Fertilizer Markets and Finance

Brazil’s antitrust regulator has approved a deal between Vale (NYSE:VALE) and Petrobras, giving a boost the former’s plan to play a larger role in fertilizers. The deal will enable Vale to develop a new Carnalita mine in Sergipe state of Brazil, which could produce 1.2 million tons per year (mtpy) of potash with many expecting the region to add as much as 2.2 mtpy of potash due to other probable reserves in the same area.

Vale will invest nearly $4 billion on these projects. ^[1] In addition, Vale will be able to continue potash production at Petrobras’s Taquari-Vassouras mine, currently the only potash mine in Brazil. The mine produces about 600,000 metric tons of potash even as it has a capacity of 750,000 metric tons per year. But, it has a productive life of just nine years. ^[2]

We have a $26 price estimate for Vale, which is around 25% ahead of the market price.

See Full Analysis for Vale Here

Agriculture, a sector that is largely immune to recessions, presents a promising future for Vale . To tap the growth potential, the company has been spending billions on its fertilizers business and will shell out around 10% of its $21 billion planned capital expenditure on this division in 2012. Recently, it took its own fertilizer production company, Vale Fertilizantes SA, private. According to our analysis, fertilizer contributes close to 9% to our current price estimate of $26. We expect the fertilizer revenues to increase by 50% by the end of our forecast period.

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