Mosaic Co. (MOS)

Presented by: Akrati Johari, Phil Nguyen, Iordanis

Thomaidis, Charles Gambino and Michael Bellisario

Date: 18th March, 2010

Agenda

Industry Overview Financial Ratios Competitor Analysis Multiples Valuation Pro-forma Assumptions DCF and WACC Calculation Macroeconomic Analysis Recommendation

Industry Overview

Agriculture chemicals industry1

3 main competitors2

Mosaic (phosphate) – $6.1B sales Potash (potash) – $3.7B sales Agrium (nitrogen) – $9.1B sales

Consolidation CF Industries to acquire Terra, bidding war with

Yara

1from finance.yahoo.com 2data from trailing twelve months

Company Overview

Based in Plymouth, MN One of the three largest potash

producers World’s largest phosphate producer 13% share of global production $10.3B in sales last fiscal year

Company Overview

Fertilizer – primary macronutrients Phosphorous and potassium

Improve/add nutrients to soil Increase crop yield “More from less”

Most potash mines are deep shaft mines up to 3,300 feet underground

Business Segments

Realignment 2Q2010 Combined Offshore segment with Phosphates

segment “to more clearly reflect evolving business model”

Phosphates (77% of sales) Produce concentrated phosphate crop nutrients

and phosphate-based animal feed ingredients Potash (23% of sales)

Produce potash-based crop nutrients, animal feed ingredients, and industrial products

Strengths

High barriers to entry – capital intensive & claim on natural resources and mines

100 years of high-quality ore reserves 40% market share of North American

production $2.7B in cash – expansion, additional

capacity, acquisitions Products marketed in 40 countries

Weaknesses

Cross-border risks associated with international operations

Seasonality in business that results in needing significant amounts of inventory

Cargill’s majority ownership and representation on the Board of Directors

Sell a commodity product – difficult to differentiate

Threats

Decline in oil and other commodity prices

Competitors look to add capacity/expand into new markets

Governmental policies (subsidies) affecting the agricultural industry

Opportunities

75 million more people in the world every year to feed

Ethanol production expected to increase ~50% by 2015

Growing middle class in developing countries consuming more protein-rich diets

People will always have to eat

DuPont Analysis

ROE 2.11% -0.88% 2.57% 8.71% 7.16%

ROA Decomposition

ROA = OIBI,AT / Sales x Sales / Av. Tot. Assets

Ratio Analysis – Recent Financial Position

Ratios 2008 2009Average 2010 -

2015Profitability      EBIT Margin 28.6% 23.3% 14.4%Liquidity      Current Ratio 2.2 3.3 3.9Leverage      Coverage 31.0 55.4 39.4Debt to Equity 23.0% 16.4% 11.5%Payout Policy      Dividend Payout NA 3.80% 3.80%

Industry Competitors

Potash Corp. of Saskatchewan Largest manufacturer of potash

fertilizers Third largest producer of nitrogen Third largest producer of phosphate Revenue breakdown: 43% potash, 31%

nitrogen, 26% phosphate Claim of production capacity greater

than 50% of closest rival

Industry Competitors

Agrium Second largest producer of

nitrogenous fertilizers Third largest North American

producer of potash and fifth largest for phosphate

Attempted to purchase CF Industries

Industry Competitors

Terra Industries Leading North American producer of

nitrogen based products Accepted takeover bid by CF

Industries for $4.7 billion

Fertilizer Industry Breakdown

Data provided by                              

Relative Sector Performance

Financial data provided by                              

Financial Comparison

Company Comp Set           

Company Name Market Cap Revenue Net Income

EPS EBITDA Margin % LTM

Net Income Margin % LTM

Mosaic Co. (NYSE:MOS) 28,401.3 6,135.9 414.1 0.9 16.4 6.7

Potash Corp. (NYSE:POT) 37,092.3 3,657.6 987.8 3.2 32.7 27.0Agrium Inc. (TSX:AGU) 11,354.9 9,129.0 366.0 2.3 8.3 4.0CF Industries (NYSE:CF) 4,699.0 2,608.4 365.6 7.4 32.1 14.0

Terra Industries (NYSE:TRA) 4,637.9 1,581.4 152.6 1.5 23.5 9.7

Financial data provided by                              

Multiples Valuation

Company03/12/10 - Stock Price

Market Cap (MM)

Forward P/E Price/Sales

Price/Book

Trailing P/E

             

Mosaic Co. (NYSE:MOS) 63.80 28401.31 18.73x 4.43x 4.39x 68.5x

             

Agrium Inc. (TSX:AGU) 72.19 11354.90 15.28x 1.33x 5.21x 30.97x

Potash Corp. of Saskatchewan, Inc. (NYSE:POT) 125.27 37092.32 23.99x 11.14x 5.81x 38.55x

Terra Industries Inc. (NYSE:TRA) 46.33 4637.91 15.59x 3.06x 9.43x 30.58x

CF Industries Holdings, Inc. (NYSE:CF) 96.73 4698.95 14.24x 1.47x 2.72x 13.02x

Multiples Valuation

Stock Price Calculation Forward P/E P/S P/B Trailing P/E

Min 37.99 18.34 75.79 163.12

Mean 48.82 85.96 80.11 183.08

Max 59.65 153.58 84.43 203.04

21.67 135.24 8.64 39.92

In 2006 Management Claimed: Sales volumes for Potash will improve due to a supply contract with a key customer in China.Result: Sales Volumes for next 3 years: 2007: 1478.9 2008: 2251.2 2009: 2817.2

The Phosphates business will show increased gross margins due to increased industry supply and demand fundamentals and our Phosphates restructuring actionsResult: Gross Margins for next 3 years:

2007: 13.5% 2008: 36.5% 2009: 22.0%

Mosaic will begin restructuring the Phosphate segmentResult: Mosaic combined the Nitrogen segment into their Phosphate segment in 2008 and the Offshore segment into their Phosphate segment in 2009

Management Assessment

Revenue Assumptions

Revenues 2007 2008 2009 2010 2011 2012

Phosphate 3203.9 5706.2 5780.6 5730.837 6561.62815 7564.70484

% of Total Revenue 55.49% 58.15% 56.13% 79.50% 82.75% 79.50%

Potash 1478.9 2251.2 2817.2 1712.0425 1645.36295 2307.47286

% of Total Revenue 25.61% 22.94% 27.36% 23.75% 20.75% 24.25%

Nitrogen 129.1 N/A N/A N/A N/A N/A

% of Total Revenue 2.24% N/A N/A N/A N/A N/A

Offshore 1355.6 2223.8 2349.2 N/A N/A N/A

% of Total Revenue 23.48% 22.66% 22.81% N/A N/A N/A

Other (393.80) (368.60) (649.00) (234.28) (277.53) (356.83)

% of Total Revenue -6.82% -3.76% -6.30% -3.25% -3.50% -3.75%

Total Revenues 5773.70 9812.60 10298.00 7208.6 7929.46 9515.352

Revenue Growth 8.82% 69.95% 4.95% -30.00% 10.00% 20.00%

Revenue Assumptions-Potash

Summarized from 10K:

By the start of the 3rd quarter in 2010, Potash demand improving but still below historical levels. Potash segment still operating at reduced production volumes. Despite the improved demand however, Potash selling prices in 3rd quarter will be below 2nd quarter levels

Revenue Assumptions-Potash

Recovery in Potash segment reflects recovery of selling prices and worldwide demand. Higher % of revenues is a result of management's plan: “We continued the expansion of capacity in our Potash segment, in line with our views of the long-term fundamentals of that business. The planned expansions are expected to increase our annual capacity for finished product over the next eleven years”

Revenue Assumptions-Phosphate

Mosaic’s results for the second quarter of fiscal 2010 compared to the prior year period reflected a recovery in Phosphates segment volumes and significant declines in phosphate selling prices.

Although the Phosphates segment’s prices stabilized in the first quarter of fiscal 2010, they have not returned to the historical highs of the prior year period that resulted from strong demand for crop nutrients.

Revenue Assumptions-Offshore

In 2010 Mosaic has again realigned their business segments and moved from three total segments to two by merging the Offshore segment into the Phosphate segment

Other Assumptions COGS: Increase sharply in 2009 due to higher fixed costs as a result of decreased production. After production increases, COGS will start returning to historical levels.

SGA: Sharp increase in 2009 due to same reasons as COGS.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Cost Of Goods Sold 3840.90 4668.40 4847.60 6652.10 7531.30 6163.35 6660.75 7707.44 8268.84 9509.17 10797.12

% of Total Revenue 87.36% 87.99% 83.96% 67.79% 73.13% 85.50% 84.00% 81.00% 79.00% 79.00% 78.00%

SG&A 207.00 241.30 309.80 323.80 321.40 346.01 380.61 428.19 471.01 565.74 622.91

% of Total Revenue 4.71% 4.55% 5.37% 3.30% 3.12% 4.80% 4.80% 4.50% 4.50% 4.70% 4.50%

WACC Calculation

CAPM

Beta 1.48

Risk-free 3.70%

Equity Premium 5.00%

CAPM 11.11%

Return on Equity Investment

ROE 59.48%

S&P500 1.93%

Cost of Equity:

WACC Calculation

As of May 31, 2009 Rate % of Debt Weighted Average

Term Loans 3.92% 1.01% 0.04%

Industrial Revenue Bonds 6.64% 3.18% 0.21%

Other Secured Notes 7.32% 1.37% 0.10%

Unsecured Notes 7.46% 71.62% 5.34%

Unsecured Debentures 7.15% 19.72% 1.41%

Capital Leases and Other 6.94% 3.11% 0.22%

Cost of Debt 7.32%

Cost of Debt:

WACC Calculation

Weight of equity 91.79%

Weight of debt 8.21%

Tax rate 21.60%

  Rate Wt

CAPM WACC 10.67% 90%

ROE WACC 55.07% 10%

Goal Post WACC 15.11%

DCF Valuation

PV of FCF 13,519.27

Less: Debt 2,540.40

Equity Value 10,978.87

# of shares 444.54

Intrinsic Value $29.20

Value +/-10% $26.28 $32.12

Triangulation

Triangulation

Price Weight

Forward P/E 48.82 30%

Price/Sales 85.96 20%

Price/Book 80.11 30%

Trailing P/E 183.08 0%

DCF 29.20 20%

$57.51

Football Chart

Macroeconomic Review

Gross Domestic Product GDP of countries that MOS exports its goods

Sensitive to fluctuation in prices of raw materials→ Adversely affect Sales Inputs = Natural Gas, Phosphate rock , Ammonia ,

Sulfur Outputs = Phosphate , Potash , Nitrogen

Strong International Presence 70% of net sales from customers located outside the

US. Brazil – Argentina – Chile – China - India

Macroeconomic Review

Regulations + Transportation costs Further restriction on greenhouse gas emissions

→ increase operating costs. Cost of delivery → adversely affect sales volume

and prices

Currency Risk Most significant impact from CAD and BRL →

Periodically hedge against exposure to foreign currency risk

Raw Material and Products

  2008 2009 2010 2011 2015 2020DAP, $/mt

967 323 300 310 360 400

Potash, $/mt

570 630 400 300 255 220

Projected Prices 2010 - 2020

Source : World Bank ( www.worldbank.org)

Fertilizer Consumption

Source : Potash Corp.com

Gross Domestic Product

Source : Bloomberg

GDP vs Sales Growth

Source : Bloomberg

Oil Prices lead to rising fertilizer prices

Source : FAO State of Commodities markets

Oil Prices – Mosaic’s Stock Price : Highly Correlated

Source : U.S. Energy Information Administration

Forecasted Crude Oil Prices

Source : Source : U.S. Energy Information Administration

Portfolio Correlation

  MOS

American Eagle -0.2104

Diamond Offshore 0.8553

Jack Henry 0.4721

McDonalds 0.6805

Walgreens -0.4337

MEMC Electronics 0.4998

Recommendation

We currently own 200 shares bought at $55 on 12/18/2009

DCF Intrinsic Value = $29.20 Triangulated Value = $57.51 Current Stock Price @ 3/17 = $61.91 Hedge against inflation Growth in emerging markets such as India

and Brazil will drive sales growth=> We recommend a HOLD for the 200 shares