The Mosaic Company's Second Quarter 2023 Earnings Conference Call was hosted by Paul Massoud, Vice President of Investor Relations and FP&A. Joc O'Rourke, President and Chief Executive Officer, followed by a fireside chat and then open Q&A. Clint Freeland, Senior Vice President and Chief Financial Officer; and Jenny Wang, Senior Vice President, Global Strategic Marketing were also present. The call discussed the broader agricultural market and Mosaic's financial performance, which included revenues of $3.4 billion, adjusted EBITDA of $744 million and adjusted earnings per share of $1.04.

Global demand for crops is very strong, and supply is struggling to keep up due to geopolitical events, weather extremes, and underapplication of nutrients. This has caused record-high imports from China, and other countries across Europe, Africa, and Asia are looking to replace lost Ukrainian supply. India has responded to the situation by banning the export of non-Basmati white rice. As a result, stock use ratios are at multiyear lows and the market remains constructive.

Fertilizer demand is strong in North America, Brazil, and India due to improved affordability, channel inventory destocking, and strong monsoon rains. Sanctions in Belarus are limiting potash exports, and port terminal capacity has been constrained by repairs and labor strikes.

Canpotex is using alternative ports to mitigate the impact of international shipments, while China's environmental policy and focus on food security are expected to limit exports. Phosphate prices have risen and potash prices have stabilized, setting the stage for a constructive second half of the year. Canpotex has invested in production assets and infrastructure to ensure reliability as a supplier to customers.

Mosaic has seen success in their potash and phosphate businesses in the second quarter, with strong sales volumes and prices at the high end of guidance ranges. They are continuing to invest in their phosphate business to improve reliability and anticipate third quarter sales volumes to be in the range of 2.1 to 2.3 million tonnes for potash and 1.7 to 1.9 million tonnes for phosphates. In Brazil, they are experiencing recovering distribution margins and 90% of their third quarter volume is already committed and priced.

The company is committed to investing in their business, maintaining a strong balance sheet, and returning capital to shareholders. They recently completed an audit of the K3 mine and K2 mill expansion, verifying a total nameplate capacity of 7.8 million tonnes and beginning debottlenecking of the K2 mill with a new hydrofloatation process. They are also investing in a $34 million expansion of their Riverview facility to produce more differentiated value-added products, and will be launching MicroEssentials Pro, a new formulation with a patent extending through 2038, which provides a yield advantage of 8% or 5 bushels an acre compared to traditional MAP solutions.

Mosaic is investing $60 million to explore entry into purified phosphoric acid for the lithium iron phosphate battery market and $80 million to build a 1 million-tonne blending and distribution facility in Palmeirante, Tocantins. They have also entered into a $700 million credit facility and have repurchased 15% of their float. They are also returning excess cash to shareholders through dividends and share buybacks and are considering further dividend increases. Despite deferred fertilizer demand in many markets, Mosaic remains positive for the remainder of the year and beyond. They will continue to meet the need for fertilizer to help farmers maximize crop production.

James O'Rourke discusses the guidance for phosphates and potash, noting that the midpoint of the guidance range is in line with their historic average and that demand has been strong. He then addresses Brazil, noting that weaker pricing and grower liquidity issues caused demand deferral in the second quarter, but that the market has since turned and the price ratio for beans is attractive, driving farmers to secure supply for the Zafra season.

Mosaic is expecting a sequential improvement in their distribution business for the second half of the year, with margins expected to be at the high end of their targeted range. In production, they are expecting higher volumes in the third quarter due to resolving unplanned outages and working through higher cost inventories. Colonsay will be running to meet customer expectations and needs due to strong demand in North America and a rebounding international market. Mosaic is still committed to returning all free cash flow to shareholders.

James O'Rourke discussed the current potash market, noting that there was overpricing and a walk away from the market by farmers last year, and now they have overcorrected significantly to the downside. He believes that the market will be supply limited in potash and not demand limited.

In the third quarter, phosphate margins are expected to increase due to lower raw material costs. However, phosphate rock costs have been higher for several quarters, and it is unclear when they will return to more normalized levels.

The company's global shipments of potash and phosphate have been lowered for the year. Additionally, the company has run into issues with the quality of rock in the mining areas, which has increased costs. However, raw materials costs are expected to help margins in the next six months, and phosphate prices have gone up since the beginning of July.

James O'Rourke explains that the phosphate volumes in the first half of the year were lower than expected due to low starting inventory and a hand-to-mouth approach to production. He also states that the market for potash is strong, but the main limitation is logistics constraints, particularly for exports. Finally, he estimates that the cash costs at Colonsay are $30 higher than Esterhazy.

This paragraph discusses the supply-driven reduction of potash shipments from 62 million to 65 million tonnes this year. It explains that the slow start to Brazil and China's contract contributed to the decline. The speaker further states that the market was low to start the year and that it took some time to get product moving. He then goes on to explain that the replacement of one month of downtime in the Esterhazy complex will cost $30 more per tonne than the average prior to the downtime.

James O'Rourke and Jenny Wang discussed the supply and demand balance of potash, noting that the supply is constrained by the sanctions on Belarus and Russia and logistics issues for Canadian producers. North American potash demand has grown by 20% or more this year, and Brazil and other Latin American markets are also seeing a recovery. However, it is unlikely that shipments will reach 70 million tonnes until the resolution of the Ukraine war and Belarus sanctions.

James O'Rourke discussed the nameplate capacity of the Esterhazy mine and how it is determined by an independent audit. He also stated that they are currently working with Canpotex to figure out what the capacity means for allocation. He further explained that the capacity is a theoretical peak number and that the mine will not run at that rate every day due to downtimes and other factors. Lastly, he addressed the question of whether or not Colonsay will be running perpetually or just until they make up for the time Esterhazy is down.

James O'Rourke discussed the company's plans to replenish their inventory levels by running Colonsay first, and then managing their working capital carefully. He also discussed the MicroEssentials Pro product, which has a patent that extends to 2038 and appears to have real agronomic benefits. The company's pricing strategy for the product is to share the benefit between the grower, retailer, and the company itself.

James O'Rourke of Canpotex discussed the logistics of the potash industry, stating that they are using New Brunswick and Thunder Bay and even some Southern U.S. Gulf to move the product and that extra costs may be incurred. He went on to say that the global market will determine whether the supplier or the end user will absorb the costs, but that the tight market suggests that the end user will be the one to absorb them.

Adam Samuelson asked James O'Rourke and Jenny Wang to discuss ways in which Fertilizantes' production could be improved in the second half of the year, such as through lower input costs and improved conversion and rock costs. Jenny Wang explained that the prices of phosphate products have been rebounding in recent weeks, and that the lower-priced sulfur and ammonia will eventually be reflected in the company's margin in the third quarter, though it may be lagging behind the market benchmark.

James O'Rourke and Jenny Wang discussed Brazil's potash imports, which have been lower than expected this year and in the previous year. Overall fertilizer use in Brazil has decreased by 10%, from 46 million tonnes to 42 million tonnes. O'Rourke noted that this does not necessarily indicate a decreasing market, as Brazil needs to fertilize its soil every year due to double cropping and carryout of fertilizer in the crops. Wang added that there could be an agronomic impact on yields if fertilizer is not added back.

James O'Rourke and Clint Freeland discussed the impact of potash prices on Canadian resource taxes. O'Rourke was not able to give a detailed forecast for the taxes, but Freeland noted that they will likely follow the price expectations. They also mentioned that the taxes have been significantly lower than earlier prices.

James O'Rourke explains that MicroEssentials' new swellable granules are designed to make sulfur and phosphates more bioavailable to the plant at the root. He also states that they have conducted field trials with the University of Illinois and other customers to ensure the product is well-proven and gives good results. Finally, he mentions that they are exploring the potential of biologics for collaboration with BioConsortia, but this is further off in the future.

James O'Rourke of Colonsay discussed the importance of the Vancouver port and how it affects the Canadian economy. He also noted that Colonsay needs the port to be operational in order to move their production and that it will take at least a month for the port to become fully functional again. He concluded by expressing his desire to have Colonsay run for a long time.

Mosaic delivered solid earnings in the second quarter and have a positive outlook for the remainder of the year. The global fertilizer market is strong and is expected to remain that way, and Mosaic is well-positioned to take advantage of it. The transformation of their cost structure and investments they have made have given them earnings power and cross-cycle resilience. The conference has concluded and everyone is thanked for attending.

This summary was generated with AI and may contain some inaccuracies.