The operator welcomes everyone to The Mosaic Company's first quarter 2024 earnings conference call and introduces the host, Jason Tremblay. The call will begin with opening comments from President and CEO Bruce Bodine, followed by a fireside chat and open Q&A with other executives. Forward-looking statements will be made during the call and non-GAAP financial measures will be presented. Three key topics to be discussed are Mosaic's performance for the quarter, the transaction with Ma'aden, and the company's commitment to unlocking shareholder value.

In this paragraph, the speaker discusses three main points: exchanging a stake in a joint venture for a position in Ma'aden, progress on low-capital initiatives, and positive fertilizer market fundamentals. They then provide a summary of Mosaic's first quarter results, including strong demand and prices for phosphates, stable global prices for potash, and successful risk management decisions in the Brazil ag industry.

The company is successfully navigating through challenging credit and liquidity environments by prioritizing sales to lower risk customers and demanding prepayments. They have seen improvements in their distribution margin and co-product volume and margin performance. The company is also focused on creating shareholder value through a transaction with Ma'aden that will provide increased investment transparency and flexibility for capital redeployment. They have a $150 million cost reduction plan in place and have identified opportunities to reduce costs through workforce rightsizing and SG&A expense management. Overall, the company is focused on improving and optimizing their operations to drive improved returns.

The company is making progress in improving volume in their phosphate and potash plants through maintenance turnarounds and expansion projects. They are also converting to higher-margin value-added products and reducing capital expenditures. Despite recent softening in corn and soybean prices, farmers remain profitable and other ag commodity prices are attractive. The shift in weather from El Niño to La Niña is expected to have a positive impact on Southeast Asia, India, and Brazil, which will contribute to global potash shipment growth.

The potash and phosphate markets are experiencing strong demand and limited supply, leading to price increases. Potash imports to Malaysia and Indonesia have increased by 35% due to depleted inventories and a favorable price ratio. Phosphate markets are tight, with Brazil showing strong demand and limited supply pushing prices up by $30 per tonne. Chinese phosphate exports have put downward pressure on prices in India, but demand is expected to remain solid due to a strong monsoon season. The long-term outlook for phosphate is positive, with growing demand and limited new supply. The global potash market is balanced, with North America slowing down but Brazil picking up, resulting in a $30 increase in prices. Southeast Asia demand is returning, and record global potash shipments are expected this year. For phosphate, second quarter sales volumes are expected to be 1.6-1.8 million tonnes with an average price of $530-$580 per tonne.

The fire at the Riverview facility caused damage, but a temporary solution was engineered to restore phosphoric acid production within two weeks. There may be a reduction in sales volumes in the second and third quarter, but overall, the impact was minimized. Second quarter guidance reflects the impacts of the fire, turnaround activities, and seasonal softening in the U.S. However, improvements in Brazil are expected. For potash, sales volumes and average FOB price are expected to be 2.2-2.4 million tonnes and $210-$250 per tonne, respectively. For Mosaic Fertilizantes, sales volumes and profitability are expected to improve in the second quarter due to seasonality and a differentiated approach in Brazil. Planned turnaround activities may impact production margins. Going forward, distribution margin is expected to be at a normal level of $30-$40 per tonne. Despite the seasonal reset of the market, the outlook for the year is positive. The Ma'aden transaction is part of Mosaic's broader portfolio strategy to strengthen the business and maximize shareholder value.

The speaker, Bruce Bodine, discusses the partnership between Mosaic and Ma'aden and how it has evolved. He mentions the benefits of the recent transaction for Mosaic shareholders and their focus on investing in their best-performing assets. Bodine also mentions the potential for divestitures or partnerships in the future. In regards to the potash and phosphate markets, he states that they are following expected trends and that China's demand for agricultural imports remains strong.

The paragraph discusses the current state of the fertilizer market, highlighting strong demand in North America and Brazil due to the spring planting season and upcoming soybean growing season. India is also expected to have strong demand due to low inventories and a good monsoon. Chinese phosphate exports are expected to be flat, supporting tight supply and high margins. The potash market is balanced, with Southeast Asia standing out as a strong market due to depleted inventories and favorable weather conditions. Mosaic is well-positioned in Brazil due to its extensive distribution network. Overall, the market is expected to remain strong throughout the year.

The company's unique positioning in the market has allowed them to proactively manage their inventories and make informed business decisions. They have been able to avoid significant impacts from credit and liquidity issues in Brazil by taking decisive actions and diversifying their risks. This has led to successful navigation of the current environment, and the company believes they have a structural advantage in the country. During the open question-and-answer session, an analyst asked about the potential EBITDA for the Fertilizantes business in the coming years, considering the new asset being built, productivity initiatives, and government plans to expand cultivated land in the Cerrado region. The speaker answered by saying that they couldn't give a specific number, but they are confident in the potential for growth due to their unique positioning and proactive risk management.

The speaker discusses the possibility of hedging the value of their Ma'aden position, which is a publicly traded equity. They note that Ma'aden's share price is at a record level, while their own is not.

The speaker responds to a question about how they plan to utilize their equity ahead of the lockup period on shares. They mention considering various options and managing their position, but are not ready to provide further details. In a separate question, they discuss the supply and demand balance for phosphate and potash, stating that phosphate looks particularly compelling due to a decrease in exports from China.

Demand for phosphate has recovered to pre-war levels and is expected to continue growing due to the appreciation in the market. There is currently no significant new supply, and China's focus on shifting phosphate for industrial use is causing supply tightening. China's production capability has also decreased in the past decade, contributing to the tightness in the phosphate market. On the other hand, the potash market is more balanced, with demand returning to pre-war levels and expected to continue growing. The supply side has also stabilized, with Russia and Belarus increasing production and Laos expected to contribute additional supply.

The speaker is asking about the recent Ma'aden transaction and whether there are any other potential deals in the works. They also mention the original rationale behind the partnership and whether it has helped with phosphate consolidation.

The speaker, Bruce Bodine, is discussing the recent deal between his company and Ma'aden. He explains that the deal was made to bring more transparency to the value of their investment in the Kingdom and to give them more flexibility for future capital allocation. He also mentions that the original reason for entering into a joint venture with Ma'aden was to hedge against risks in North America and to take advantage of Ma'aden's cost structures. The speaker does not view this deal as anti-consolidation and sees it as a way to strengthen their partnership with Ma'aden.

Clint Freeland, a representative from a company involved in a recent transaction, adds that the partnership between the two parties is important, but each had their own objectives in mind. The next question from Chris Parkinson addresses the company's forward-looking strip margins and how they should benefit from recent changes in ammonia procurement, natural gas prices, sulfur prices, and P rock costs. The company agrees that these changes should lead to improved profitability in the future, but notes that it will take some time to see the effects on inventory.

The company is optimistic about the raw material flow-throughs in the first and second quarter, which will offset seasonal price pressure. Stripping margins are expected to remain strong throughout the year. There was a turnaround on one of the draglines in the first quarter, but rock costs will improve in the second half of the year. The company expects to sell 2.2-2.4 million tonnes of potash in the second quarter, with a price range of $210-$250. It is unclear how much of this will be domestic sales versus offshore tonnes. The company has thoughts on potential contracts with India and China for the rest of the year.

Jenny is discussing the sales breakdown between domestic and international markets, stating that the full year percentage is around 45% for domestic and 65% for international. She also mentions that there have been reports of ongoing contract negotiations in India, which are expected to be settled soon. She believes that India will see strong demand in the first quarter due to low potash input and expects the contract to be settled soon. She also mentions that the China contract is expected to be settled in the next month or two.

The inventory situation at Chinese ports has improved in recent weeks, but there are still some missing parts. The port inventory level in China has stayed above 3 million tonnes, but it has come down due to low rail input and the end of the 2023 contract execution. Domestic production and ending inventory were also down last year. Potash consumption in China increased by over 20% due to its lower price compared to phosphate and urea. The company believes that China will come back to the table for new contracts, but they cannot predict when. The expected price level for the new contracts is reflected in their forecast.

The company is working towards increasing production to 2 million tonnes by the end of the year, which will result in a $20-$30 per tonne improvement in conversion costs. This will also lead to other benefits such as cheaper ammonia production and improved rock costs. However, the company still has a lot of maintenance work to catch up on due to previous challenges. Overall, Mosaic's Florida phosphate position is expected to improve on the global cost curve.

The speaker discusses the impact of global dynamics on the company, including changes in tariffs and duties in the U.S., Russia, and Morocco. They also mention their reserve base and plans for a new greenfield beneficiation plant in the future. They believe that running at higher volumes will lead to cost savings and benefits in power generation and water treatment.

The Department of Commerce recently changed their interpretation of subsidies for imports from Morocco and PhosAgro in Russia, causing uncertainty and volatility in the industry. Mosaic's focus is on supplying the North American market and they are open to importing from other sources, which they believe will create a healthier industry and competition for US farmers. They support the duties as they level the playing field and eliminate unfair subsidies that have caused injury to the industry. However, there is still uncertainty surrounding the process and the final duties will not be determined until November.

The speaker is asked about the valuation of the Ma'aden deal and how they view the $1.5 billion valuation. The speaker believes that the valuation is fair and attractive based on traditional valuation methods. They also mention that the transaction is expected to close by the end of 2024 and the consensus estimates for 2025 and '26 will determine the multiple for the deal.

The implied multiple for the joint venture is consistent with historical trading and is not elevated compared to peers. The valuation for the joint venture and Ma'aden is fair and in line with past performance. As an equity holder, there may be changes in free cash flow and EBITDA, and there is an option to review the supply agreement for key markets.

Charles Neivert asks three questions during the earnings call for Mosaic. First, he asks if the upcoming turnaround will result in an increase in supply. Second, he asks if the previous outages had any impact on price increases. Lastly, he asks if the shareholding in the Ma'aden joint venture will affect Mosaic's influence on the company and if there are any plans for future expansion.

Bruce Bodine discusses the deal structure changes and Mosaic's role as a technical advisor and minority partner. He also mentions the company's future plans for expansion and the importance of turnarounds, particularly in their sulfuric acid plants. He explains that the drop in production has not had a significant impact on pricing.

In the paragraph, the speaker addresses the potential impact of their historical run rate on the market, stating that it is not enough to significantly influence the tight market due to high demand and limited supply. They also mention their expectation for higher prices in the second half and express surprise if potash contracts do not reflect this view. The speaker also mentions that their price forecast already takes into account the current negotiations in India. The call is then concluded with a summary of key points.

Mosaic's transaction with Ma'aden will benefit shareholders by providing transparency and capital flexibility. The company is also making progress on strategic initiatives and expects strong demand in the fertilizer market. Overall, Mosaic is generating solid results and working to deliver strong shareholder value. The conference call has now ended.

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