* Expects to have $2 bln cash, $3 bln debt capacity as of May 31
* Company looks to buy shares restricted since Cargill split
* To defer Canadian potash expansion until markets improve
* Shares fall nearly 3 percent
By Bhaswati Mukhopadhyay
May 13 (Reuters) - U.S. fertilizer producer Mosaic Co plans to have accumulated a $2 billion cash pile by the end of May to buy back shares locked up since its split from agribusiness giant Cargill Inc.
Mosaic, the No. 2 fertilizer producer in North America, also deferred plans to expand potash mining in Western Canada until the global market for the soil nutrient shows signs of recovery.
Mosaic said it planned to use surplus cash to buy back shares rather than pay dividends. In addition to the $2 billion in cash, the company has $3 billion of debt capacity, it said in a regulatory filing on Monday. ()
From May 26, the two-year anniversary of its split from Cargill, Mosaic plans to begin talks on buying back shares from members of Cargill's founding family and the charitable trust that together hold about 30 percent of Mosaic's stock.
The terms of the split had prevented Mosaic from entering discussions with these shareholders for two years.
"We have built our current financial capacity, in large part, in contemplation of this transaction," Mosaic Chief Financial Officer Larry Stranghoener said on a conference call with analysts.
He said Mosaic would be able to enter "substantive discussions" with the MAC Trust and the Cargill family members, each of which owns about half of the 129 million restricted shares.
Plymouth, Minnesota-based Mosaic has a market capitalization of $26.94 billion. A 30 percent stake in the company would be worth around $8.08 billion at current prices.
But the entire stake might not be sold in one transaction. The deal struck two years ago envisaged the shares would be sold through three annual secondary offerings, the first of which is scheduled for between May and November this year.
If one-third of the shares remain unsold by November, they will automatically convert to freely tradeable shares. The same will happen in 2014 and 2015, Stranghoener said on the call.
Mosaic's shares fell nearly 3 percent to $61.40 in morning trading on the New York Stock Exchange.
Mosaic said it had postponed plans to add 2 million tons of annual capacity at its potash mines in the Western Canadian province of Saskatchewan, a project that had been expected to cost upward of $2 billion, due to unfavourable market conditions and high labor costs.
"By waiting a year or two, we may see improved labor conditions in Saskatchewan that might help bring down the cost of this project," Stranghoener said.
"We might, at that time, have better clarity about the long-term supply picture in the potash industry."
Several major potash producers, including larger Canadian rival Potash Corporation of Saskatchewan, have expanded their mines to capitalize on demand for the crop nutrient, which improves root strength and disease resistance.
Population growth and demand for more protein-based diets in China, India and other Asian countries have driven up demand enough for BHP Billiton and K+S AG also to start construction of mines in Saskatchewan.
But some analysts have said there is too much new global capacity in the works. Brazilian miner Vale SA said in March that it planned to pull out of a $6 billion potash project in Argentina.
"We had always had concerns about an excess supply situation surfacing as early as 2014 and 2015, and it looks like Mosaic is having similar concerns," said John Chu, agriculture analyst with AltaCorp.
Mosaic, the world's largest producer of finished phosphate products, is pressing on with plans to build its next two phosphate mines in Florida - Ona and DeSoto - at a cost of around $2 billion over three years from 2017.
The company is also proceeding with engineering and design work on a separate project to build an ammonia plant in Faustina, Louisiana. Stranghoener said the company would make a "final go/no-go decision" on the plant this year.
In March, Mosaic also said it planned to invest up to $1 billion over four years in a joint venture to produce phosphate in Saudi Arabia with Ma'aden and Saudi Basic Industries Corp JSC (SABIC).