All Posts from November 9, 2018

Nutrien to Permanently Close New Brunswick Potash Facility, Rely On Saskatchewan Mines

Featured, News, Potash, Saskatchewan

Nutrien Ltd., Saskatoon, announced late on Nov. 5 that following a strategic review of the company’s potash portfolio, it has decided to permanently close its New Brunswick potash facility and will record a US$1.8 billion non-cash impairment in the third quarter of 2018. The company has no plans to sell the mine. The facility was placed in care and maintenance in early 2016 (GM Jan. 22, 2016), and has not produced potash since that time.

Nutrien said the decision to close the New Brunswick potash facility reflects the company’s ability to increase potash production in Saskatchewan at a significantly lower operating and capital cost than resuming production in New Brunswick.

Nutrien CEO and President Charles Magro reiterated during the Nov. 6 company conference call that the company had reported earlier in the year – soon after the Potash Corp. of Saskatchewan Inc. and Agrium Inc. merger – that it was doing a full portfolio review. “We have five million mt in Saskatchewan of excess capacity today,” said Magro. “And if we invest a little bit of capital into the six facilities in Saskatchewan, we can even go much higher than our operational capacity that is stated at 18 million mt/y for very economic expansion. The cash cost of production in New Brunswick is just so much higher than Saskatchewan’s, so it’s the best use of cash.”

Nutrien said the impairment is non-cash and has no impact on Nutrien’s previously announced financial guidance or future global potash sales. It is also not a part of the company’s updated merger synergies of $600 million.

At the time of the closure, the newly-constructed $2.2 billion potash operation had a workforce of 430. Nutrien last week put annual care and maintenance costs at about $25 million per year, up from $15-$20 million estimates given in 2016. Some 35 employees were retained to keep it in a care and maintenance mode. The company said at the time it would take a year to bring it out of that mode, and that it did not foresee the operations reopening in the near future.

In addition, at the time of closure PotashCorp had sued Cementation Canada Inc., which had constructed the two new mine shafts at the site, saying construction flaws led to the “complete failure” of one shaft and problems with another. However, PotashCorp said at the time the lawsuit had nothing to do with the suspension, and that it had filed the suit to preserve its rights in the event no settlement was reached.

When the 2 million mt/y New Brunswick mine and expanded milling operation was first announced in 2007 (GM July 30, 2007), then Potash Corp. of Saskatchewan Inc. President and CEO Bill Doyle called the deposit “spectacular,” saying the relatively flat new deposit contained two potash seams, each varying in thickness to a maximum of 60 feet, that would provide a long-term, low-cost source of potash. By comparison, he had noted that Saskatchewan seams were 17 feet.

The new mine was built adjacent to the company’s existing New Brunswick mine, which had water inflow problems. The old mine produced potash while the new one was being constructed. The New Brunswick facility was not a part of Canpotex Ltd., the Saskatchewan producer export organization.

Mosaic 3Q Income Up; Guidance Raised; Plant City Decision Expected by Year-End

Featured, News

The Mosaic Co., Plymouth, Minn., reported third-quarter 2018 net earnings of $247.5 million ($0.64 per diluted share) on net sales of $2.93 billion, up from the year-ago $227.5 million ($0.65 per share) and $1.98 billion, respectively. Third-quarter adjusted EBITDA was $606 million, up from both the second-quarter and year-ago figures.  Third-quarter diluted earnings per share included a negative impact of $0.11 per share from notable items, primarily related to discrete tax items and costs associated with the Vale Fertilizantes acquisition.

“We saw strong fundamentals in the third quarter, and that momentum is continuing,” said Joc O’Rourke, Mosaic president and CEO. “We’ve increased our full-year earnings guidance to reflect strong operational performance across business units, as well as improving market conditions. Our excellent progress on the transformational initiatives at Mosaic Fertilizantes is delivering tangible results to the bottom line.”

Wall Street rewarded Mosaic with a 10.6 percent uptick in share prices. The company closed Nov. 6 at $35.64, up from the prior day $32.22.

O’Rourke told analysts on Nov. 6 that several actions have tightened phosphate supplies, including its own idling of the Plant City, Fla., facility in late 2017, as well as slower-than-expected ramp-ups of new facilities and reduced exports from China, which have been attributed to more environmental regulation.

As for Plant City, Mosaic said it expects to be in a position to make a decision by year-end.

On the potash side, O’Rourke said supply disruptions by some competitors, as well as slow ramp-up of new supply combined with growing demand, drove prices higher by approximately $60/mt than year-ago levels.

The company told analysts while there has been a late start to the fall application season due to wet weather, that now that things have started to move and the company is “seeing very big volume movements.” The company said record crops removed much fertilizer from the soil that needs to be replaced.

Mosaic is now projecting full-year adjusted EBITDA of $1.90-$2 billion, up from $1.8-$1.95 billion. Full-year adjusted EPS is now seen at $1.80-$2.00, up from $1.45-$1.80, due to strong underlying business performance and lowered expected full-year tax rate.

The company said it has delivered Mosaic Fertilizantes synergy targets with $128 million in gross realized synergies year-to-date. It has raised its full-year 2018 synergy target to $140-$160 million, and expects to achieve the full $275 million target ahead of schedule.

Mosaic has also completed the commitment to repay $700 million of long-term debt, two years ahead of the initial 2020 target.

Third-quarter Phosphate gross margins were $180 million on sales of $1 billion, up from the year-ago $67 million and $779 million, respectively. The increase in margins was primarily driven by higher average sales prices and operational improvements that lowered controllable operating costs. Year-ago results include negative impacts from Hurricane Irma of 220,000 mt and $26 million, respectively. Sales volumes were up at 2.2 million mt with a gross mt margin of $80/mt, up from the year-ago 2.1 million and $32/mt, respectively.

Third-quarter Potash gross margins were $161 million on sales of $609 million, up from the year-ago $99 million and $474 million, respectively. Margins were positively impacted by higher average selling prices, partially offset by the timing of turnaround activities. Sales volumes were 2.4 million mt, up from 2.2 million mt, while gross margins per mt were $66/mt, up from $44/mt.

Third-quarter Mosaic Fertilizantes gross margins were $152 million on sales of $1.4 billion, up from the year-ago $52 million and $806 million, respectively. Margins were driven by the Vale Fertilizantes acquisition, as well as higher margins in the legacy distribution business. Sales volumes were 3.6 million mt, up from 2.2 million mt, while margins per mt were $42/mt versus $24/mt.

Nine-month net earnings were $357.7 million ($0.93 per share) on net sales of $7.07 billion, up from the year-ago $323.9 million ($0.92 per share) and $5.32 billion, respectively. Adjusted EBITDA was $1.4 billion, up 71 percent from the year-ago figure.

Going forward, Mosaic expects full-year Potash tons sold to be 8.6-9 million mt, Phosphates at 8.2-8.5 million mt, and Mosaic Fertilizantes at 8.9-9.2 million mt.

Fourth-quarter Potash sales are expected to be 2.2-2.5 million mt, Phosphate 1.7-2 million, and Mosaic Fertilizantes 1.9-2.2 million mt. The company expects higher fourth-quarter selling prices for Mosaic Fertilizantes to be partially offset by the recent strengthening of the Brazilian currency.

Nutrien Upgrades Guidance; Nitrogen, Retail Expansion Eyed

Featured, News, Saskatchewan

Nutrien Ltd., Saskatoon, announced 2018 third-quarter results, with net loss from continuing operations of $1.07 billion ($0.74 per diluted share) on sales of $4 billion, up from a year-ago combined loss of $53 million on sales of $3.59 billion. The results reflected the $1.8 billion non-cash impairment on the New Brunswick, N.B., potash facility (see front page), as well as a $151 million gain on an adjustment to pension and retirement benefit plans.

Nutrien shares were up 5.1 percent on the results, closing at $56.98 on Nov. 6 after the prior day $54.20.

“In the third quarter, Nutrien delivered solid operating results,” said Chuck Magro, Nutrien president and CEO. “Retail earnings increased by 10 percent year-over-year, while our nutrient production operations reported higher volumes and margins, and significantly lower costs. We also made significant advances on our strategic priorities, including raising the dividend and our synergy target, completing our share repurchase program, and closing the sale of our stake in Arab Potash Co. (APC).

“We remain on track to receive $5 billion in net proceeds from the sale of our equity investments. Nutrien has also raised its annual guidance due to the strength of market fundamentals and acceleration of merger synergies. We continue to be well positioned to deliver strong long-term shareholder returns,” he added.

The company declared a quarterly dividend of $0.43 per share payable Jan. 17, 2019, to shareholders of record on Dec. 31, 2018. The company said this represents a 7.5 percent increase in the dividend, and is representative of improving fundamentals and its confidence in operational cash flow moving forward.

As for the $5 billion the company expects to collect from the sale of its equity investments, Magro reiterated company investment goals, which include expanding its Retail segment in both North America and Brazil. Beyond those, he said there is opportunity to return more capital to shareholders.

“We firmly believe that Brazil over the long-term will become a very, very significant part of our retail portfolio,” he told analysts. “We actually think it could become the second largest part of our retail portfolio over many years, and we will deliver that hurdle rate that Brazil needs. But the first several acquisitions, I just want to make sure that we’re clear, we most likely will have less of a return because there won’t be synergies.”

Michael Frank, executive vice president, president of Retail, added that the company expects to make some significant moves in Brazil in the next 12-18 months. The company noted that it has essentially converted one of its first acquisitions in Brazil, distributor Agrichem (GM Feb. 2, p. 1), into a full service retailer.

As for questions about Brazil’s new government, Magro said it is seen as both pro-business and pro-agriculture.

Magro added that the Retail segment has added some 50 locations and expected EBITDA of $30 million so far this year, and expects to add more by the year end. He said that he expects another very challenging year for the retail market in general, which gives Nutrien the opportunity to continue to aggressively drive its consolidation strategy, so it would expect an even higher rate of tuck-ins both in terms of numbers and dollars going into next year in the U.S.

And on the nitrogen production side, Magro said the company is looking at several brownfields through its current network, primarily in North America. However, he said it was too early to get into specifics. He said the industry is still a long way from justifying greenfield nitrogen economics in North America.

Raef Sully, executive vice president, president of Nitrogen and Phosphate, gave the timeline for planned changes at Redwater, Alta., saying the company would be ramping up additional MAP production at its White Springs, Fla., plant in first-quarter 2019, closing down Redwater phosphate production the same quarter, and changing over to additional ammonium sulfate production at Redwater by third-quarter 2019.

Nutrien has raised its run-rate synergy target by the end of 2018 from $500 million to $600 million by the end of 2019.

Full-year 2018 adjusted net earnings guidance was raised to $2.60-$2.80 per share from $2.40-$2.70 per share, and adjusted EBITDA guidance to $3.85-$4.05 billion up from $3.7-$4 billion. Fourth-quarter adjusted net earnings guidance is $0.46-$0.66 per share.

Full-year Potash sales volume guidance has been raised to 12.5-13 million from 12.3-12.8 million mt, and Potash adjusted EBITDA to $1.5-$1.6 billion from $1.4-$1.6. The company has raised its 2018 global potash shipment forecast to 66-67 million mt from 65-67 million mt.

Nitrogen EBITDA has been raised to $1.15-$1.25 billion from $1.1-$1.2 billion. Phosphate and Sulfate EBITDA was increased to $0.25-$0.3 billion, respectively, from $0.2-$0.3 billion.

Third-quarter Retail EBITDA was $116 million on sales of $2.17 billion, up from the year-ago $105 million and $2.07 billion, respectively. Total crop nutrient sales volumes were 1.49 million mt, up from the year-ago 1.24 million. While average selling prices were up at $436/mt from $425/mt, margins were down at $95/mt from $96/mt.

In the Wholesale segment, third-quarter Potash EBITDA was a negative $1.3 billion (due to the impairment) on sales of $817 million, compared to the year-ago $303 million and $590 million, respectively. Adjusted EBITDA was a positive $498 million. Total potash sales volumes were 3.86 million mt, up from the year-ago 3.31 million mt, with the average selling price going to $213/mt from $192/mt. Gross margin per mt was $119/mt versus $81/mt.

Third-quarter Nitrogen EBITDA was $257 million on sales of $612 million, up from $113 million and $496 million, respectively. Total sales volumes were 2.46 million mt, up from the year-ago 2.28 million mt, with the average selling price going to $222/mt from $185/mt. The gross margin per mt was $57/mt, up from $20/mt.

Third-quarter Phosphate/Sulfate EBITDA was $88 million on sales of $437 million, up from the year-ago $11 million and $356 million, respectively. Total sales volumes were 982,000 mt, up from the year-ago 977,000 mt, with the average selling price going to $412/mt from $351/mt. Gross margins per mt were $36/mt, up from a year-ago loss of $40/mt.

Nutrien nine-month net earnings were $371 million on sales of $15.9 billion.

Sirius Inks Teeside Port Construction Contract, Says Stage 2 Financing Procurement Program Near Completion

England, Featured, News, Polyhalite, Specialty

Sirius Minerals, Scarborough, England, said on Nov. 5 via its subsidiary, York Potash Processing and Ports Ltd., that it has signed an engineering, procurement, and construction (EPC) contract with McLaughlin & Harvey Ltd. for the development of the company’s port handling facility at Teeside for its North Yorkshire polyhalite project.

The scope of the McLaughlin & Harvey contract includes product storage facilities for 250,000 mt, ship loading equipment, ship outload infrastructure, and the final product screening facility. Sirius said the lump sum contract price is in line with the company’s capital re-estimate, announced in September (GM Sept.7, p. 1) and the proposed schedule for the work fits in with the company’s overall project schedule. First polyhalite production currently is scheduled for toward the end of 2021.

The port handling facility will receive the company’s polyhalite fertilizer after it has been transported from the Woodsmith mine via the 37km underground mineral transport system (MTS), and processed into the finished Poly4 product at the Wilton materials handling facility.

Importantly, in the same statement, Sirius said its stage 2 financing-related procurement program for the major construction packages is nearing completion, with only the MTS fit-out scope remaining. The company has identified Vienna-based Strabag AG (GM Sept. 7, p. 1) as the preferred contractor for the MTS fit-out, and negotiations are said to be in the final stages.

Once this procurement program is complete, Sirius will be in a position to finalize the conditional debt package. The company announced in early September that it had upwardly revised the capital cost requirement of the polyhalite mining project. It put the revised stage 2 capital funding requirement to fully fund the initial 10 million mt/y development at $3.4-$3.6 billion, up from the previous estimate of $3 billion (GM Sept. 7, p. 1). The company said it is targeting a maximum of $3 billion in senior debt financing, and is exploring other options to procure the additional $400-$600 million required.

 

Bunge Ltd. – Management Brief

Management Briefs

Bunge Ltd., White Plains, N.Y., has named Christos Dimopoulos as president, Agribusiness. This follows the previous announcement of Brian Thomsen’s retirement, and is effective immediately.

Dimopoulos joined Bunge in 2004 and most recently served as senior vice president, global grains and oilseeds. Prior to joining Bunge, he held roles of increasing responsibility in Europe and the U.S. with Tradigrain and Intrade Risk Management. He holds a Bachelor’s degree from HEC Lausanne in Business Management & Marketing.

Bunge has also added three new members to its board of directors – Paul J. Fribourg, chairman and CEO of Continental Grain Co.; Henry W. (Jay) Winship, president of Pacific Point Capital LLC; and Gregory Heckman, founding partner of Flatwater Partners. Heckman has over 30 years of experience in the agriculture, energy, and food processing industries and most recently was CEO of The Gavilon Group. With the addition of the three new directors, the board has expanded to 14 directors.

The board has determined that Heckman and Winship are independent directors for purposes of the NYSE corporate governance listing rules, as well as Bunge’s standards of director independence.

Bunge, the D. E. Shaw group, and Continental Grain reached an agreement to appoint the three directors, as well as a fourth, mutually agreeable independent director, to be appointed by year end.

In addition, Bunge formed a strategic review committee of the board, which will be chaired by Fribourg and will include new directors Heckman and Winship, as well as three current directors – Andrew Ferrier, Kathleen Hyle, and Mark Zenuk. The committee will conduct a comprehensive, strategic review focused on enhancing long-term shareholder value. It will make recommendations to the CEO and the board. Bunge expects to provide future updates as appropriate.

In addition to these new appointments, the company added Mark Zenuk and Vinita Bali to the board over the past ten months. Zenuk has served as managing partner of Tillridge Global Agribusiness Partners, an agribusiness private equity firm, since 2016. Bali brings global food industry experience, having served as CEO of Britannia Industries, a publicly listed food company in India.

Central Garden & Pet Co. – Management Brief

Management Briefs

Central Garden & Pet Co., Walnut Creek, Calif., has appointed a new independent director, John Hanson, to the board of directors, effective immediately. The appointment increases Central’s board from nine to ten directors.

Central said Hanson has worked in a number of leadership positions in marketing, sales, and general management over his nearly 30-year career. He spent four years as president of ConAgra’s Frozen Food division. He was also CEO of Oasis Brands, where he led a turnaround and geographic expansion. He is currently a consultant to consumer packaged goods companies.

Hanson earned a BBA in Management & Marketing and an MBA in Marketing from the School of Business at the University of Wisconsin-Madison. He currently resides in Scottsdale, Ariz.

Encanto Potash Corp. – Management Brief

Management Briefs, Vancouver

Junior miner Encanto Potash Corp., Vancouver, announced that R.G. Rajan has resigned from the board of directors due to personal reasons. “I am very grateful that Mr. Rajan helped support and guide me and Zulfiquar Ghadiyali during very difficult times in India when he was chairman and managing director at RCF. Mr. Rajan remains an asset to Encanto,” said CEO and Director Stavros Daskos. “H.E. Mr. Zulfiquar Ghadiyali will continue maintaining the strategic relationships that Encanto and its team has developed.”

Chinese Nitrogen Plant Explosion Kills 6, Injures 7

Ammonia, Ammonium Nitrate, China, News, News Briefs, Urea

A factory explosion on Wednesday afternoon, Nov. 7, in the northeast province of Hebei killed six people and injured another seven, two of them seriously. Local authorities said the explosion took place in the tail gas burner of the gas-making workshop. The authorities mobilized a special investigative team to ensure that no flammable or toxic gas leaks occurred because of the explosion.

Hebei Jinwantai Chemical Fertilizer is a wholly-owned subsidiary of JinMei Jinhua Chemical Investments. The plant produces ammonia, urea, ammonium nitrate, and compound fertilizers, mostly for the local market. The local government ordered the plant closed until an investigation into the cause of the explosion is concluded.

Scotts Reports Major Impairments; Company Upbeat for 2019

News, News Briefs, Specialty

Two major impairments weighed on Scotts Miracle-Gro Co.’s fourth-quarter and full-year results ending Sept. 30, 2018. The company took a $94.6 million non-cash impairment related to goodwill in its Hawthorne segment and a $20 million charge in discontinued operations for a litigation matter related to its previously divested wild bird food business.

Scotts reported a fourth-quarter net loss of $146.9 million ($2.65 per diluted share) on net sales of $433.9 million, compared to a year-ago loss of $33.4 million ($0.57 per share) and $376.7 million, respectively. The company had an adjusted net loss of $41.6 million ($0.75 per share), down from a loss of $14.9 million ($0.26 per share). Adjusted EBITDA was $400,000, down from $5.5 million.

The company posted full-year net income of $63.7 million ($1.12 per share) on sales of $2.66 billion, down from the prior year $218.8 million ($3.63 per share) and $2.64 billion, respectively. Adjusted net income was $211.6 million ($3.71 per share) down from $236.9 million ($3.94 per share). Adjusted EBITDA was $482 million, down from $560.5 million.

“There is little doubt that fiscal 2018 was one of our most challenging years in recent memory,” said Jim Hagedorn, Scotts chairman and CEO. “Our U.S. Consumer business, however, had a strong second-half following unfavorable early season weather. The Hawthorne team also made substantial progress in recent months, integrating the Sunlight acquisition to enable strong benefits in 2019.”

Hagedorn said the integration of Sunlight Supply remains on track, and the company expects to achieve at least $35 million in synergies. “While we are obviously disappointed by the performance of Hawthorne in 2018, we expect to return to growth in 2019 and remain bullish on the long-term prospects of this business.” Sales were up for Hawthorne, but profits were down.

For fiscal 2019, Scotts is providing guidance of projected sales growth of 10-11 percent, assuming 1-2 percent within U.S. Consumer and 9 percent from Hawthorne. Adjusted EPS is expected to be $4.10-$4.30. The projection was slightly below analyst estimates, which averaged $4.25, according to Bloomberg, which also noted that Scotts’ fourth-quarter adjusted net loss exceeded the analyst range of $0.57-$0.74.

Despite these misses and the impairments, Walls Street was good to Scotts, with shares moving up 6.8 percent to close Nov. 7 at $75.77 from the prior day $70.90.

Scotts has approved the payment of a cash dividend of $0.55 per share. The first quarter dividend is payable on Dec. 10 to shareholders of record as of Nov. 26.

$/M 4Q-18 4Q-17 FY-18 FY-17
Net Sales
U.S. Consumer 252.6 258.1 2,109.6 2,160.5
Hawthorne 152.2 92 344.9 287.2
Segment Profit/Loss
U.S. Consumer 5.3 (0.3) 496.6 521.5
Hawthorne .5 9 (6.1) 35.5
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