Rising global demand for food and the fertilizer needed to grow it has vindicated Bill Doyle's fulsome prediction for Potash Corp. stock price.
In his vigorous fight against a hostile takeover bid last year from the world's largest mining company, the salesman-like chief executive officer insisted the offer grossly undervalued a fertilizer firm poised for a comeback. He was adamant the stock's value "far exceeds" $170 (U.S.).
Two months after the death of BHP Billiton Ltd.'s $39-billion, $130-a-share offer for the world's largest potash producer, Mr. Doyle's rosy forecast is coming true.
On Thursday, for the first time in more than two years, Potash Corp.'s stock traded close to $170 on the New York Stock Exchange. Some analysts have raised their 12-month targets further, to $185.
In fact, the stock has risen more than 20 per cent since Ottawa blocked the BHP bid. That's despite fears the shares might stagnate given the company is now considered takeover-proof as a result of the government decision that selling it would not be good for Canada.
The rise in Potash Corp.'s shares comes amid rising global demand for the crucial crop nutrient it produces.
Farmers are buying more fertilizer to boost production as well as take advantage of higher prices for commodities such as corn and soybeans, which have soared after bad weather destroyed crops around the world in recent months.
While other companies such as Mosaic and Agrium have also seen a increase in their stock prices, Potash Corp. has gained the most in recent days.
On Thursday, Potash Corp. shares jumped more than 4 per cent to close at $169.10, despite a retreat in corn prices. Meantime, shares of both Mosaic and Agrium were up less than 1 per cent.
Analysts at UBS and Canaccord Genuity each raised their Potash Corp. 12-month target price to $185 a share this week, based on rising demand for the commodity.
"We believe potash pricing will have a larger increase in 2011 as it was the last of the three nutrients to begin price increases in 2010," Canaccord Genuity analyst Keith Carpenter wrote in a recent note. "We also believe producers are united on higher pricing ideas into 2011."
It's still a long way from the $240-a-share price Mr. Doyle vowed Potash Corp. would "blow the doors off" as he fended off BHP's bid back in October. The last time Potash Corp. hit that level was in mid-2008, after potash prices climbed to almost $1,000 a tonne during the last global food crisis.
That level proved unsustainable as farmers curbed their potash purchases as a result, causing the price to tumble to about $300 within months.
Potash prices have been recovering since, and are currently trading around $430 to $450 a tonne in some markets, up from around $300 to 350 a few months ago.
BMO Nesbitt Burns analyst Joel Jackson said the rise is owing to a combination of depleted inventories, tight production rates with no new meaningful capacity expected for at least a couple of years, and strong crop prices.
"Farmers don't want to take the risk of not being able to cash in on strong prices [for their crops]" Mr. Jackson said.
The production frenzy is good news for potash producers, but many analysts are not expecting another runup similar to 2008, given increased consolidation in the industry.