Potash Corp. (POT) has announced another 2.7 million metric tons of potash capacity expansion projects. Given a potential potash shortage, RBC sees POT’s continued capacity expansion as adding significant value. Consequently, RBC has revised POT’s already lofty target upwards $35 more to $375:
Free Option on Expansion Projects:
To date, PotashCorp has announced almost C$6 billion of projects that will increase its operating capacity by 7.1 million tonnes in the 2010-2015 timeframe. In total, we estimate that these projects could add approximately $90.00-$95.00 per share of incremental value. Given PotashCorp’s current share price, we believe the market is not assigning any value to these future expansion projects at this time even though the projects represent faster and lower cost options than greenfield production.
Shortage Situation Still Exists in Our Long-Term Outlook:
Notwithstanding PotashCorp’s newly announced projects, we believe a shortage situation in the
potash industry could still develop by 2018. Based on our long-term supply and demand outlook, we believe PotashCorp’s 18 million tonnes of effective operating capacity will eventually be required to meet growing demand for potash.
RBC reiterates OUTPERFORM on Potash (POT), target raised from $340 to $375.
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