Mosaic Company (The)

and only mode. After the company completes their prepared remarks, the lines will be open to take your questions. At this time, I'll turn the floor over to your host for today's call, Jason Tremblay. Jason, you may begin.

Thank you, and welcome to our first quarter 2024 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer, followed by a fireside chat, then open Q&A. Clint Freeland, Executive Vice President and Chief Financial Officer, and Jenny Wong, Executive Vice President, Commercial, will also be available to answer your questions. We will be making forward-looking statements during this conference call. The statements include but are not limited to statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainty. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures. Now I'd like to turn the call over to Bruce.

Good morning. Thank you for joining our call. In addition to reviewing Mosaic's performance for the quarter, there are three key topics we'll discuss today. First, the transaction we announced with Modin highlights our commitment to unlocking shareholder value. Exchanging our 25% stake in the MWSPC joint venture for an approximately $1.5 billion position in Modin provides a clear indication of value and greater capital flexibility in the future. We are making good progress on several high return, low capital intensity initiatives that will improve results across the commodity cycle. And third, fertilizer market fundamentals remain constructive, and the phosphate supply and demand picture is particularly compelling. As the North America spring planting season winds down and fertilizer prices have moderated, fertilizer demand strength is now emerging in other key agricultural geographies. which will bode well for pricing in the second half of the year. Before I dive deeper into these areas, let me summarize our first quarter results. Mosaic generated adjusted EBITDA of $576 million on revenues of $2.7 billion. The phosphate segment generated adjusted EBITDA of $277 million on sales volumes of 1.6 million tons. Solid North American demand and limited supply pushed phosphate prices higher in the first quarter, and our realized stripping margins remained substantially above historical levels. Our results in the segment included a higher mix of sales sourced from third parties to mitigate the impact of the heavy turnaround schedule we discussed last quarter. The potash segment generated adjusted EBITDA of $281 million on sales of 2.2 million tons. reflecting the benefits of strong spring seasonal demand in North America. Global prices have stabilized, including in Brazil, where we're seeing prices move higher as we head toward the safra season. For the first quarter, Mosaic for Lizanches generated adjusted EBITDA of $83 million from sales of 1.7 million tons. The continued divergence of our performance from many others in the Brazil ag industry is resulting from the decisions we've made to prioritize risk management and margin over volume. Last year, we quickly worked through high-cost inventory, and this year we are navigating the challenging credit and liquidity environment by prioritizing sales to lower credit risk customers, demanding prepayments, and insisting on contract performance. Our distribution margin improved in the second half of last year, and first quarter results were significantly better than expected. We also had very strong co-product volume and margin performance during the quarter. Our results this quarter show that we're successfully working through challenging environments to drive strong results. At the same time, we're focused on creating shareholder value in additional ways. A great example of this is our transaction with Modern, which will exchange our 25% position in the MWSPC joint venture for an approximately $1.5 billion position in Modern shares. This new structure allows our successful long-term partnership with Modern to continue, while also providing increased investment transparency and flexibility for capital redeployment over time. I should note, that we believe that neither this transaction nor any potential future transactions involving the modern shares will result in any material tax friction. We have several other ongoing initiatives to drive improved returns. Our $150 million cost reduction plan is on track in delivering early results. Hot ash production cash cost per ton declined about $10 in the first quarter compared with the same period in the prior year. We are right-sizing our workforce and have identified opportunities to reduce our third-party contractors over the next 18 months, which will result in $20 to $30 million in annual cost savings when complete. We are making progress on our SG&A expense management, with our first quarter SG&A expenses down by $21 million, or 16% compared with a year ago. We are also focused on improving and optimizing our operations. In phosphate, we're making good progress on our volume improvement plans through the execution of extensive maintenance turnarounds, including activities at the Riverview and New Wales plants in the first and second quarters, and a turnaround at the Louisiana plant in the second quarter. In potash, our Esterhazy hydroflow project, which will give us an additional 400,000 tons of capacity, will be in service by mid-next year. We are expanding our market access with the construction of a 1 million ton blending plant at Pomerantse in the fast growing northern agricultural region of Brazil. The project is well underway. We are currently building the warehouse structure, support buildings and electrical infrastructure, and expect to complete the project early next year. We have recently completed the micro essentials conversion at our Riverview facility. Once it is fully ramped up, over half of our US phosphate production will be higher margin value-added products. We are also on track to reduce our capital expenditures by $200 million in this year versus last year. These initiatives all have one thing in common. They improve returns across the cycle. With that, let's take a closer look at agriculture and fertilizer markets. While corn and soybean prices have softened recently, Farmers remain profitable. Even a small lift in these commodity prices would return farm profitability to quite healthy levels. Moreover, the prices for many other ag commodities, such as palm oil and rice, remain at very attractive levels. In addition, weather is shifting rapidly from a strong El Nino to La Nina, which should prove positive for Southeast Asia, India, and Brazil. Favorable conditions in Southeast Asia are particularly important as we expect the region will be responsible for about two-thirds of global potash shipment growth this year. In fact, in January and February, potash imports to Malaysia and Indonesia were up about 35% versus a year ago due to depleted channel inventories and a very constructive potash to palm oil price ratio. Phosphate markets remain tight. We are seeing the expected post-spring seasonal slowdown in North America, but Brazilian demand for the Saffra season is emerging. Strong demand and limited supply pushed SSP prices in Brazil up by $30 per ton in April. The recent seasonal uptick in Chinese phosphate export availability has exerted downward pressure on prices in India. but India demand for phosphate this year is expected to be solid on the back of an above average monsoon season. India's demand will surely exceed China's ability to supply the nation. We expect the Indian government to increase the maximum retail price to allow importer economics to work in the current global pricing environment and thus incentivize producers to send tons there. Longer term, the outlook for phosphate continues to be very positive. Demand is growing to produce more grains and oilseeds for food and biofuels and for increasing industrial uses, including battery production. At the same time, limited new supply is coming to market and Chinese exports are down about 25% from historical norms. The structural changes in phosphate supply and demand point to strong fundamentals in the years ahead. The global potash supply and demand picture is balanced. The same seasonal dynamic is occurring in potash. North America is slowing, but Brazil is picking up, resulting in a $30 increase in MOP prices in Brazil in recent weeks, an indication of positive market sentiment and constructive supply and demand dynamics. With Southeast Asia demand returning, we continue to expect near-record global potash shipments this year. Now moving on to our outlook. For phosphate, we expect second quarter sales volumes of 1.6 to 1.8 million tons, and average FOB prices at the plant of $530 to $580 per ton. The fire at our Riverview facility caused damage to pipes, pumps, and a phosphogypsum transfer station. Our team engineered a temporary solution that enabled us to restore some phosphoric acid production in just two weeks, and we are now back at full capacity. We expect some reduction in the second and third quarter sales volumes, but overall the impact was minimized. Our second quarter guidance reflects the impacts of the fire, the ongoing turnaround activity, and the seasonal softening in the U.S., partially offset by improvements in Brazil. For potash, we expect second quarter sales volumes of 2.2 to 2.4 million tons and average FOB price at the mine of $210 to $250 per ton. For Mosaic for Lazanches, we expect second quarter sales volumes and profitability to improve from the first quarter, reflecting seasonality and our differentiated approach to tackling Brazil's operating environment. We expect planned turnaround activities to weigh on production margins in the second quarter. As you recall, we completed the high-priced inventory destocking in the first half of last year. We expect distribution margin to be at the normal annualized level of $30 to $40 per ton, but it may vary from quarter to quarter. To conclude, despite the seasonal reset of the market as we transition out of North America planting season, our outlook for the year is positive. We are taking near-term actions and executing long-term initiatives, as our agreement with Modern demonstrates. to continue to strengthen our business and maximize shareholder value. Now, we'll move on to Q&A.

Thanks, Bruce. Before we move on to the live Q&A, as we have done in past quarters, we would like to address some of the most common questions we received after publishing our earnings last night. Our first question relates to the modern transaction. What does the deal mean for Mosaic and how does it fit with your broader portfolio strategy?

First, I want to mention that our partnership with modern has been a great one. We brought deep technical expertise to the joint venture, and we benefited from secure phosphate supply for our customers in key markets. Now, as modern shareholders, our relationship has evolved, but our partnership continues. We're committed to working together on opportunities that create mutual benefits. When I think about the transaction, I believe Mosaic shareholders will benefit in multiple ways. The deal provides a fair value for our investment in the kingdom, gives investors transparency on that value, and greatly improves our capital flexibility over time. In terms of our vision for the broader portfolio, we're continuing to invest in our competitively advantaged and best performing assets. This is why we're expanding our micro essentials production, growing our distribution business in Brazil, and further optimizing our Esterhazy operation. We're also focused on demonstrating value and creating still greater capital flexibility over time. You saw an example of this last year when we divested Streamsong Resort for $160 million, and the modern transaction is just the latest iteration. Our continuing review of assets could result in a number of additional outcomes, including divestitures, finding partners for certain parts of our business, or idling underperforming assets. These actions, together with our cost initiatives and CapEx reduction, are all in service of driving returns for shareholders.

Our next question relates to the markets. What is your view on how the potash and phosphate markets will evolve for the remainder of the year?

Potash and phosphate markets are playing out much as we expected. Ag fundamentals remain constructive in most parts of the world. China's long-term appetite for ag commodity imports remains strong and is particularly robust for corn and beef. This means farmers have incentive to continue to maximize crop production. We saw that play out in the spring planting season in North America, which brought very strong fertilizer demand. The current market reflects seasonality that one would expect. After a strong spring, price resets are typical ahead of North American summer fill demand, which we expect to be normal. In Brazil, farmers are preparing for their main soybean growing season. After a delayed start to fertilizer buying, demand has emerged over the last several weeks, which we're seeing in potash and phosphate prices. Both are up roughly $30 per ton from the lows, and demand is expected to intensify as we head towards the safra season. In India, low fertilizer inventories and expectations for a good monsoon this year should drive strong demand. In phosphates, we still expect total Chinese exports to be flat to slightly down from 2023, which is well below historical norms. Tight supply should support above normal stripping margins through the year. We believe the potash market is balanced. Russian and Belarusian producers are getting back to pre-war and pre-sanctioned export levels, but the demand is there to absorb it and we continue to expect near record shipments this year. Southeast Asian demand in particular stands out because of their depleted channel inventories and constructive palm oil fundamentals. Additionally, the La Nina weather pattern should provide more rainfall to support the increased demand. In summary, We're seeing normal seasonality, and we expect constructive market conditions throughout the year.

As a follower from Brazil, are you seeing the same stress and challenges in that market which others are experiencing?

We believe Mosaic has a competitive advantage in Brazil. We have a large and geographically diverse distribution network across the country. This not only minimizes our risk exposure to disruptions in any one specific region, but also equips us with the best market intelligence to inform our business decisions. Our unique positioning in the market is what led us to proactively manage our inventories last year and set us up for a much more constructive first quarter in 2024. Now, we're certainly seeing the same credit and liquidity issues in Brazil that many others are, but our view into the market has allowed us to avoid any significant impact to our business to date by identifying customer issues early and taking decisive action, knowing that our decisions might have short-term impacts to market share and sales volumes. Some of those actions include securing a higher percentage of our sales to lower credit risk dealers, seeking prepayments from customers when possible, and ensuring sales contract integrity. As a result, Our collections as a percentage of sales are well ahead of the same time last year, and our distribution margin per ton exceeded our internal expectations for the quarter. We believe we have an enormous structural advantage in the country, and the combination of risk diversification and proactive risk management are allowing us to successfully navigate the current environment.

Thanks, Bruce. With that, we'll now move on to the open question and answer session. Operator, please open the line for follow-up questions.

Ladies and gentlemen, we'll now begin that question and answer session. To ask a question, you may press star and 1 on your touch-tone phones. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and 2. Please note that we will limit each questionnaire to a single question. At this time, we'll pause momentarily to assemble the roster. Our first question today comes from Steve Byrne from Bank of America. Please go ahead with your question.

Yes, thank you. I'm curious where you think you could get the fertilizantes business in terms of EBITDA over the next coming years. You've got this Hummer on GES that you're building. You've got productivity initiatives. You've got the government trying to expand cultivated land in the Cerrado region. Where do you think that business can get to?

Hey, Steve. Good morning. Thanks. Let me answer it this way, and I think we've been consistent about this in the past. But, you know, the way I look at EBITDA generation and that business is we've got 9 million tons of kind of distribution capability today. at $30 to $40 distribution margins. On top of that, we've talked about before, we've got co-products and other product sales of probably around another $100 million. And we've announced the Pomeranchi project. And going into 2025, when that's complete, we'll add another million tons of distribution capability. at that $30 to $40 margin, and you kind of add all those up, and that's kind of the baseline. You know, the other things that we are looking at is our cost reduction initiatives, and, you know, those are going to play out in a couple different ways that would affect probably the ultimate P&Ls there. You know, some of what we announced in the prerecorded calls have some of the third-party contractor costs of, you know, $20 to $30 million. A good chunk of that is in Brazil. And then some of our GDA savings will flow through to that as well. So we should see something there on top of that. But outside of those type of things, I think that's a good way to look at kind of the base. We also believe that our distribution businesses, particularly in Brazil, could be the platform to launch our biosciences portfolio with the reach and access that we have in Brazil. And we have kind of launched that earlier this year, and we'll kick that off and probably start to see, you know, gradual growth starting in 2025 of EBITDA contribution there as well. So, you know, depending on, you know, where that goes ultimately, you can start to put those pieces together and see, you know, appreciable improvement in EBITDA from what we're at right now.

Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead with your question.

Thank you. Bruce, is there a way to hedge in the value of the modern position since it's publicly traded equity? I'm just looking at their share price being at record level and yours not. So I'm just wondering if there's a way you could maybe crystallize or lock in that value now and maybe put it to work somehow in your own equity, you know, ahead of the lockup period on the shares.

Yeah. Um, thanks for the question, Richard, but, um, let me turn it over to Clint and, uh, as he's been involved in a lot of the deal making on this.

Yeah. Good morning, Vincent. Um, I would say, look, protecting our investment, I think, could be important. And certainly, we'll look at the different options that are available to us. I think we'd have to consider the liquidity of the market that it's traded on and other factors like that. So I would say more to come on that. We'll need to continue thinking through exactly the best way to manage that position. But I would say right now, we're not ready to speak with any clarity on that topic any further.

I apologize. I was looking at the wrong name on the screen. Sorry.

Our next question comes from Ben Isaacson from Scotiabank. Please go ahead with your question.

Thank you. This is Victor stepping in for Ben. On your Q1 slide deck under performance highlights, you referenced that phosphate supply and demand looks particularly compelling. Two questions. First, can you provide some color on that statement? How do you see the supply and demand balance evolving that makes it particularly compelling? And then by extension, why is the output for potash not particularly compelling?

Thanks, Victor. So I'll start with phosphate. We definitely view that the S&D and the overall market is tight on the phosphate side. A lot of that is due to really China backing off on their historical exports. And, you know, exports from a few years ago are down 25% from some of the high water marks on that side, which is a significant reduction, about 4 million or so tons out of the supply side. Demand has recovered back to kind of pre-war levels overall and pretty close to that with the appreciation that we have in the market baked in this year. And there really is no new significant supply. You know, OCP has had a little bit of supply come on, but most of that is in the market now, maybe a small amount remaining. And then the other factor is, you know, China is really focusing on shifting some of their agricultural P205 into industrial to support their lithium iron phosphate battery production. So that competition for that phosphate molecule, particularly in China, is causing supply tightening even further on the agricultural phosphate supply. So those combinations really are the structural changes that have been significant recently But even if you go back in time and you look at China's production capability, and it underpins why their exports are down, really there's been a structural change in their output of significance, 25%, 34% over the last, say, decade. And couple that with some of the policy changes, their domestic food security focus, the LFP batteries, as we talked about, It really is a structural change there that has made the phosphate market particularly tight. On potash, it's definitely not the tightness that we feel on phosphate, but we would say that it's pretty balanced. Just a couple years ago, we were wondering if potash demand would ever return to that kind of 70 million ton market, and sure enough, it has. We believe that it's going to stay that way this year, if not a little bit higher, and then continue to appreciate that 1% to 2% compound annual growth rate. The Russians on the supply side and the Belarusians have been very effective at getting back to their pre-war, pre-sanctioned levels, which has allowed a more balanced supply. We also see some additional supply coming out of Laos, but with kind of our estimate of last year to this year, about just under 3 million ton growth in the market, a lot of that's being absorbed by China, or I'm sorry, by Russia and Belarusia, and then a little bit by Laos, but the rest would be absorbed with any excess capacity in Canada. So, you know, pretty balanced, constructive, And again, everything underpinned by population growth, good ag fundamentals driving that demand at that kind of good growth rate over the foreseeable future. Jenny, anything that maybe we should add?

Thanks, Bruce. I think you got that covered. Probably just some data point on phosphate. In Q1, Chinese export actually were reduced 70%, 7-0%, which was 1 million tons reduction. What does it mean to the market? At end of the spring season in northern hemisphere market, the major market ended the season with a very low inventory. For India, the inventory at end of March was down by 28%. year over year, which is 800,000 tons lower than the last year, which was already low. In Brazil, the inventory level was down by 30%, which is 700,000 tons year over year. So all this very low inventory in a major market are pretending a very strong pent-up demand for the rest of the year. So just want to add that data point on the phosphate market.

Our next question comes from George Jackson from BMO. Please go ahead with your question.

Hi. I want to follow up on the modern transaction. Talk about what other maybe deals could be on the table when you're looking at shopping the operational stake in the JV to other producers to be able to cash out maybe sooner by a smaller valuation. Were there other deals on the table? Why was this the best deal on the table? You did talk about the rationale, but just that. And also, I think there was a view when you got involved with this maybe a decade ago that this was going to help add a bit of consolidation phosphate, right? Potash Corp back then and OCP was starting to work together. This is going to be you and Modin working together a bit. You're going to help Modin ramp up their operation, give them expertise, and maybe work together a bit more. Is this maybe a bit of a deconsolidation in the space or not really? Thanks.

Yeah, Joel, thanks. As far as other deal structures, you know, we've been contemplating how best to, you know, one of our challenges is getting for our own shareholders and investors, you know, what is the real value of this investment and making it more transparent. And then obviously got to work with the shareholder partners on what deal constructs, you know, they'd be willing to do as well. So ultimately, This was the best one to bring that transparency of value and give us that capital flexibility that we wanted into the future. It kind of is what it is from that perspective. Going back to 13 years ago when we first got into this, I can't say that I remember all that was said for sure, but From our perspective, one of the big reasons to get into that joint venture was a hedge on risk of some of our permitting issues around our South Fork Mead mine at the time and some of the challenges that we were suffering with that here in North America. And that would allow us kind of a hedge for longer term idling of that facility due to lack of permits. also thought that you know modern at the time would always have some advantage cost structures with raw materials and you know co-participating in that probably wasn't a bad idea at the time so as far as consolidation I don't think that was our primary objective getting into it and we really don't think about the this deal as being anti to consolidation is that either, as we sit here and think about it today, it really is trying to bring more clarity on the value of our investment in the kingdom and then allowing us more flexibility in the future for capital redeployment or capital allocation, how we so choose in the future. Clint, I don't know if there's anything to add.

The only thing that I would add is that obviously we've laid out Some of the things that were on our mind as we thought about this transaction, I think at the same time our partner was looking to consolidate ownership of the JV for their own purposes. And so I think as we looked at the structure, I think the relationship is important. I think the partnership is important. I think we both agree to that. But there were some objectives that each of the parties really had in mind, and I think this deal structure achieves that.

Our next question comes from Chris Harkinson from Wolf Research. Please go ahead with your question.

Good morning. A few parts to this, but just when we're taking a step back and looking at forward-looking strip margins, and I understand that a lot's been going on, and there's been volatility, and you have to kind of roll through, you know, various items through your inventory. But when I look at your ammonia procurement, you should be getting benefits, you know, from Faustina, Tampa, you know, over the last month on month, quarter on quarter. Obviously, just natural gas. When I look at sulfur, obviously, you should be trending downwards. And then P rock costs, especially in Florida, seem like they're a little stubborn. But as we progress through the balance of 2024, obviously, some of us should probably subdue our optimism, but it seems like we're very much moving in the right direction. And if top line prices hold essentially where they are or even a bit lower, your profitability should be in a very good position as we progress on a quarterly basis. Could you tell me what I'm missing?

Chris, thanks for the question. I think you see it very similarly as we do. The one thing is it does take some time to recognize that flow through inventory on raw materials. And given the heavy turnaround schedule that we have in the first quarter and in the second quarter as well, That's probably a little more delayed than maybe traditionally you may see flow through there, but definitely feeling optimistic on when those raw material flow throughs do help on stripping margin and will somewhat offset some of the seasonal price pressure, to your point, that we typically see in quarter two But we do see stripping margins throughout the remainder of the year staying very constructive and strong at kind of decade-high numbers. So I don't think you're missing anything. On the rock side, a little higher in quarter one, we had a turnaround on one of our large drag lines that impacted production on the rock side. But that's transitory in the back half of the year and particularly in the second half of the year. rock costs get significantly improved from where they've been over the last two quarters.

Our next question comes from Richard from Wells Fargo. Please go ahead with your question. Great, thanks. Hello, everybody. So I was just wondering if you could talk on the potash market on the 2.2 to 2.4 million tons expected for the second quarter. Is there any way you can break down how much of that's going to be domestic sales versus offshore tons? And related to that, on the price guidance, 210 to 250, obviously that's largely driven by that. What are your assumptions in terms of potential contracts, whether it's India first, China for this year, in terms of how you think about that for the rest of the year?

Yeah, thanks, Richard. For sure, we've got thoughts on that, and it will be in quarter two. I'm going to turn it over to Jenny to get into the details, but a little more of the international export pricing in the mix, and then she can talk a little bit about the contract stuff as she and her team are closely watching that and have good thoughts around it. Jenny?

Sure. Thanks, Bruce. Richard, to your question on the sales breakdown between domestic market and offshore shipment, our full year percentage is around 45 for domestic market and 55 for offshore. Of course, that changes quarter over quarter depending on seasonalities. And also, as you can imagine, it depends on the contract settlement for the major markets like in China and India. Back to your questions on the contract settlement, there have been a lot of reports by publications like CRU August talking about the ongoing negotiation in India and feel like the contract will be settled very soon. And from the report that we learned that the situation in India is really they're going through some kind of administrative approval process. among themselves. So we should expect the contract to be settled very soon for India. To the market itself, India has seen very strong demand increases in the first quarter supported by very good affordability of potash in the market. With a very low input of potash in Q1, India as a country, they will have to double the input right now in order to meet their major season, the summer season, Karif season, for both direct application and also for NPK production. With that reason, we believe the contract is going to be settled very soon. I'm not going to speculate the numbers. You might have seen a lot of numbers. reported by the publication, we believe that is likely going to be the level, and that's how we modeled our Q2 price forecast as well. In terms of the China contract, we believe the contract will be settled in the next month or two as well. If you watch the inventory situation at port level, there are some higher number reported, but some of the missing parts that I like to call out on the port inventory in China. The port inventory level in China has stayed above 3 million tons. That has come down over the last few weeks with a very low input by rail in the northern part of the country because of lacking of monthly price settlement with the Russians. which is a signal of the price close to the bottom. The April seaborne input also started to get into the bonded warehouse, which basically meaning that's the end of the 2023 contract execution. Lastly, I wanted to remind you also look into domestic production. The production last year was done by a million tons. The overall ending inventory at the domestic producer's side was done by close to a million tons as well. So when you think about port inventory, you also need to think about the domestic producer's inventory. So adding together, the inventory level isn't as high as people see just from the obvious port inventory. Lastly, I want to mention Potash consumption in China last year increased significantly. We believe that the growth was over 20%. That was driven by a relatively low price of potash to phosphate and urea. And to remind you, 70% of the potash consumed in China is through MPK, compound MPK. Therefore, relatively lower price has lead to a much higher inclusion of potash consumption. So all in all, we believe that China needs to come back to the table for the new contract as well. We can't really pin down a time. In our own forecast, we have that projected to be at a later part of Q2. That price level also reflected in our forecast as well. Thanks.

Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.

Yes, thank you. Good morning, everyone. Appreciating that there are a lot of moving pieces right now in your U.S. phosphate business between downtime and kind of some of the fire and the like, both in the turnarounds of the drag line and the chemical plant and the ammonia plant, etc., have a plan to get production to an annualized rate of about 2 million tons by the end of the year. And I think in the slide you talk about a $15, $20 ton improvement in conversion costs when you get there. How do we think about the benefits beyond just improved conversion costs as we consider kind of a greater proportion of internally produced ammonia, which should be cheaper? We think about improvements on your on your rock costs and where those can go from Florida or the need to use a bigger portion of Miskemiah Rock. How long could you see those cost improvements sustain themselves before you start to have to make bigger investments again in new rock reserves in Florida and putting all that into context of how you see Mosaics Florida phosphate position on the global phosphate cost curve. Thank you.

Yeah, Adam, a lot to unpack there. But for sure, we are working hard, as you well described, to get to that 2 million ton run rate by the end of the year. And as we've said and as you've pointed out, we've got to, you know, Pretty significant turnaround schedule still in quarter two, a little bit into quarter three. There's another sulfuric acid turnaround at our Bartow facility in quarter four. So there is still a lot of work to do to get caught up on all of the pent-up maintenance issues from COVID and some of the hurricanes over the last several years. feel very good about where we'll be come the end of the year on that run rate. And to your point, and I think in our materials it's actually $20 to $30 a ton, not $15 to $20 if I heard you right, improvement just on cost absorption alone. And then on top of that, probably included on the top end of that range, is benefits on power generation through better sulfuric acid and steam utilization. as well as better water treatment costs, as when we're not running hard, we don't have as much evaporative heat for our water balance, and we have to use more expensive options like reverse osmosis and lime treatment to handle our water from a process standpoint. So I think those are structural, you know, either from cost absorption on volume and or real benefits from just running harder that are sustainable and will continue to fall in line. To your point about ROC itself, we've got 30 years of reserves to maybe 40 years of reserves. It's always been, and I think if you look probably deeply into our 10-K and some of our publications, you'd see that there is a plan that ultimately at some point in time look to build a new greenfield beneficiation plant in our DeSoto Reserve, but we're doing everything we can with projects that we've previously announced such as Eastern Extension at South Fort Meade to buy additional reserves for existing beneficiation plants to extend out that kind of new greenfield horizon for a new mine. There's also South Pasture, which is idle, that we can restart. There's a number of things within our reserve base that would allow us to continue to use our integrated rock source to realize those benefits for a long period of time and then try to push out that large greenfield investment at DeSoto as far as possible. Hopefully that addresses most of the questions.

Our next question comes from Ben Deer from Barclays. Please go ahead with your question.

Yeah, good morning and thanks for taking my question. Just wanted to kind of follow up on some of the global dynamics and what you're seeing in terms of just the global supply and how you think some of the proposed changes to tariffs and duties into the U.S., Russia down, Morocco up again. So it seems like the authorities don't know what they do because they just changed it the other way around a few months ago. How do you feel about this just in general, and what are consumers actually demanding and asking for, and where does Mosaic fit into that equation? Thank you.

Yeah, to confirm, the Department of Commerce did, as part of their process, do their preliminary analysis uh, ruling from an annual review standpoint, and this would be on 2022, uh, duties. Uh, so, you know, going back in time and, and what were their interpretations of subsidies or, or things that were done in those jurisdictions, uh, namely, uh, Morocco and, and, uh, you know, FOSAC or on Russia. And yes, you know, the preliminary numbers went up on one that went down on the other. You know, the other complication in this process is, you know, there's appeals that are still outstanding waiting for rulings on. And then, you know, the annual review and new duties for what was just announced don't get finalized until November of this year. So I think to your point, there is a lot of volatility, uncertainty around where some of these duties lie. Our customers, I think, have gotten used to that in North America. We're here and our heavy focus is on supplying North America first with our production and market share over 50% where we like to be and continue to be here for our domestic customers. But we're also seeing no hesitation to bring in more imports from a more diverse set of importers. And I think at the end, What that means is a healthier industry for U.S. fertilizer, but also healthier competition for the U.S. farmer. So I think the duties, from our perspective, have worked as intended. They are leveling the playing field and eliminating unfair subsidies that were, quite honestly, and proven again with the International Trade Commission earlier this year, we're causing injury to the industry. So, you know, we're supportive of the process. We know that obviously it's got some uncertainty around it, but I do believe the U.S. farmers have adapted to that. And, you know, it's just modifying trade flows and bringing more competition and a more diverse slate of importers here in North America.

Our next question comes from Andrew Long from RBC Capital Markets. Please go ahead with your question.

Hey, thank you for the kind question. So just going back to modern, it's been mentioned a few times now that the deal was done in part to bring more transparency on the value of your investment. So I'm just kind of curious how you feel about the valuation now. I understand it's a market value, but the valuation also seems kind of high relative to some of their peers like yourselves and The ability to realize that value maybe depends on liquidity. So how should we, and how do you view that $1.5 billion evaluation today?

Andrew, good question. Something we've been talking about, you know, obviously a lot as we entered into this deal. And I'm just going to turn it over to Clint because he's got some good thoughts around this topic.

Yeah, thanks, Bruce. And thanks, Andrew, for the question. You know, a couple of different thoughts on this. You know, one is, you know, as we looked at the value of our JV interest, you know, we look at it as you traditionally would through DCF means and other means. And we feel like, you know, the $1.5 billion valuation is a very fair valuation that we found attractive and obviously agreed at that kind of level with our counterparty. I think as we look at the shares themselves, as we took a look at the consideration that we were receiving, given that I think we would expect this transaction to close by the end of this year, 2024, as we look at consensus estimates, and Modern is a pretty well-covered company, as we look at consensus estimates for 2025 and 26, And we look at what does that translate into from a multiple standpoint. What we see is that that implied multiple is very consistent with how they've traded historically. And I think, you know, maybe quite a bit down from a multiple standpoint from maybe what was noted in 2023. So as we look at, you know, forward into the time of our ownership, 2025-26, We see a multiple being applied to valuation very consistent with past history over several years. As you also noted, I think they have historically traded at a premium multiple to peers. I think there are a number of different reasons for that. But again, as we did our assessment looking forward into our period of ownership, that relative multiple compared to peers, again, very consistent with with history and didn't seem elevated relative to history. So I think as we look at the valuation itself for our share of the joint venture, obviously we've noted that it's two times our initial investment. And again, we feel like it's a very appropriate and fair valuation. And then as we look at taking stock back in modern and again look at some of the associated valuation metrics, Again, they seem very much in line as we look into 25 and 26, very much in line with how they've traded in the past. So I think given those factors, that's how we got to a comfort level with the type of structure that we've agreed to.

Our next question comes from Josh Spector from UBS. Please go ahead with your question.

Hi, thanks. Just another quick one on modern. I was trying to think about the cost side of things. So as you convert to an equity holder versus an operator share in that JV, what's the impact on free cash flow and EBITDA over the last 12 months? And you talked about some offtake agreements. Does any of that change in that you're paying market versus cost? So just the moving parts there, please.

Yeah. Thanks, Josh. Excuse me. As far as the supply agreement, I think it's just we have the option to look at that if we need it for key markets, so addressing your latter part of your question. And, you know, those things would be to be negotiated, but we have that optionality. As far as the first part of your question, maybe I'll turn it back over to Clint and give you thoughts around the EBITDA.

Yeah, and thanks for the question, Josh. You know, I think it'll, for Mosaic, I think it'll have very minimal impact on EBITDA and free cash flow. You know, historically, we have only included cash dividends in our EBITDA numbers. We obviously have equity earnings that are included on our financial statements. I think in 2023, those equity earnings pre-tax were $57 million. I think the cash distributions Last year we received 25 million. I believe in the first quarter of this year we received 15. And so that's what would be included in our EBITDA and free cash flow. So I think as we look forward, I think there really is minimal, if any, you know, longer-term impact or consequences to our EBITDA and free cash flow.

And our next question comes from Charles Niebuhr from Piper Sandler. Please go ahead with your question.

Morning, guys. Just a couple of things. One, in the turnarounds, I'll just ask them all at the same time. You can just answer whatever. Turnarounds coming up, I know they improve efficiency. They have to be done. But is there any consequent increase in supply? I know it's not a chemical operation, so you don't necessarily get that. But would there be any supply increase on the turnarounds? During the outages that you guys had, do you think that the outage had an influence on price upward, and therefore now when everything's running, now it takes away whatever influence it pushed up? And lastly, on modern, does the shareholding from the joint versus the joint venture operation, does that change your, for lack of a better term, influence on the company and what they do, and do they have any plans for later for expansion coming up? or are they putting forward at this point?

Thanks, Charles. Let me start with the latter because I didn't write it down. It's fresh in my mind. So I don't think the deal structure changes our influence really a whole lot. We've been a technical kind of advisor in that and a minority partner. So I don't think That's going to change a whole lot. The deal, they still want MOSAIC as technical input and MOSAIC resources as part of this where we can participate and help them. And then you're going to have to talk to them about what their future plans are as far as expansion. I know there's been stuff that they've talked about in the press. Obviously, as a shareholder, We're going to be interested in them maximizing their shareholder value, but I don't think our influence is going to be much different than what it's been in the past, nor should you expect anything of significance there. Turnarounds, they are a necessity, and the ones where the primary focus has been for us, although it's on a lot of our assets, but the primary one where we've struggled over the last few years is on sulfuric acid. Our sulfuric acid plants, we've got a dozen or more of those globally. They're basically three-year turnaround, and if you don't do a major turnaround on a three-year schedule, you run the risk of losing reliability, and those cascade through. We need the steam that is generated as sulfuric acid as an exothermic process to evaporate the lower concentrated phosphoric acid that's made to feed that into granulation and make granulated fertilizer. But also we use that excess steam for generating power through our cogeneration facilities, which are much cheaper than buying power from the utility. But I think to your question was, has our drop in production actually helped on pricing? Well, I don't think it's enough to have influenced that and I don't think that us getting back to our historical run rate of 8 million tons would be enough to influence that significantly as well given where we are with our growth and phosphate demand and that there is limited supply. I think this market stays pretty tight and our tons are going to be needed to keep even level on the tightness of that And then lastly was something on price. What's that? I covered it already? Okay. Maybe I covered it, Charles. I did my best to hit those three, and I appreciate you giving me some flexibility with that.

So with that... We do have an interesting question from... We do have an additional question from Edlin Rodriguez from Mizuho. Please go ahead with your question.

Okay, thank you very much. Good morning, everyone. Just a quick one on earlier comment during the prepared remarks. You've talked about fertilizers being well positioned for higher prices in the second half as demand recovers. And along with Jenny's comments on the polish contracts, would you be highly disappointed if those contracts don't reflect that view?

I think we'd be surprised based on what we believe about the supply and demand and what's needed in the marketplace. But I'll turn over to Jenny and see if she's got any more since she addressed that original question.

Yeah, we have. Thanks for the question. We have our own estimation based on the fundamentals, and also we are watching the latest negotiation, especially in India. So I would say the price, contract price, are likely going to be settled is already included in our price forecast.

And ladies and gentlemen, with that, we'll be concluding today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.

Well, thank you, operator. To conclude our call, I'd like to emphasize our key points. First, our transaction with Modden will benefit our shareholders by establishing a transparent value for our investment and providing us with greater capital flexibility for the long term. Second, we're making good progress on our strategic initiatives. We're investing in our best-performing assets while reducing costs and capital expenditures. And finally, fertilizer market fundamentals remain constructive, and we expect continuing strong demand through this year. To summarize, Mosaic is generating solid results in dynamic conditions, and we're working to deliver strong shareholder value. So thanks for joining us today, and everyone have a good and safe day.

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines. Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for