Sinofert to Seek Out Fertilizer Assets Sinofert to Seek Out Fertilizer Assets
Demand for fertilizer set to grow: Sinofert Holdings Ltd. (297 HK, US$2.1 bn market cap) is seeking out potash and phosphate assets in efforts to meet China’s growing demand for fertilizers, which are essential in increasing the nation’s food production levels. The need for higher crop yields is acute, given years of under application by China’s farmers.
Sinofert is China’s largest fertilizer distributor, whose parent company, SinoChem (600500 CH, US$1.8 bn market cap) was rumoured to be in the running with BHP Billiton’s (BHP AU) bid for Potash Corp (POT-N; Sector Perform, US$51 target).
Junior potash and phosphate assets could benefit: The company is looking both inside and outside of China. We don’t believe that Sinofert will seek out assets in Brazil, such as Verde Potash (NPK-T; Outperform, $11 target) given the likelihood of restrictions on foreign ownership from the Brazilian government. Assets in Africa however, could potentially benefit from Sinofert’s search, given that China-based Evegreen Industries Group had acquired MagIndustries (with sizeable potash assets in Republic of Congo) back in April 2011 (refer to Figures 1 and 3 for geographic locations of some junior fert players).
We suspect that Sinofert's focus will be on large assets, likely based in North America, given favourable transportation and logistics links. Companies such as Western Potash (WPX-T; Outperform, $1.65 target), whose resource size is 945 mm tonnes (KCl), IC Potash (ICP-T; Outperform, $1.60 target) with a resource size of 228 mm tonnes and Stonegate Agricom (ST-T; Outperform, $1.45 target) with phosphate resource size of 526 mm tonnes, are the largest among the junior players and could be on the radar for Sinofert.
February 24, 2012