* Project led by Ma'aden offers MOS second geographical source
* Analyst sees solid strategic move
* Shares down slightly in New York
By Rod Nickel
March 19 (Reuters) - U.S. fertilizer producer Mosaic Co plans to invest up to $1 billion in a joint venture to produce phosphate in Saudi Arabia, giving the Minnesota-based company a road into India and other growing Asian markets.
The $7 billion project, including a mine and chemical complexes to make phosphate fertilizer, will be 60 percent owned by Saudi Arabian mining and metals company Ma'aden. Mosaic will own 25 percent and petrochemical company Saudi Basic Industries Corp JSC (SABIC) will hold 15 percent.
Fertilizer companies have rapidly expanded production capacity for the two other main crop nutrients, nitrogen and potash, to cash in on increased food demand as Asia's population expands.
Phosphate capacity has not increased as quickly, said Mosaic Chief Executive Jim Prokopanko.
"The only way we're going to increase the food supply is with more technology, principally crop nutrients applied to fields around the world," Prokopanko said in an interview. "This (project shows) our belief that phosphate has been underinvested in."
Mosaic shares were down 0.44 percent in late-morning trading in New York at $61.66.
Prokopanko said that the project, serving India and other Asian markets, will complement Mosaic's phosphate production in Florida and Louisiana, which supplies North America and Latin America.
Mosaic's closest competitors in the global phosphate sector are Russia's PhosAgro OAO and Morocco's state-run phosphate monopoly OCP. Mosaic is the world's largest producer of finished phosphate products, and the second-largest rock phosphate producer after OCP.
"We think it's a solid move strategically for the company," said analyst Jeffrey Stafford of Morningstar.
Along with diversifying Mosaic's phosphate sources, the Saudi Arabia mine should produce relatively low cost supplies due to the project's integrated nature, Stafford said. It will use low-cost natural gas to produce ammonia, which is a key ingredient in making diammonium phosphate (DAP) and monoammonium phosphate (MAP).
The joint venture would tie up as much as $1 billion for Mosaic over four years, with two other major capital projects still awaiting board approval.
Its board of directors is expected to decide this year on whether to spend $2 billion to $3 billion to further expand potash production in the Western Canadian province of Saskatchewan. Mosaic is also considering building an ammonia fertilizer plant in Louisiana for about $1 billion.
"We have a lot of financial flexibility," said Chief Financial Officer Larry Stranghoener, citing cash and unused debt capacity. "We see plenty of firepower to take advantage of good opportunities and still have plenty of flexibility for returning capital to shareholders."
Stranghoener stressed that Mosaic has not made final decisions to proceed with the potash and ammonia projects.
Stafford said Mosaic's commitment to the phosphate project is unlikely to affect its pending decisions on potash and ammonia production.
The Wa'ad Al Shammal phosphate project in northern Saudi Arabia would produce 3.5 million tonnes of finished product annually, including phosphate, animal feed and other products, starting in late 2016.
Mosaic's role will be to help design, build and operate the project, in exchange for one quarter of the project's production. That volume would amount to at least 750,000 tonnes of phosphate annually, an increase of about 8 percent on Mosaic's current output.
The three companies expect to sign a definitive agreement in the first half of 2013.