The Mosaic Company Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Asset Health: Made major investments in asset health, seeing improving reliability in U.S. phosphate production with 3 consecutive quarters of production volume improvement.
• Brazil Business: Delivers excellent performance with adjusted EBITDA increasing year-over-year despite a challenging credit environment.
• Global Demand: Global potash demand is very strong, especially in the Eastern Hemisphere, with Mosaic running near record operating rates. Phosphate markets remain tight due to global supply constraints and strong demand for LFP batteries.
• Cost Discipline: Achieved $150 million in initial cost savings and on track to achieve $250 million by end of 2026, driven by automation, supply chain optimization, and improved fixed cost absorption.
• Capital Allocation: Recent divestments like the Taquari potash mine and Patos de Minas asset reflect commitment to streamlining portfolio and redeploying capital toward higher return opportunities.
• Mosaic Biosciences: Revenues for the first 9 months more than doubled year-over-year, with anticipation of contributing positively to consolidated adjusted EBITDA from Q4.

Segment Performance

• Phosphate: Net income for the third quarter increased to $411 million versus $122 million in the prior year. Production volumes have improved sequentially, with the trailing 3-month period ending October reaching approximately 1.8 million tonnes. Revenue contribution from phosphate is significant given the focus on improving reliability and production rates.
• Potash: Cash production cost per tonne was $71 in Q3, down from $75 in Q2, with production volumes near record rates to meet strong global demand. Revenue contribution from potash is strong due to high operating rates and balanced market dynamics.
• Fertilizantes: EBITDA came in at $241 million, above the guided $200 million even after accounting for bad debt recovery, but impacted by a softening near-term market. Revenue contribution from Fertilizantes is influenced by market conditions in Brazil, including product mix and credit challenges.

Guidance

• Phosphate: Q4 sales volume expected to be between 1.7 million to 1.9 million tonnes, with risk to the downside due to demand referral. Anticipates higher sales volumes, elevated stripping margins, and lower conversion costs in Q4.
• Potash: Q4 unit costs expected to be similar to Q3, finishing the year in the low to mid-70s. Full year forecast on track to hit Investor Day targets adjusted for current exchange rate.
• Fertilizantes: Q4 EBITDA expected to drop due to lower prices, compressed distribution margins, higher raw materials costs, and seasonally lower sales volumes, but still expected to be above prior year. Seasonality and product mix in Brazil impact quarterly results.
• Mosaic Biosciences: Anticipated to contribute positively to consolidated adjusted EBITDA beginning in Q4.

Risks

• Market Dynamics: Geopolitical and market uncertainties affecting fertilizer affordability, with growers in U.S. and Brazil cautiously approaching seasonal buying. Weather conditions and government policies impacting demand and application timing.
• Operational Challenges: Workforce turnover and institutional knowledge issues delaying restoration of normalized production rates. Raw material price fluctuations, such as sulfur and ammonia, affecting stripping margins.
• Credit and Market Conditions: Challenging credit environment in Brazil exacerbating sales volume and pricing impacts, with softening near-term market affecting Fertilizantes results.

Question and Answer

• Q: Just given, obviously, you've been on a pretty long-term fixing of the turnaround schedule across the 4 primary facilities. Can we just get an update on after the issues in late September, how you performed in October versus expectations, how you're thinking about initial November? And just what's your degree of confidence that you should be within that 4Q production guide? And how we should think about the cadence of such given the outlines that you projected at the CMD back in March, how we should be thinking about the confidence level as it relates to 2026?

A: Chris, thanks for your question. First off, we're committed to achieving our normalized production rates that we've been talking about. We did have those issues that we had a press release out in September, those are behind us. But I think as I've reflected on this, things are taking a little longer than anticipated. ...

• Q: If I could follow up on your answer to Chris' question. Can you maybe Bruce dive into what is the difference between a good day and a bad day? So good days says you're at full rates or better; a bad day, you're not there. Is it a certain asset? Is it a certain thing going on? Can you elaborate good day and a bad day versus your targets?

A: Yes. Thanks, Joel. A good day, bad day is very nuanced, as you can well imagine. And it depends on the facility in the suite. But right now, bad days are not where something is catastrophically failing prematurely or that we're holding it together until we can get to a turnaround. Those are not the structural issues. Today, the difference between good and bad is did we actually run without an upset more from operational decision-making at the front line in phos acid, particularly ore granulation. ...

• Q: If I'm just looking at ore grades at the mine site, particularly in Florida and the degradation, is it like realistic to hit 2 million tonnes per quarter for phosphate? And I say because I assume with like higher throughput, it means you're probably driving up asset where you're probably burning out pumps more quickly, and that probably plays into just uptime in general. So can you manage these issues? Has that already been handled and that's really not the issue anymore? Is that a nonfactor? How does that just in general play into this?

A: Yes. Thanks, Matthew. Ore -- the chemistry of the ore is not really a concern for us. Yes, on the margins, you're right. Where that played out this year was particularly at New Wales when we needed to upgrade the gypsum handling system because we did have more waste generated per tonne of feed and hadn't tested those systems in the last, say, 5, 6 years at these higher rates. But P2O5 quality, the chemistry of the ore, definitely not a concern about hitting those rates. It does limit catch-up capacity. So it forces us to be that much more precise on operating discipline to your point. But from a rock quality standpoint, it's more the geology drives some of the issues on cost for mined rock, particularly in Florida. And those things come down to stripping ratio, how much overburden do you have to remove, what's your pumping distance, things like that, that may affect cost that goes into total profitability on finished product. But those are pretty stable as well. So ore grade, the chemistry of it is not the biggest concern. Even though it does create challenges, we just have to be very consistent and more disciplined on being better operators as we were processing that. ...