All posts by hlancey@bloomberg.net

Compass Posts $75 M 1Q Loss; Cites Lithium Termination, Impairments

Earnings, Featured, Lithium, Sulfate of Potash, U.S.

Compass Minerals posted a $75 million loss for the first quarter ending Dec. 31, 2023, citing a total of $77.3 million in impairment and restructuring charges from terminating its lithium business. Compass announced the termination and loss on Feb. 7. Compass’ year-ago loss was $300,000.

“The environment surrounding our lithium project today is markedly different than the one that existed a couple of years ago when we started down this path,” said Compass President and CEO Edward Dowling, who took the helm on Jan. 18 (GM Feb. 2, p. 24) after nearly two years on the Board of Directors.

“The simple fact is that the regulatory risks have increased significantly around this project,” Dowling said. “When combined with other changes to the commercial landscape, it became clear that the risk-adjusted returns on this project are inadequate to justify the investment.”

Compass said last May that it was concerned by recent legislative actions in Utah that altered certain aspects of the regulatory regime that would govern lithium development at the lake, some of which would require rulemaking (GM May 12, 2023).

Citing the need for clarity in the evolving regulatory climate in Utah, Compass indefinitely suspended any further investment in the lithium project last November. Compass said a proposed rule published by the Utah Division of Forestry, Fire and State Lands, in mid-October introduced new obstacles to lithium salt production in the Great Salt Lake.

In addition to the regulatory risk, Dowling also noted concern with doing a project with a technology that has yet to be successfully deployed. As a result of the termination, the lithium development team has been disbanded, and Chris Yandell, Head of Lithium, has left the company.

“I want to thank Chris and the exceptional team he assembled for their efforts to advance the project over the last couple of years. We wish those who are leaving the company the best in their future endeavors,” Dowling said.

“I will note that the lithium content in the Great Salt Lake is a significant resource that’s not going anywhere,” Dowling added. He said the company will continue to monitor and engage in appropriate legislative and regulatory processes in Utah, as well as watch emerging commercial developments to preserve the long-term optionality of that resource.

In a Feb. 8 earnings call, Dowling also addressed the recent departure of former President and CEO Kevin Crutchfield.

“As you know, the last year has been a challenging one for Compass,” Dowling said. “Ultimately, the Board and Kevin agreed that a change in leadership was in the best interest of the company. This change allows employees and the investment community to refocus on our advantage assets that underpin our core salt and plant nutrition businesses, as well as the emerging and exciting fire retardant business.”

Dowling thanked Crutchfield for this leadership and said he attained the three major goals that the Board set for him when he joined the company in 2019: fix the challenging production curve at the Goderich salt mine and repair significantly strained relationships at the mine; exit South America; and determine if there were any areas of growth adjacent to the company’s core salt and plant nutrition businesses.

“We are refocusing our efforts on improving cash flow generation and returns on capital in our core Salt and Plant Nutrition businesses through rigorous cost management and reduced capital intensity,” Dowling said. “Over many decades, our company has developed an exceptional set of unique assets that are virtually irreplicable, enjoy durable competitive advantages, and have strong leadership positions in the marketplace.”

Compass reported a first-quarter operating loss of $55.3 million on revenue of $341.7 million, compared to the year-ago income of $27.9 million and $352.4 million, respectively. Adjusted EBITDA was $59.4 million, down from $61.8 million.

The Plant Nutrition segment posted an operating loss of $2.3 million on sales of $49.7 million, compared to the year-ago income of $11 million and $41.6 million, respectively. EBITDA was $6.1 million, down from $19.3 million.

Fertilizer sales volumes were up 67%, to 75,000 st from the year-ago 45,000 st, reflecting higher demand and historical norms in the company’s core West Coast markets. However, prices were down 29%, to $660.41/st from the year-ago $924.15/st, with the company citing excess supply in the global potassium-based fertilizer market.

Compass has adjusted its 2024 annual guidance for the Plant Nutrition segment to reflect revised market and operational conditions that could impact the business. Sales volumes are now put at 280,000-310,000 st versus the previous 290,000-320,000 st; revenue at $170-$205 million versus $180-$215 million; and adjusted EBITDA at $15-$35 million versus $20-$40 million.

Compass noted that muriate of potash (MOP) prices continue to be under pressure, which as a potential substitute, impacts the price of the company’s sulfate of potash (SOP). It also said the continued weakness in fertilizer prices is resulting in buyers deferring purchases in anticipation of lower prices.

In addition, first-quarter pond-based production tracked toward the lower end of the company’s initial projections. Lower production means the company has to buy more MOP to supplement its SOP production.

Despite first-quarter winter weather that was “exceptionally weak,” operating income was still up in the company’s Salt segment, to $50.5 million on sales of $274.3 million compared to the year-ago $47.1 million and $308.1 million, respectively. EBITDA was up at $65.7 million from the year-ago $61 million. While total salt volumes were off at 2.86 million st from the year-ago 3.52 million st, average prices were up at $96.08/st from $87.51/st.

Compass has left 2024 guidance for the Salt and Corporate segments in place. Salt volumes are put at 11.3-12.15 million st, revenue at $1.03-$1.11 billion, and adjusted EBITDA at $230-$270 million, with mild or strong winters altering those numbers.

Compass said its Fortress North America fire retardant business recognized slightly better results related to the take-or-pay provisions of its calendar year 2023 contract with the US Forest Service in the first quarter, with operating earnings and adjusted EBITDA of $13.1 million. Negotiations for the 2024 contract continue and are expected to be finalized prior to the upcoming fire season. Compass will adjust guidance once the contract is complete.

PhosAgro Boosts 2023 Fertilizer, Feedstocks Output

Ammonia, Ammonium Nitrate, Ammonium Sulfate, DAP/MAP, Earnings, Nitrogen, Phosphoric Acid, Sulfuric Acid

PhosAgro PJSC reported a 2% growth in its agrochemicals output in 2023, to a record 11.28 million mt from 11.07 million mt the previous year, and in line with the output guidance given by the group in early December (GM Dec. 8, 2023).

Fertilizer output in 2023 totaled 10.99 million mt, also up 2% year-over-year, while production of other agrochemicals was down 5% from 2022, to 286,000 mt.

PhosAgro said the growth in its fertilizer output was driven primarily by an 8% increase in DAP and MAP production, to more than 4.5 million mt. MAP output alone increased by 13%, largely driven by the ramp-up at the group’s Volkhov complex in southern Russia (GM Sept. 1, 2023). A 4% rise in ammonium nitrate production and a 2% increase in urea output, to 723,000 mt and 1.7 million mt, respectively, also helped boost the group’s 2023 output.

PhosAgro also highlighted a 2% year-over-year increase in the production of key feedstocks, mainly due to a 5% increase in the production of phosphoric acid and a 3% rise in sulfuric acid production, to 3.3 million mt and 8.1 million mt, respectively. The increase in sulfuric acid output was driven by improved operational efficiency at the Cherepovets unit and the launch of a new unit at the Balakovo site late last year.

PhosAgro said in December that it plans to boost production by 1.4 million mt/y by 2026 versus the current level (GM Dec. 8, 2023).

PhosAgro Production Volumes

‘000 mt FY2023 FY2022 % change
Fertilizers      
Phosphate Fertilizers 8,388.7 8,224.4 +2
Nitrogen Fertilizers 2,605.3 2,546.6 +2
Total Fertilizers 10,994.0 10,771.0 +2
       
Other Products      
STPP 55.7 68.3 (18)
Other 230.3 233.6 (1)
Total Other Products 286.0 301.9 (5)
       
Total Agrochemical Products 11,280.0 11,072.9 +2
       
Feedstocks      
Ammonia 1,982.8 1,985.3 (0.1)
Phosphoric Acid 3,345.3 3,199.4 +5
Sulfuric Acid 8,120.0 7,920.2 +3
Ammonium Sulfate 260.2 322.6 (19)
Total Feedstocks 13,708.3 13,427.6 +2

Increased production and productivity were one of the critical factors in PhosAgro’s decision to index the wages of the group’s employees from Feb. 1, 2024, by a further 15% in addition to the 60% increase in average wages from 2021 through 2023, PhosAgro CEO Mikhail Rybnikov reported on Feb. 6.

The group earlier reported that it exported 8.7 million mt of fertilizers in 2023 based on preliminary data, a 1% increase on 2022’s export volume of 8.6 million mt (GM Jan. 5, p.  26). PhosAgro’s nitrogen fertilizer exports increased 6.5% year-over-year, while phosphate exports rose 8.7%.

Farmers Brace for Biggest Income Hit Since 2006

News Briefs, U.S.

US farmers are poised this year to see the biggest hit to their income since 2006 as a slump in agriculture markets takes its toll, according to Bloomberg. Net farm income is forecast to fall about 26% in 2024, to $116.1 billion, according to USDA data released on Feb. 7. If the estimate holds, it would mark the biggest year-over-year drop since 2006.

The outlook is the agency’s first for the calendar year and comes after net farm income already fell about 16% in 2023. Prices for major crops have slumped amid plentiful supplies. At the same time, American farmers have started to lose their dominance in global grain shipping as Brazil strengthens its position.

The expected decline for income in 2024 puts profits below the 20-year average of $118.2 billion, according to USDA. Direct government farm payments are expected to drop almost 16% from last year. Cash receipts are also seen decreasing, while total production expenses are expected to rise 3.8%.

Mosaic, TPS to Pay Penalties, Complete Projects

News Briefs, Triple Superphosphate, U.S.

The US EPA on Feb. 6 announced that it recently finalized a settlement with Mosaic Fertilizer and Tampa Port Services (TPS) over alleged violations of the chemical accident prevention provisions of the Clean Air Act at Mosaic’s facility in St. James, La.

Under the settlement, the companies will pay more than $217,000 in civil penalties and have agreed to complete two supplemental environmental projects (SEPs) to benefit the St. James community: installing two area ammonia gas monitors for two years, and donating two 20-kilowatt generators to the St. James Parish Emergency Response Department.

“Preventing chemical accidents is one of the most important goals of the Clean Air Act, which can only be fulfilled with the full participation and commitment of owners and operators of industrial facilities,” said Regional Administrator Dr. Earthea Nance. “Companies must prioritize safety for their workers and surrounding communities and be held accountable when they violate these requirements.”

An on-site inspection found violations associated with Mosaic’s processing of MAP and DAP and TPS’ adjacent anhydrous ammonia process. Violations included failure to document required safety precautions and operating procedures, failure to promptly address recommendations of the process hazard analysis team and compliance audit, failure to train employees according to requirements, failure to implement written procedures for maintaining safety equipment, and failure to test and inspect certain process equipment.

TFI Alarmed Over Lower NAAQS

News Briefs

The Fertilizer Institute (TFI) on Feb. 7 expressed alarm with the US EPA’s lowering of the National Ambient Air Quality Standards (NAAQS) for fine particulate matter. According to TFI, this change will lead to permitting gridlock across much of the country, negatively impacting economic growth and fertilizer production.

“At a time when the need to strengthen the domestic fertilizer industry has been made clear by multiple ongoing global crises and echoed by the Biden administration, now is not the time to hamstring fertilizer production by making new production facilities or the expansion of existing production more difficult or, in some instances, impossible,” said TFI President and CEO Corey Rosenbusch.

The PM NAAQS has significantly curtailed air pollution nationwide, but a major challenge for industries arises as those levels are progressively lowered, according to TFI, which said that despite ongoing technological improvements, industries reach a threshold where additional air quality improvements become less feasible under stricter standards, especially as 84% of current PM2.5 emissions originate from non-industrial sources.

“PM2.5 emissions have declined nearly 40% over the past twenty years, and they continue to go down,” Rosenbusch said. “TFI does not support lowering NAAQS levels and instead supports the previous standard that balanced robust environmental protection with economic growth.”

India Fertilizer Companies to Merge

Ammonia, India, News Briefs, Urea

The Board of Directors of India’s Mangalore Chemicals and Fertilizers Ltd. (MCFL) and Paradeep Phosphates Ltd. (PPL) on Feb. 7 agreed to merge the two companies in a stock swap deal. MCFL shares jumped as much as 13.5% in early Mumbai trading, while PPL’s rose as high as 9.7%, the most in 17 months, according to Bloomberg.

“PPL and MCFL have consistently delivered robust financial performance and by combining forces they aim to amplify shareholder values,” PPL Managing Director and CEO Suresh Krishnan said in a call with analysts on Feb. 8. “The proposed entity shall become the largest integrated private (fertilizer) sector company in India with a total capacity of around 3.6 million mt/y.”

Krishnan added that PPL would be acquiring scale, a very efficient ammonia-urea asset, access to newer southern markets, the popular MCFL brand, ample room for backward integration, and a valuable port site at Mangalore that can house a new project in the medium-to-long term.

MCFL shareholders will receive 187 shares of PPL for every 100 shares held, according to Bloomberg, citing company filings. The deal is subject to regulatory approvals and the companies have formed a merger implementation committee to oversee the process.

Separately, as part of the deal, Zuari Agro Chemicals will sell its 33.08% stake in MCFL to Zuari Maroc Phosphates Pvt., PPL’s holding company, for 5.64 billion rupees at a price of 144 rupees per share.

Coromandel Ordered to Pay Fine After NH3 Leak

Ammonia, India, News Briefs

India’s Coromandel International Ltd. has been ordered by the Tamil Nadu state government to pay Rs59.2 million (approximately $713,000 at current exchange rates) in environmental compensation after an ammonia leak at the company’s Ennore fertilizer production site near Chennai on Dec. 26 led to at least 57 people being hospitalized (GM Jan. 5, p. 25).

A total of 18 technical and safety recommendations were made for the plant, according to the New Indian Express, and Coromandel was also directed to submit periodic reports to regulatory bodies, including the Tamil Nadu Pollution Control Board (TNPCB).

According to the committee’s findings, as cited by the report, the ammonia leak occurred close to shore from Coromandel’s undersea pipeline used to transport ammonia from ships to the Ennore production site. The report noted that “the significant relocation of heavy granite boulders around the pipeline” due to Cyclone Michaung in early December “could have caused damage to the pipeline, which resulted in the ammonia leak.”

Nearly 68 mt of ammonia leaked in 15 minutes during the rupture, and none of the 19 ammonia sensors installed at the plant detected the leak, according to the TNPCB report. A former environment official noted if the leaked ammonia had discharged in the air instead of the sea, there would have been “devastating consequences.”

The recommendations to be undertaken at the plant include the replacement of the existing offshore pipeline to Coromandel’s fertilizer site with a new pipeline with state-of-the-art monitoring, automatic control, and accident prevention systems.

Coromandel’s Ennore plant produces ammonium phosphate sulfate fertilizers. Ennore residents are demanding the permanent closure of the production site.

Barge Carrying Potash, Diesel Sinks in Hamburg Port

News Briefs, Potash

An inland barge carrying 1,400 mt of potassium chloride and 3,500 liters of diesel sank while moored at the Kalikai terminal in Germany’s port of Hamburg on Feb. 6, maritime news portal Splash 24/7 reported.

The sinking of the Alster occurred at around 6 a.m. local time, according to the report, and the vessel’s captain and a deckhand who had remained onboard overnight escaped uninjured. The barge was docked overnight at the Kalikai terminal, which is operated by K+S Transport, part of the K+S Group.

The vessel was reported to have sunk roughly an hour after it starting to list and take on water. Emergency services placed a containment barrier around the area but reported that a small amount of diesel had leaked into the harbor, according to the report. No potassium chloride leaks were reported.

Officials said there was no immediate environmental hazard but are in discussions with the Hamburg Port Authority and the barge owner about the salvage of the vessel to prevent damage to the River Elbe. However, Greenpeace personnel who went to the scene expressed concern that a potassium chloride leak would raise the salinity of the Elbe.

K+S’s website said it handles about 500 sea and inland vessels a year at the Kalikai terminal, with 3.5-4.5 million mt of potash and salt products handled there annually, including more than 1 million mt in containers.

Unigel Reports Progress in Creditor Negotiations

News Briefs

Unigel Participacoes SA reported that it has no intention to file for bankruptcy protection, given that negotiations with its main creditors have evolved “significantly” in recent days, the company said in a statement, according to a Feb. 6 Bloomberg report.

Earlier reports were that Unigel was preparing to file for bankruptcy as negotiations were at a stalemate. The company was granted a 60-day protection from creditors by a court on Dec. 14. Unigel and creditors are closing in on their deadline. The company said it believes that an agreement is the best solution for all parties and that it should conclude the negotiation soon.

Local bondholders declared the early maturity of some notes last year, triggering an acceleration of the troubled chemical and fertilizer maker’s debt and prompting Unigel to seek protection in court. The firm, which was also holding separate talks with external bondholders, was cut to default by S&P Global Ratings in November after missing payment of a $23.2 million coupon.

Galvani Secures License for Irecê Mining Expansion

Brazil, News Briefs, Phosphate

Brazil’s Galvani Fertilizantes has secured a license from Bahia that will allow it to begin work on installing the phosphate processing unit at Irecê, according to a bnamericas report, citing the company. According to the report, Galvani will now carry out the necessary studies to obtain the operating license, with the start of operations targeted for 2026.

Galvani expects to invest R$340 million (approximately $68.5 million at current exchange rates) in the project. The phosphate will be transported to the company’s Luis Eduardo Magalhães fertilizer plant in Bahia, Galvani Fertilizantes CEO Marcos Stelzer said in a September 2022 interview with Bloomberg (GM Sept. 23, 2022).

Galvani is looking to double production to 1.2 million mt/y at the Luis Eduardo Magalhães plant in a R$200 million project. The investments are part of a R$2.54 billion program by the company through 2026 to expand fertilizer production and phosphate mining areas. Some R$2 billion will go to the Santa Quitéria phosphate-uranium project in Ceará state.

The investments are part of efforts to reduce dependence on fertilizer imports. The Galvani family retained the Luis Eduardo Magalhães production unit and the mining units in Angico dos Dias in Bahia, as well as the Santa Quitéria project, when it sold its minority stake in Galvani Indústria to Yara International ASA in 2018 (GM Oct. 19, 2028).