Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
A global oversupply of potash has caused prices to tumble in the past year, leading to layoffs and mine closures across the sector.
Prices for the fertilizer ingredient began their decline four years ago, as weak crop prices and currencies weakness pinched demand. Potash has also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.
The industry’s woes have seen a pick-up in M&A and two weeks ago Canada’s Potash Corp. of Saskatchewan (TSX:POT) (NYSE: POT), the world’s largest producer of the fertilizer by capacity, and smaller rival Agrium (TSX:AGU) (NYSE: AGU) agreed to an all-share merger, creating the world’s largest crop-nutrient supplier worth about $36 billion.
North American US-based Mosaic Co. (NYSE:MOS), the world’s largest producer of phosphate fertilizer, has also long been rumoured to be in talks with Vale (NYSE:VALE) to acquire the Brazilian company’s fertilizer unit, in a deal worth about $3 billion, but on Friday Vale seemed to indicate that a sale may not be close.
In a terse statement on its website, Vale simply announced that at Thursday’s meeting of “the Board of Directors did not deliberate on the sale of its fertilizer business.”
The company may be reviving its Rio Colorado potash project in Argentina, mothballed in 2013, but on a smaller scale. It now aims to produce 1.3 million tonnes of potash a year, down from the 4 million tonnes originally planned. Vale has already lavished $2.2 billion on the project in the Mendoza province.
Comments
Freddie Nerk
Is VALE a good investment at current share price?