The Mosaic Company, Plymouth, Minn., announced that the unprecedented wet weather in the Midwest negatively impacted its North American spring fertilizer sales volumes and phosphates margins, causing the company to report a second-quarter net loss attributable to Mosaic of $233.1 million ($0.60 per diluted share) on net sales of $2.18 billion, compared to year-ago net income of $67.9 million ($0.18 per share) and $2.2 billion, respectively. Adjusted EBITDA was $349 million, down from the year-ago $480 million.
“We’ve experienced a North American spring season that was wetter and later than any in recorded history,” said Mosaic President and CEO Joc O’Rourke. “While our Potash and Mosaic Fertilizantes businesses continued to perform well, weakness in the phosphates market negatively impacted second-quarter results. Moving forward, strong price increases in grains, together with depleted soil nutrients in North America, are expected to drive fertilizer applications significantly higher this fall.”
Like its peers, Mosaic is looking forward to a significant rebound in 2020, with approximately 95 million acres of corn.
“The actions we’ve taken to reshape our business, including the permanent closure of our Plant City phosphates facility and the acceleration of the development of the K3 potash mine, leading to today’s announced curtailment of potash production at Colonsay, are expected to increase our operating leverage to the anticipated strong market fundamentals in the second half of 2019 and beyond,” O’Rourke added.
Mosaic told analysts that the new Esterhazy K3 mine has produced 400,000 mt of ore through June 30. As a result, the company can take down its higher-cost 2 million mt/y Colonsay mine. Colonsay costs were put at $100/mt. The move is expected to save some $40-$50 million in cash expenditures in 2019. Excluding brine costs, Mosaic puts per ton potash costs at $69/mt, which it says should go to $60/mt in the fourth quarter.
Although Colonsay will remain ready to return to production should the market situation change, for now Mosaic said its thinking is that Colonsay will remain offline through the end of the year. The Colonsay outage is expected to result in the layoff of approximately 350 employees, according to the Canadian press. Mosaic had not confirmed this number at press time.
The second-quarter loss included a $284 million noncash after-tax charge for the permanent closure of the company’s Plant City phosphate facility, which was announced in June (GM June 21, p. 1). Due to the permanent closure, annual costs are expected to go down $40 million. Mosaic said it is currently in negotiations for alternatives at the Plant City site, though further details were not available.
In other news, the company said Mosaic Fertilizantes expects to complete tailings dam remediation activities and return to full operations more than a month ahead of schedule. The Catalao mine tailings dam remediation was completed, and the mine resumed full operations in May. The Tapira mine resumed operations at 60 percent in July, and is expected to resume full operations in August. The Araxa mine has received an operating permit for its tailing dam B6 and is expected to resume full operations in August.
In addition, Mosaic said it is lowering its full-year adjusted EBITDA guidance to $1.8-$2 billion from May’s guidance of $2-$2.3 billion. It was lowered in May from the earlier $2.2-$2.4 billion (GM May 10, p. 1). Mosaic also lowered adjusted EPS to $1.10-$1.50 from May’s $1.50-$2.00, saying this primarily reflects the impact of the lower than expected sales volumes in the first half and a slower recovery in phosphate margins. May’s EPA guidance was down from the earlier $2.10-$2.50.
Mosaic also moved down full-year potash and phosphate sales volume expectations. Potash has moved down to 8.7-9.1 million mt from 9-9.4 million mt, while phosphates are now seen as 8.4-8.8 million mt, down from 8.6-9 million mt. Mosaic Fertilizantes volumes remain the same at 9.4-9.8 million mt.
Six-month potash and phosphate volumes so far this year are both at 4 million mt, with Mosaic Fertilizantes at 3.6 million mt.
Mosaic foresees third-quarter potash sales volumes at 2.2-2.4 million mt, with an adjusted gross margin of $60-$70/mt, phosphates at 2.2-2.4 million mt at $5-$15/mt, and Mosaic Fertilizantes at 3.6-3.8 million mt at $30-$40/mt.
Mosaic is basing its second-half forecasts on a flat-to-$25/mt price increase. Citing recent Nutrien Ltd. results, as well as those in Saudi Arabia and China, Mosaic said dry phosphate pricing is breakeven or below.
Wall Street did not react well to the news. Mosaic shares fell 6.6 percent on Aug. 6 to close at $22.02. While some analysts were concerned that Mosaic might have to reduce its guidance again, others were buoyed by the company’s rebound prospects.
Second-quarter Phosphate gross margin was a negative $12 million on sales of $917 million, compared to the year-ago $154 million and $1.1 billion, respectively. Gross margin per ton was a negative $7/mt, down from a year-ago positive $67/mt. Sales volumes were 2.2 million mt, down from 2.3 million mt. The average finished phosphate price to destination was $398/mt, down from the year-ago $451/mt.
The company also reported a $11 million equity earnings loss, primarily reflecting Mosaic’s interest in the MWSPC phosphate project in Saudi Arabia.
Second-quarter Potash gross margin was $181 million on sales of $599 million, up from the year-ago $132 million and $569 million, respectively. While sales volumes were down at 2.2 million mt from the year-ago 2.4 million mt, gross margin per ton was up at $84/mt from $56/mt. The average potash price to destination was $277/mt, up from $241/mt.
Second-quarter Mosaic Fertilizantes gross margin was off at $35 million on sales of $833 million, compared to the year-ago $53 million and $713 million, respectively. Sales volumes were up, at 2.1 million mt from the year-ago 1.8 million mt. Gross margin per ton was $17/mt, down from $29/mt. The average finished price to destination was $396/mt, up from $386/mt.
Mosaic reported a six-month net loss of $102.3 million ($0.27 per share) on sales of $4.07 billion, down from the year-ago income of $110.2 million ($0.29 per share) and $4.14 billion, respectively. Adjusted EBITDA was $242 million, down from $449 million.