit mine that is expected to have production capacity of 3.9 million mt/y, and a maritime terminal. Completion is expected in the second half of 2010. The sale of these minority stakes will facilitate the offtake of product from the Bayóvar project.

Actual closing of the transaction remains subject to the parties’ finalization of the definitive shareholders’ agreement and commercial offtake agreements, certain governmental regulatory approvals, and other customary closing conditions. However, Mosaic said it is expected to close within three months.

Mosaic said that the deal includes a commercial offtake supply agreement that would give Mosaic the right to purchase 35 percent of the phosphate rock produced from the Bayóvar mine. The Bayóvar rock will be used in Mosaic’s global phosphate operations. Phosphate rock production at Bayóvar and deliveries to Mosaic are expected to begin in the second half of calendar 2010.

“This transaction advances our strategic objective to secure additional phosphate rock outside of North America,” said Jim Prokopanko, Mosaic’s President and CEO. “Bayóvar enhances Mosaic’s existing 35-year phosphate rock reserves in Florida and reinforces our commitment to remain one of the top integrated phosphate producers in the world. We look forward to our new partnership with Vale and Mitsui.”

Mosaic told analysts April 1 that there are plans to expand the Bayóvar mine significantly, and that it expects to be a participant in that expansion and incur its pro rata share of those costs. However, it added that this is a decision that will not be coming down the pike for a couple of years.

Mosaic expects the landed cost of its Bayóvar rock to Florida to be very competitive with its own Florida rock costs. Prokopanko said that Mosaic will be paying a market price for the rock as a customer of the joint venture.

Prokopanko said Mosaic Florida mine capacity is 17 million mt of rock per year, and that the company purchases 1.5 million mt per year for its various facilities. He said that the Bayóvar purchase will give Mosaic essentially complete self-sufficiency in its rock sourcing needs.

Prokopanko said the Bayóvar deal had nothing to do with Mosaic’s recent sale of its stake in Fosfertil to Vale.

FertiNitro performance concerns Fitch

News

Fitch Ratings (Fitch), New York, is concerned over the outlook of FertiNitro Finance Inc. (FertiNitro) maintaining a rating of its US$250 million 8.29 percent bonds, due 2020, at “CCC,” with a Rating Watch Negative.

Fitch said the rating reflects FertiNitro’s payment March 29 of $39.5 million in semi-annual debt service. Fitch said the payment, due April 1, prevents further decline to FertiNitro’s rating. The rating also takes into account information provided by management that the cash flow for the current payment was generated from plant operations, rather than cost reductions and capital investment deferrals that enabled the October 2009 debt payment. Fitch expects rating pressure to remain through 2011, when the project reaches its maximum annual debt service requirement. The subsequent decline in debt service coincides with the maturity of bank debt separate from the secured bonds.

The Rating Watch Negative status remains as near-term pressures could adversely affect FertiNitro’s ability to make its next debt payment of $38.8 million, due Oct. 1, 2010. Specifically, the combination of weaker ammonia and urea prices since 2008 and a history of lower-than-expected production levels contribute to Fitch’s view of FertiNitro’s distressed financial position and limited debt service capacity in 2010. Fitch said that while management reports that it will have a modest cash balance to support operations, the debt service reserve fund is depleted as a result of the March 29 debt payment. Based on Fitch’s Rating Criteria for Infrastructure and Project Finance, dated Sept. 29, 2009, Fitch projects a 2010 debt service coverage ratio of 0.77 times (x), indicating that without sponsor support or sustained improvements in plant operations, the project may not have enough cash available for the next debt service payment.

Since urea makes up 80 percent of project revenues, Fitch is concerned by the volatility in urea prices. Urea prices fell to a low of $181/mt in June 2009 from a high of $693/mt in August 2008. In 2009 the average price was $223/mt, down from the 2008 average of $416/mt. These prices reflect the blend of selling domestically at the official price of $72.19/mt per the May 2007 government decree, and of exporting at international market prices. For ammonia, prices declined to a low of $81.60/mt in January 2009 from a high of $852.48/mt in September 2008. Ammonia prices averaged $216/mt in 2009, down from $506/mt in 2008.

Fitch said additional financial pressure derives from the requirement that FertiNitro supply urea to the Venezuelan market at a price of about $36.00 mt, half of the $72.19/mt price in 2009 before the currency devaluation. Mitigating this concern is that actual urea shipments in 2009 were approximately 122,000 mt below the budget estimate of 175,000 mt. In 2009, domestic urea sales were 10 percent of the total volume of 1,204,914 mt.

Fitch also says it is uncertain that FertiNitro will be able to perform at projected production levels (85 percent of capacity for ammonia and 83 percent of capacity for urea) absent planned capital expenditures of nearly $20 million in 2010, which are partly derived from deferring a portion of investments planned for 2009. In 2009 the production versus nameplate capacity was 78 percent for ammonia and 74 percent for urea, consistent with 2008 results and below 2007 levels of 83 percent for ammonia and 81 percent for urea.

Recent legislative action has increased uncertainty regarding the potential for additional government intervention, according to Fitch, noting that in June 2009, the Official Gazette 39,203 for the Development of Petrochemical Activities law was approved by the Venezuelan National Assembly. The law gives Pequiven the right to manage basic and intermediate petrochemical activities-related companies. The right could be executed directly by the state-owned company or via mixed enterprises, through which Pequiven decision making and participation in the project could increase to at least 50 percent.

Fitch said it will monitor the following key drivers that could affect FertiNitro’s rating: ability and willingness to make the next debt service payment; plant production levels and minimization of forced outages; trend in urea and ammonia prices; domestic sales trend in relation to management’s budget; and impact of additional government intervention.

FertiNitro, located in the Jose Petrochemical Complex in Venezuela, ranks as one of the world’s largest nitrogen-based fertilizer plants, with nameplate daily production capacity of 3,600 mt of ammonia and 4,400 mt of urea. FertiNitro is owned 35 percent by a Koch Industries Inc. subsidiary, 35 percent by Pequiven, 20 percent by a Snamprogetti S.p.A. subsidiary, and 10 percent by a Cerveceria Polar C.A. subsidiary.

Mosaic 3Q earnings soar; results remain way behind YTD

News

The Mosaic Co. reported net earnings of $222.6 million ($.50 per diluted share) for the third quarter ended Feb. 28, 2010, a 279 percent increase over the year-ago net earnings of $58.8 million ($0.13 per diluted share). Mosaic had net sales in the third quarter of $1.7 billion, a 26 percent increase from $1.4 billion in the same period a year ago.

For the nine months ended Feb. 28, however, net income was off 80 percent from the stellar performance for the year-ago period. The recent net income was $431 million ($.97 per share), versus the year-ago $2.2 billion ($4.94 per share). Net sales were $4.9 billion, a decrease of 44 percent from the $8.7 billion reported a year ago.

“Early indications point toward a strong North American planting season,” said Jim Prokopanko, Mosaic’s President and CEO. “We are executing successfully on our strategy and are well positioned to serve our customers around the world in coming months. We are driving to finish our fiscal year on a strong note.

“Phosphates sales volumes continued their strong recovery from the weak levels of the same period last year,” said Prokopanko. “Compared to the prior quarter, and as we expected, the gross margin percentage improved modestly in spite of rising raw material costs and lower production rates,” he stated. “We look for continued gross margin improvement into our fourth fiscal quarter, though margin expansion will be constrained by the normal lag between our average realized prices and prevailing market prices, as well as higher raw material costs.”

Phosphate net sales were $1.0 billion for the third quarter, an increase of 17 percent from $871.3 million a year ago. Operating earnings were $52.9 million, an increase from a loss of $152.2 million in the same period last year. The increase in operating earnings in the third quarter of fiscal 2010 compared with a year ago was primarily due to higher sales volumes, the favorable effects of lower raw material costs, and higher production levels, partially offset by lower selling prices. Gross margin and operating earnings in last year’s third quarter included a $28.3 million inventory valuation write-down.

The average third-quarter DAP selling price, FOB plant, was $336/mt, compared to $499/mt a year ago and $287/mt in the second quarter of fiscal 2010.

The average Tampa ammonia and sulfur prices for the quarter were $319/mt and $81/lt, respectively, versus the year-ago $496/mt and $228/lt.

Phosphates segment sales volumes were 2.5 million mt, an increase of 52 percent compared with a year ago. This improvement was primarily due to stronger demand in North America, as well as internationally, compared to weak volumes a year ago. Mosaic’s North American phosphate production level was 1.7 million mt during the third quarter, almost double year-ago levels of 900,000 mt, yet down slightly from the second quarter due to planned turnarounds.

“The potash business has taken a leap forward on all fronts, and sales volumes and operating profits were up strongly during the quarter,” said Prokopanko. “Recent demand trends are encouraging in most of our key geographies. We have increased operating rates and inventory levels have steadily declined.”

Third-quarter potash net sales were $730.0 million, an increase of 52 percent from $480.8 million a year ago. Operating earnings were $326.0 million versus the year-ago $186.0 million. Operating earnings in the quarter improved due to significantly improved sales volumes, partially offset by a decline in selling prices. The average third-quarter MOP selling price, FOB plant, was $356/mt, compared to the year-ago $565/mt. Potash total sales volume was 1.9 million mt, up from the year-ago 800,000 mt and 1.0 million mt in the second quarter.

Potash production was comparable at 1.3 million mt in both the current and the year ago quarter, while up slightly from 1.1 million mt in the second quarter. Production rates were increased late in the quarter due to improved demand for potash.

“Many indicators point to a strong North American spring season,” said Prokopanko. “We expect to operate at normal rates during the fourth quarter and anticipate continued improvement in financial results. The long-term crop nutrient demand outlook is favorable, and we are confident having a balanced portfolio of both phosphate and potash will lead to superior results over the long term.”

Mosaic expects total sales volumes for phosphates to be modestly constrained by low inventory levels. They are expected to range from 2.4 to 2.8 million mt for the fourth quarter of fiscal 2010 ending May 31. Mosaic’s realized DAP price, FOB plant, for the fourth quarter of fiscal 2010 is estimated to be $420 to $460 per mt.

Total sales volumes for the potash segment are expected to range from 1.9 to 2.3 million mt for the fourth quarter. Mosaic’s realized MOP price, FOB plant, for the fourth quarter is estimated to be $325 to $365 mt.

Sales Volumes (000 mt) YTD-10 YTD-09
Phosphate 8,699 6,444
Potash 3,703 4,403
Production Volumes (000 mt)
Phosphate 5,538 4,334
Potash 3,208 5,171
Average Selling Prices ($/mt)
DAP 296 882
MOP 359 518
Average Raw Materials Cost
Ammonia ($/mt) 288 631
Sulfur ($/lt) 60 483
Net Sales ($ M)
Phosphates 3,543.2 6,222.3
Potash 1,477.6 2,430.4
Operating Income ($ M)
Phosphates 128.4 1,040.9
Potash 575.9 1,211.3

USDA projects more corn, cotton, soybeans, and rice in 2010; wheat acreage down 9 percent from 2009

News

U.S. corn acreage is expected to total 88.8 million acres this year, up 3 percent from 2009 acreage, according to the USDA Prospective Plantings Report released March 31. Soybean acreage will be up less than 1 percent, to 78.1 million acres. Wheat acreage will be down 9 percent to 53.8 million acres, while cotton will be up 15 percent to 10.5 million acres.

USDA said it expects the total area planted to principal crops nationwide to hold steady at 319.5 million acres in 2010, after declining 5.7 million acres in 2009.

Corn acreage will be up in many states due to reduced winter wheat plantings and expectations of improved net returns, USDA said. The largest increases are expected in Illinois and Kansas, both up 600,000 acres from last year. Ohio and Missouri corn acreage is expected to be up 350,000 and 300,000 acres, respectively. The largest declines are expected in Iowa, down 200,000 acres; Texas, down 150,000 acres; and Louisiana, down 100,000 acres.

If the projected 78.1 million-acre soybean crop is realized, USDA said it will be the largest U.S. crop on record. The increases in planted area are expected across the Great Plains and most of the Cornbelt, with acreage increases of 100,000 or more projected in Illinois, Iowa, Kansas, Nebraska, and the Dakotas. The largest increases are expected in Iowa and Kansas, up 300,000 and 400,000 acres from last year, respectively. If intentions are realized, USDA said the planted soybean acreage in Kansas, North Dakota, and Pennsylvania will be the largest on record for those states.

Soybean acreage will decline or remain the same across the Delta and Southeastern region, USDA said, with decreases of more than 100,000 acres expected in Arkansas, Georgia, North Carolina, and Tennessee. The largest decreases are expected in Georgia and North Carolina, both 150,000 acres less than 2009.

The 2010 winter wheat planted area, at 37.7 million acres, is 13 percent below last year and the lowest U.S. total since 1970, with record low acreages estimated in Illinois, Indiana, Missouri, Nebraska, and Ohio. States with significant winter wheat acreage increases from the previous estimate were Nebraska and Texas, up 100,000 and 200,000 acres, respectively. Of the total, about 28.3 million acres are hard red, 6 million acres are soft red, and 3.4 million acres are white winter wheat.

Area planted to other spring wheat for 2010 is estimated at 13.9 million acres, up 5 percent from 2009, with 13.3 million acres representing hard red spring wheat. Durum planted area for 2010 is estimated at 2.22 million acres, down 13 percent from 2009. The 2010 sorghum crop is estimated at 6.36 million acres, down 4 percent from 2009. The largest decline in sorghum acreage is expected in Texas, where farmers intend to plant 300,000 acres less than 2009.

USDA said the 2010 cotton acreage increase to 10.5 million acres was spurred by higher cotton prices over the last few months, and will be realized through increased plantings in all cotton-producing states except Arkansas, Kansas, and Louisiana. The largest acreage increase is in Texas, USDA noted, where producers intend to plant 600,000 more acres of upland cotton than in 2009.

Area planted to rice in 2010 is expected to total 3.41 million acres, up 9 percent from 2009. USDA said the increase will be realized in all rice-producing states, and is driven primarily by the higher price of rice compared with other commodities such as corn and soybeans. Growers in Arkansas, the largest rice-producing state, intend to plant 1.63 million acres, up 10 percent from last year, while California growers intend to plant 600,000 acres to rice, an increase of 7 percent from last year. Rice acreage in Louisiana is expected to total 510,000 acres, USDA said, up 9 percent from 2009.

As for other crops, USDA said the 2010 U.S. oat crop is estimated at 3.36 million acres, down 1 percent from 2009 and the second-lowest planted acreage on record. Barley producers intend to plant 3.27 million acres in 2010, down 8 percent from 2009 and the lowest barley planted acreage on record, well below the previous record low of 3.45 million acres in 2006. Peanut growers intend to plant 1.20 million acres in 2010, up 8 percent from 2009, with acreage increases expected in the Southeast and decreases likely in the Southwest.

Sunflower growers intend to plant a total of 2.18 million acres in 2010, up 7 percent from last year but down 13 percent from 2008. USDA said six of the nine major sunflower-producing states are expecting an increase in planted area in 2010, with only Kansas, Oklahoma, and Texas showing decreases in expected acreage. Canola producers intend to plant 1.23 million acres in 2010, up a sizable 49 percent from 2009.

DSM to sell DSM Agro and DSM Melamine to OCI

Calcium Ammonium Nitrate
Netherlands-based Royal DSM N.V. (DSM) has reached an agreement to sell DSM Agro and DSM Melamine to Orascom Construction Industries (OCI) for EUR310 million on a cash and debt-free basis. The intended sale, which was announced on March 30, is expected to close in the second quarter, subject to regulatory and other customary approvals and notifications.
With the acquisition of DSM Agro, Egypt-based OCI will expand its customer base in northwestern Europe and offer a wider range of products, including urea, ammonia, calcium ammonium nitrate, UAN, and ammonium sulfate. “The acquisition of DSM Agro and DSM Melamine fits perfectly in our strategy to become among the global leaders in fertilizer production and distribution,” said Nassef Sawiris, chairman and CEO of OCI.
OCI will assume responsibility for the business results of DSM Agro and DSM Melamine from Jan. 1, 2010, forward. OCI said it fully supports DSM’s strategy and approach on the Chemelot site in Sittard-Geleen, Netherlands, where the main facilities of both business groups are located. With the acquisition of DSM Agro and DSM Melamine, OCI will become an indirect shareholder in Sitech Services B.V., where the company said it will make use of synergies in site and manufacturing services, and participate in infrastructural site investments.
DSM said the agreement with OCI is a major step in its effort to refocus the company on life sciences and materials science. DSM announced in September 2007 that DSM Agro and DSM Melamine no longer fit with the company’s strategic focus. Since 2008, both business groups had been in the company’s Base Chemicals and Materials cluster, together with a number of other businesses. DSM said the selling process for most of the remaining businesses in that cluster is underway.
DSM Agro and DSM Melamine combined employ 779 people. DSM Agro is a producer of ammonia and high-nitrogen fertilizer, with realized net sales of EUR338 million in 2009. Its Sittard-Geleen production site has annual production capacity of 1.6 million mt.
DSM Melamine is the world’s largest producer of melamine, and in 2009 posted net sales of EUR151 million. DSM Melamine has a plant in the Netherlands, and also produces melamine in joint ventures in China and Indonesia.
Company-wide, DSM has annual net sales of about EUR8 billion and employs some 22,700 people worldwide. In addition to its headquarters in the Netherlands, the company has locations on five continents.
DSM Chemicals North America Inc., a subsidiary of Royal DSM N.V. based in Augusta, Ga., is reportedly not involved in the sale and is unaffected by it. The company manufactures nitrogen-based fertilizers. Its products include ammonium sulfate, caprolactam, and nylon 6 polymer.
OCI is one of Egypt’s largest corporations, with projects and investments across Europe, the Middle East, and North Africa. The company directly employs more than 86,000 people. The OCI Fertilizer Group, one of two core business activities of OCI, is a strategic owner and operator of nitrogen fertilizer plants in Egypt and Algeria, with international distribution in Latin America, the U.S., Europe, and Africa.
With 2 million tons of nitrogen fertilizer capacity in Egypt, the OCI Fertilizer Group now ranks among the top 10 nitrogen-based fertilizer producers worldwide. In 2010/2011, the group plans to commission a 2 million-ton fertilizer complex in Algeria in partnership with state-owned Sonatrach. With this new production in Algeria, along with upgrades to the urea production facilities in Egypt and recently announced investments in ammonium sulfate and UAN production, the OCI Fertilizer Group said it will achieve an annual production capacity of approximately 5 million tons of nitrogen-based fertilizers.