On Tuesday, Mosaic announced a joint venture agreement with Ma’aden and Saudi Basic Industries Corporation to develop an integrated phosphate mine and production facility in Saudi Arabia. Mosaic will own 25% of the venture and, subject to final financing terms, its cash investment would be as much as $1 billion, spread over four years and beginning in 2013.

The new facility is expected to have production capacity of roughly 3.5 million metric tons of finished product per year, with production starting in late 2016. Essentially, Mosaic is paying $1 billion for an 875,000 metric ton phosphate operation.

Mosaic has continually looked to diversify its phosphate operations, and this deal plays into that strategy. The regulatory hurdles Mosaic recently had to overcome at its South Fort Meade mine in Florida highlight the importance of diversifying phosphate sources. On the cost curve, the integrated Saudi operation will sit below marginal-cost producers, who purchase rock from third parties, particularly Morocco.

Further, the joint venture will be able to source low-cost natural gas from Saudi Arabia to process phosphate rock into finished fertilizer. Ammonia, which is synthesized from natural gas, is a key ingredient in main phosphate fertilizers DAP and MAP. The location of the project will also put Mosaic in a better position to ship to key importing countries in Asia, specifically India. Mosaic was probably included in this deal for its expertise in facility design, construction, and operations. The deal is not final yet, with a definitive shareholder agreement expected in the first half of 2013.


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