Mosaic Company Endures Dry Market Conditions in Third-Quarter 2013, Sees Strength in Expansions

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading miner and fertilizer producer The Mosaic Company (NYSE:MOS) (Plymouth, Minnesota) reported sharp declines in profits and revenues for the third quarter of 2013, as prices and North American sales volumes weakened and dealers dealt cautiously. Net earnings were reported to be $124.4 million, compared with $417.4 million in third-quarter 2012.

Net sales stood at $1.91 billion, a 27.86% decrease from the same period last year. Weaker domestic sales volumes and realized prices diminished results in the Potash segment, along with higher depreciation expenses as expansion projects started up. However, an ongoing proving run at the Esterhazy mine boosted potash operational production capacity. The Phosphate segment also reported weaker sales volumes, with operational production capacity virtually unchanged from last year.

The production of Mosaic's MicroEssentials brand exceeded 500,000 tonnes, a quarterly record. Company executives decided to sell off Mosaic's salt operations and close a potash mine in Hersey, Michigan, as well as exit the underperforming Argentine and Chilean distribution businesses.

Capital expenditures during the quarter were reported to be $332.5 million, compared with $384.6 million in the same period last year.

Industrial Info is tracking more than $4 billion in active projects involving Mosaic, including $500 million in additions at an underground potash mine and mill in Colonsay, Saskatchewan. The project, which is part of a larger, $1 billion expansion, involves constructing an additional mill, debottlenecking existing equipment, and adding new process equipment to increase overall capacity by 500,000 to 800,000 tons per year, for a total of between 2.1 million and 2.45 million tons per year.

"Prices for both potash and phosphates slipped lower, driven by a number of factors including, to name a few, the weak shipments into India and China, and the late harvest in North America," said Jim Prokopanko, the chairman and chief executive officer of Mosaic, in a conference call. "All these factors are leading to very cautious, hand-to-mouth customer buying decisions."

Mosaic executives expect stronger overall demand in North America for the fourth quarter, although international demand is uncertain and pricing is likely to remain challenging. Total sales volumes for the Potash segment are expected to be between 1.5 million and 1.9 million tonnes in the fourth quarter, compared with 1.4 million in the same period last year; Prokopanko noted that potash buyers continue to be cautious, but that strong farm economics, including a solid crop outlook, are good indicators of rising demand.

Phosphate segment sales are expected to be between 2.5 million and 2.9 million tonnes in the fourth quarter, compared with 2.3 million in fourth-quarter 2012. Prokopanko said that the market will remain soft in the near term, but strong demand eventually will balance it out.

Following the end of the third quarter, Mosaic agreed to purchase $1.2 billion in phosphate assets from CF Industries Incorporated (NYSE:CF) (Deerfield, Illinois). Mosaic also signed a long-term, natural gas-based ammonia contract with the company.

"In Phosphate [segment], our Saudi joint venture is progressing well, and we're reinforcing our advantaged cost position," Prokopanko said in the conference call. "In Potash [segment], our expansions remain on budget and on schedule, and we're in the process of demonstrating the capacity of Esterhazy K2 [mine]. Out innovation lead continues to grow, with the launch early next year of our Potash Premium product, joining the strong performance of our MicroEssentials product.

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