Mosaic Battles Tumbling Phosphate, Potash Prices in 2013, Expects Up to $1.3 Billion in Capex in 2014

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading miner and fertilizer producer The Mosaic Company (NYSE:MOS) (Plymouth, Minnesota) suffered from steep declines in prices for phosphates and potash in fourth-quarter and full-year 2013. The drop in finished product prices more than offset strong sales volumes, including record sales in the Phosphate segment. Net income was reported to be $128.9 million for fourth-quarter 2013, compared with $615.7 million in fourth-quarter 2012, and $1.06 billion for full-year 2013, a 42.61% decrease from 2012.

Total sales stood at $2.18 billion for fourth-quarter 2013, a 7.87% decrease from the same period in 2012, and $9.03 billion for full-year 2013, a 10.12% decrease from 2012. Raw material costs for phosphates declined during the quarter, while total sales volumes increased 21% to 3.4 million tonnes; however, the average diammonium phosphate (DAP) selling price fell from $532 per tonne in fourth-quarter 2012 to $381 per tonne. Sales volumes in the Potash segment increased 37.1% to 1.9 million tonnes during the quarter, while muriate of potash (MOP) prices fell from $435 per tonne in fourth-quarter 2012 to $303 per tonne.

Capital expenditures were reported to be $352.6 million for the quarter, compared with $432.5 million in fourth-quarter 2012, and $1.43 billion for the year, compared with $1.67 billion in 2012.

Industrial Info is tracking $3.81 billion in active projects involving Mosaic, including the $1.5 billion, Stage II expansion of the Esterhazy K-3 Underground Potash Mine in Esterhazy, Saskatchewan. The project involves the construction of a satellite, 3 million-ton-per-year underground mining operation, as well as a 4.5-mile haul road to truck ores to the K-2 processing plant. The plant will produce 900,000 tons per year of potash, increasing the Esterhazy operation's total capacity to 7 million tons per year.

"We believe the business cycle is beginning to turn in our favor," said Jim Prokopanko, the president and chief executive officer of Mosaic, in a conference call. "We've said this many times over the past year, and it is coming true: Volume comes before price. That is to say, we expect to see shipping volume increase before prices turn upward. That exact scenario happened in Phosphates [segment]: Prices hit bottom during the fourth quarter, and volumes accelerated to record levels, which in turn moved DAP prices upward. Coupled with lower year-over-year raw material costs, this all bodes well for margin improvement in Phosphates in the coming quarters."

Capital expenditures for full-year 2014 are expected to total between $1 billion and $1.3 billion. Mosaic executives noted that phosphate prices began to improve in December, and they believe prices will continue to improve through the North American spring season. Raw material costs for phosphate are expected to remain low. Executives also believe potash prices will improve, noting that customers have indicated that a bottom has been reached, and expect record global shipments and stronger operating rates from producers as the year progresses.

"We are making good progress toward exiting our distribution business in Argentina and Chile, and decommissioning our small potash mine in Hershey, Michigan," Prokopanko said in the conference call. "Those elements of our business simply were not generating appropriate returns for our shareholders. We've also taken steps to ensure Mosaic will remain a low-cost operator. We are working to reduce costs across the company, in both our business units and in our support functions."

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