New PotashCorp CEO Won't Change Fundamental Issues

The lack of fertilizer experience has analysts questioning the new Potash Corp. CEO, but the fundamental issues in the market will trump any executive leader.

Apr 12, 2014 at 10:12AM

Over the weekend, PotashCorp (NYSE:POT) announced that an external mining executive had been chosen to replace longtime CEO Bill Doyle. While investors have been unhappy with the company's stock returns, the industry as a whole faces numerous fundamental issues that will override the effect of the CEO selection. The recent breakdown in the Belarusian potash marketing arrangement and new market entrants such as BHP Billiton (NYSE:BHP) will have bigger impacts on the stock.

PotashCorp is the leading contributor to the North American potash marketing organization called Canpotex. The new leader will have to stabilize demand for this arrangement with the disruptions caused by Russia and determine how to deal with high margins for potash that are drawing global miners into the market.

Jochen Tilk will take over as PotashCorp president and CEO on July 1. He replaces Doyle, who has worked at the company for 27 years and served as CEO for 15. Doyle was instrumental in transforming PotashCorp into a leader in the sector, though many analysts now argue that he helped lead the sector into overbuilding based on long-term demand that hasn't materialized fast enough.

Tilk was most recently CEO of Inmet Mining, which was bought out last year by First Quantum Minerals. He has spent 30 years in the mining industry, but has no apparent experience in the fertilizer sector.

Most analysts are surprised that PotashCorp selected an outsider to lead the company, specifically an executive who built up a relatively small miner and sold for a premium that was a fraction of the nearly $30 billion valuation of PotashCorp. Considering the Canadian government wouldn't likely ever approve a deal to purchase a key miner like this, the hiring selection raises a lot of eyebrows.

Tilk comes to PotashCorp amid potash pricing pressures. The primary issue facing the sector is whether Belarus and Russia can return to a cooperative agreement; this seems very unlikely considering the tensions over Russian moves in Crimea.

BHP mine
The high margins in potash will continue to attract other companies looking to open potash mines. BHP failed to buyout PotashCorp in 2010, but it is investing in a mine in Saskatchewan and recently included the commodity on a list of core operations.

The Jansen Potash mine has an expected output of 8 million tons a year, with the capability of supporting up to 10 million tons annually. The mine is estimated to have a 50-year service life, with resources of about 5.3 billion tons. The company approved a $2.6 billion investment plan in August 2013, with initial production expected in 2017. BHP Billiton recently claimed another goal of establishing potash as a pillar of the company's long-term growth.

Foolish takeaway
The ongoing political tensions with Russia and the desire of global miners to push forward with potash investments suggest the fundamental issues facing PotashCorp are more significant than the new CEO. Consequently, investors should continue to expect margin pressures in potash, leading to a difficult environment for the stock.

Boost your 2014 returns with The Motley Fool's top stock
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Mark Holder has no position in any stocks mentioned. The Motley Fool owns shares of PotashCorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information

Compare Brokers