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.