The Mosaic Company (MOS)

1. The Mosaic Company (MOS) Keaton Cervantes & Matthew Rasinski Thursday, April 4, 2013

2. Agenda • Introduction • Company Overview • Industry Overview • Stock Performance • Macroeconomic Overview • Current Events • Financial Analysis • Valuation • Recommendation

3. Introduction • Mosaic (MOS) trades on the NYSE • Listed on the exchange in October 2004 • It is recognized as a Fortune 500 company • Formed through a merger with IMC Global and Cargill • A merger between a fertilizer company and a crop nutrition division • Sector is basic materials & industry is agricultural chemicals

4. Company Overview • The Mosaic Company is a combined producer and marketer of phosphate and potash • Mine, refine, and distribute the final product • Produce specialty materials: MicroEssentials, K-Mag, and Pegasus • Phosphate and potash are used as fertilizers primarily marketed to farmers as growth supplements for crops and animal feed • Mosaic claims their MicroEssentials, K-Mag, and Pegasus are the “most advanced crop nutrient products” on the market 2012 10K annual report

5. Overview Continued • Customer base – wholesalers, retail dealers, and individual farmers in more then 40 countries • Headquartered in Plymouth, Minnesota, United States • Employ over 8,000 workers in 8 different countries • Phosphate – largest producer of finished phosphate products in the world • Potash – sales are expanding globally through an alliance with Canpotex, the worlds leading potash exporter

6. Phosphates vs. potash Breakdown – 2012 10k • Phosphates exceed potash in terms of sales tonnes by segment and net sales, however, not by operating earnings

7. Phosphate and potash operations • Mosaic sells phosphate products throughout North America and internationally • They account for 58% of North American production and 13% of global production • Potash operations are significantly smaller but yield higher profit margins • Distribution activities include: sales offices, port terminals, and warehouses in the United States, Canada and several other key countries • Key countries encompass China, Brazil, India, Argentina, and Chile • Involved in blending, bagging, and production

8. Phosphate production facilities • Currently have 5 active phosphate crop nutrient production facilities that are located in Louisiana and Florida • 2 additional plants planned for the future

9. Potash mining • Canada – operate 3 potash mines and 1 solution facility • United States – operate 2 potash mines and 1 solution facility • Have 3 additional mines under construction • Considering opening 2 mines in the near future

10. Distribution networks • These are the locations of primary distribution centers in South America and Asia

11. Porter’s 5 forces • Bargaining Power of Buyers: High • Many suppliers exists, fertilizers and feed are considered commodities to farmers • Bargaining Power of Suppliers: Moderate • They have near full vertical integration • Nitrogen consumption is an exception • Threat of New Substitutes: Moderate • Several alternatives exist, however, brand recognition is quite powerful • Competitive Rivalry within the Industry: High • Mosaic competes in both price and quality with respect to their domestic and international competitors • Threat of New Entrants: Moderate • New advances in technology pose a real threat to existing market participants

12. Major competitors • Monsanto (MON) – Provide seeds and genomics alongside agricultural productivity products to farmers around the world • (Coromande.NS) – Manufacture and market fertilizers, specialty nutrients, and crop protection products in India and internationally • Potash Corp. of Saskachewan (POTN.MX) – Mine and produce potash and phosphate as a fertilizer and animal feed • United Phosphorus Limited (UNIPHOS.NS) – Manufacture and sell chemical fertilizers and feed using phosphorus as a major ingredient

13. 2 year Stock performance • This however, does not represent the entire picture

14. 3 month stock performance • More accurately represent our position in the stock since its last review

15. Financial overview • Mosaic is far smaller relative to their competitors in terms of market cap • According to their latest 10Q report, Mosaic will engage in a stock repurchase

16. Financial overview continued • They rank in the top 20% in the majority of industry characterizations • 5 year PEG ratio and Dividend Yield are exceptionally high

17. Macroeconomic overview • Based on monitoring done by the USDA, the United States is moving out of a major drought spell which lasted for several years March 26, 2013 August 14, 2012

18. Agricultural forecasts • Agricultural commodities are expected to increase according to USDA forecasts • Such macroeconomic events tend to entice farmers to use access amounts of fertilizers in order to increase yields • Livestock feed is being consumed at an ever increasing pace both domestically and internationally due to global population growth

19. Current Events • FY 2013 Quarter 3 results far exceeded expectations with 3rd quarter profit jumping 26% • Surprise earnings a result of Foreign Currency gain and increased potash sales in Asian markets • High earnings despite settlement

20. Current Events • Labor contracts (pp. 24-25 of 10k) • Collective bargaining agreements with various labor unions expire fiscal year ending May, 2013 • Implications – this can seriously impact production of phosphate and potash • Anti-Trust settlement (pp. 24 of 10Q) • Mosaic along with competitors such as Potash, settle anti-trust case lawsuit on January 30, 2013 for an aggregate of $43.8 million • Mosaic admitted no wrong doing

21. Current Events continued • Saudi joint venture (pp. 22 of 10Q) • Entered into a Heads of Agreement with Saudi Arabian Mining Company (“Ma’aden ”) and Saudi Basic Industries Corporation (“SABIC ”) • The joint venture would engage in developing a mine and chemical complexes that would produce phosphate fertilizers, animal feed, food grade purified phosphoric acid and sodium tripolyphosphate in the Kingdom of Saudi Arabia • Operations are expected to commence in late calendar year 2016 • Mosaic would retain a 25% stack in the $7 billion project

22. Current events continued • Stock Repurchase (pp. 44 of 10K) • Limitations on share buybacks due to the Cargill Transaction ruling end on November 26, 2013 • Cargill family can start selling shares due to vesting on May 26, 2013 • Management has stated in a press release they will expand their treasury stock • This is an indication that the stock price is currently undervalued • Implications of this may result in an unanticipated rise in stock price • A goal of management is to improve their balance sheet by decreasing cash and using debt financing to leverage its expansionary strategy

23. Financial analysis • Stock Price: $58.52 • Beta: 1.57 • TTM P/E: 13.09 • Dividend Yield: 1.70% • EPS: 4.47 • Price/Sales: 2.45 • Price/Book: 1.88 1 year stock performance compared with S&P500

24. Financials • Mosaic currently has minimal amounts of debt on its balance sheet • They plan on accessing the debt markets in the near future to help finance expansion • Maintain relatively large sums of cash

25. Financial Analysis • WACC • Discount rate of 12.02% • 100% weight on CAPM method • Not ideal, but lack of debt and negative return on equity made us use

26. Valuation • Discounted cash flow: • Price per share: $61.89

27. Sensitivity Analysis • Representation how value changes with respect to the discount rate

28. Comparative analysis • By assigning the following weights our comparative analysis yields: $48.97

29. Triangulated price

30. recommendation • Currently hold 200 shares at $55 • Purchased in December 2009 • Cost basis of $11,000 • Current market value of $11,704 • Resulting in a total gain of 6.4% • We recommend Mosaic as a hold

31. Questions?