Topic: Mining Stocks

Potash Corp. & Agrium Inc. merger should pay off

Agrium Inc. has now completed its merger with Potash Corp. The new combined company, Nutrien, has benefited from higher commodity prices and better-than-expected cost cutting following the merger. This industry giant has also made strategic acquisitions to further spur its earnings.

The company has raised its dividend twice already since that merger and now offers a 3.3% yield.

The stock trades at just 17.2 times the company’s 2019 earnings forecast.

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NUTRIEN LTD. (Toronto symbol NTR; is a buy. It took its current form on January 1, 2018, through the merger of Agrium (old symbol AGU) and rival fertilizer producer Potash Corp. of Saskatchewan (old symbol POT). In addition to selling bulk fertilizers, the new firm sells agricultural supplies to farmers through over 1,700 retail outlets in seven countries.

Potash Corp. shareholders received 0.40 shares in Nutrien for each POT share they held; Agrium investors received 2.23 shares for each AGU share.

The combined company earned $141 million, or $0.24 a share, in the three months ended September 30, 2019 (all amounts except share price in U.S. dollars). That missed the consensus estimate of $0.39 a share. Even so, the latest results strengthen the prospects for investors: Those quarterly earnings were much better than Nutrien’s year-earlier loss of $1.1 billion, or $1.07 a share. That included a $1.8 billion writedown of its New Brunswick potash mine.

Revenue in the quarter rose 3.6%, to $4.13 billion from $3.99 billion a year earlier. That beat the consensus forecast of $4.02 billion.

The higher revenue was mainly due to better sales for Nutrien’s agricultural retail outlets. That offset lower demand and prices for bulk potash and other fertilizers as wet conditions and floods in North America prompted many farmers to delay planting new crops.

Mining Stocks: Company has cut more than $621 million in expenses

Savings from eliminating overlapping operations between Agrium and Potash Corp. continue to free up cash for new investments. So far, the company has cut $621 million from its annual expenses. That’s 24.2% more than its initial target of $500 million.

Nutrien has also raised its dividend twice since the merger. The new annual rate of $1.80 yields 3.7%.

Meanwhile the company just ended its North African mining operations.

Nutrien used to purchase large amounts of phosphate rock from an entity controlled by the Moroccan government. Western Sahara Resource Watch estimates that Agrium and Potash Corp. (which merged to create Nutrien) bought 4.5 million tonnes of phosphate rock between 2014 and 2017. It carries an estimated value of $526 million.

In 2018, before the merger with Potash Corp. was completed, Agrium agreed to stop its purchases from the Moroccan supplier once its current contract ended. More recently, Nutrien announced that it ceased all purchases at the end of 2018.

The company expects to earn between $2.30 U.S. and $2.55 U.S. a share for all of 2019. The stock trades at 20.2 times the midpoint of that range. However, rising corn prices should spur farmers to plant more crops in 2020. That should spur strong demand for fertilizers and related products.

Recommendation in The Successful Investor: Nutrien is a buy.

How likely is the merger of Agrium Inc. and Potash Corp. to encourage competitors in other commodity markets to combine operations?

For our recent report on a leading service stock in the Canadian mining industry, read Major Drilling ready for a resource rebound.

For our view on one area of mining that continues to draw interest, read What is one of the most promising Canadian diamond stocks?

This article was originally posted in 2017 and is regularly updated.


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