Mosaic earnings up in 3Q; phosphates lag expectations

The Mosaic Co. saw a big increase in earnings for the third quarter ending Feb. 28, 2007, to net earnings of $42.2 million ($.10 per diluted share) on sales of $1.28 billion, versus a year-ago loss of $71.6 million ($.19 per share) and $1.07 billion. Despite the current buoyant phosphate market, the company’s phosphate segment posted a third-quarter loss of $11.1 million on sales of $690.7 million. The year-ago loss was $19.7 million on sales of $699.3 million.

Mosaic President and CEO Jim Prokopanko said costs in the phosphate segment were unacceptably high and would be an area of great focus. Higher mining and concentrates production costs were the main culprits, as other phosphate costs, such as ammonia and sulfur were down. Mosaic cited a period of lower ore grade, dragline problems, and higher contract labor costs. It will be bringing up its Wingate mine in June to add about 1 million st of rock to the company’s current 15 million st.

Another phosphate problem was the lagging price. The average third-quarter DAP price was $246/mt, the same as the year-ago quarter. While recent phosphate prices have soared, Mosaic said that it normally sees a 6-12 week lag time. As an example, the recent quarter saw significant tonnage to China that had been booked and priced last fall.

Prokopanko said he expects significantly higher phosphate prices and margins in the fourth quarter and into fiscal 2008. “Shipments are strong for both phosphates and potash as the North American spring season is off to a good start and export demand remains strong.” He specifically cited Brazil and India as being good prospects for later this year, but indicated that China may be lost to the U.S. producer at current pricing levels. He projects phosphate sales volumes for fiscal 2007 to be between 9-9.3 million mt and potash at 7.7-8.1 million mt.

Wall Street initially reacted negatively to the Mosaic news, with some citing the phosphate figures; however, the general agriculture and fertilizer fundamentals – i.e., projections of 90.5 million acres of corn – eventually carried the day. Mosaic stock dropped 5.5 percent after the company released its earnings April 10, but easily recouped that loss and added some by end of business April 12.

Mosaic had good news to report about the inflow at the Esterhazy mine. The inflow had been reduced to 4,000 gallons per minute – almost to the level prior to the recent inflow – whereas the inflow is being pumped out at a rate of 7,000 gallons per minute. Still, Mosaic expects to incur significant additional costs associated with the inflow in the fourth quarter.

Potash earnings are what put Mosaic in the plus column for the quarter. They were up 316 percent during the quarter, to $67.0 million on sales of $342.7 million from the year-ago $16.1 million and $228.6 million, respectively.