Bridgewater Associates’ new stake in PotashCorp
In 4Q14, Bridgewater Associates started a new position in Potash Corporaton of Saskatchewan, or PotashCorp (POT). The fund bought 601,600 POT shares worth $21 million. The position accounted for 0.17% of the hedge fund’s total fourth-quarter portfolio, according to Bridgewater’s latest 13F filings. The fund’s 13F also revealed a $9-million minor position in PotashCorp’s peer Agrium (AGU).
Overview of PotashCorp
Potash Corporation of Saskatchewan is the world’s largest fertilizer company by capacity. POT produces three primary crop nutrients:
Through its Canadian operations, PotashCorp is responsible for nearly one-fifth of the world’s capacity. To enhance its global footprint, the company invests in four potash-related businesses in South America, the Middle East, and Asia.
Decline of pre-tax earnings
In March, POT’s shares fell after the company had announced that Saskatchewan’s recent potash taxation changes would lead to a roughly $59-million to $79-million drop in 2015 pre-tax earnings. Management said in a statement that it was “disappointed” because the company had been in the process of completing a $6-billion investment in Saskatchewan under the existing tax structure. The company believed that changing the tax rules midway would negatively impact shareholder returns.
In January, PotashCorp reported 4Q14 results that had beaten earnings and revenue estimates. The company posted fourth-quarter earnings of $407 million or $0.49 per share compared to $230 million or $0.26 per share for the year-ago period.
POT said, “In contrast to an especially weak demand environment during the second half of 2013, the record pace of global potash shipments evident through the first nine months of 2014 continued in the fourth quarter. Demand was strong in all key markets, especially offshore, where exports from North American producers increased significantly.”
The firm is likely to benefit from increased demand for potash across markets in 2015. POT should also benefit from higher operational efficiencies in its New Brunswick and Saskatchewan facilities. Analysts believe that market conditions could improve for the phosphate business as well.
Flooding of Uralkali mine
On November 18, 2014, POT’s share price rose by almost 5% amid reports that the company’s rival Uralkali had evacuated workers from a Russian potash mine due to increasing inflows of brine into the mining site.
Uralkali produces almost 20% of global potash, so any decisions made by the firm impact peer companies like Agrium, the Mosaic Company (MOS), Intrepid Potash, and PotashCorp. Mosaic has a 2.62% exposure in the Materials Select Sector SPDR Fund (XLB) and a 2.30% exposure in the iShares US Basic Materials ETF (IYM). POT has a minor 0.07% exposure to the Vanguard Total World Stock Index Fund (VT).
The next article in this series will discuss Bridgewater’s position in US Steel.