Do you know anything about the mine in Sussex? That's where I'm from and I heard it reopened or they built a new one. I wish I got in when it was $90 before the split but I didn't have the cash in place
potash has insignificant div, so it's something i'm considering for a diagonal call spread:
- buy 2013 US pot 30 calls;
- sell 2012 US pot 55 or 60 calls.
- net debit 19.10 or 20.65 respectively.
- potential gain is 25 or 30 respectively.
- if nothing much happens by jan 2012 i'll sell short calls again to lower cost base, ie decrease the debit.
one can note that if cash is short, one can put on this position for 19 or 20 plus change per share.
the gross gain (spread) across the diagonal would be 25 or 30 respectively.
however the net gain, ie actual taxable gain in hands of the investor, would be roughly 5.90 or 9.35 per share, respectively. Not including commish. Assuming potash climbs above 55 or 60 prior to the 3rd friday in january 2013. Potential returns north of 30% & 45% respectively, over 20 months. Downside could be negative returns (losses.)
this strategy is similar to a covered call except that the long leg is a 2013 leaps option rather than the stock itself.
POT is sinking a new shaft into an ore body they discovered while the extent of the McCully gas field was being explored. The existing mine is operating but its costs are a bit high as they have to deal with water entering the mine. A couple of years ago (and I believe today) they were pumping this water to surface and trucking it to the old Potacan mine site where is was put in a pipe to the Bay of Fundy.
When complete, the expanded mine will produce 2 million tons/yr vs 0.8 million today.
LBCfan: Evidently you are connected to this POT mining operation . I notice that NA pot. inventories are about 2/3 of their '09 levels while the prices fob Vancouver are about 50% of '09 values. What this says about the supply / demand picture for potash is a bit confusing . What do you make of it ? Is there more world supply than we are told ? I have held POT shares for quite a while and feel it is a commodity with a future unless people stop eating !
If you look at POT's 09 annual report you'll see sales of $1.3 B with an average price of ~$400, suggesting sales of 3.25 Million tons. Production was 3.4 M tons.
Spot prices today are $500-530. Annual sales should be around 9 - 10 M tons.
Inventories are what they are. KCl must be kept inside. When storage is full, production stops. When production can't keep up to sales, inventories drop. POT's CEO stated on the Q1 conference call that they were sold out through June 30.
For farmers, KCl is a discretionary purchase. They factor the expected yield (with and without fertilizer), the expected price of their crops, weather outlook and other costs and risks. If the price of fertilizer is too high, they don't buy. Note the sales difference between 08, 09 and 10. Today, most ag products are up 50-100% vs. 2009, farmers can (and will) buy more as sales volumes have shown.
Is there more world supply than we are told? No, there is probably less. Look at the various POT sites at http://www.potashcorp.com/about/facilities/potash/allan/ note that the operational capacity is always <= nameplate capacity. That being said, exactly where various companies are with their expansions is not known.
I think they are estimating earnings on the low side. They have a history of doing that. As well, grain prices are very high and farmers cut back on fertilizer in the last couple of years. I'm a bull but even bulls eventually end up in the slaughter house.
potash up so strongly since i put on the 1st lot of diagonal spreads i am thinking to buy more.
the way it works: if assigned at 55, would have to deliver stock for $55. Do not own the stock. Broker system considers the short 55 calls to be naked, therefore this strategy requires a strong margin position.
in practical reality the short calls are not naked, they are hedged. If assigned could & would exercise the long calls to acquire stock for 30. The potential gain is $25. Against this gain must be set the cost base, which in this instance is a low $19.30.
the original position is only a few days old. POT has rallied strongly. However the gains in the diagonal call spread outstrip any gains that could have been made by holding plain stock, because of the leverage.
Had this happen to me with Suncor few months back, had a sell order at $42 and it reached 41.98, the rest is history.
I just thought you needed a bit of encouragement this morning ;-)
I also plan on getting out of POT, will be selling around $50, the stock behaved well in the last few days so there is a good chance it will get there. Good company but I prefer cash, and it doesn't pay enough dividends to wait if it turns south.
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