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Edited Transcript of MOS earnings conference call or presentation 2-May-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Mosaic Co Earnings Call

PLYMOUTH Jan 4, 2018 (Thomson StreetEvents) -- Edited Transcript of Mosaic Co earnings conference call or presentation Tuesday, May 2, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Corrine D. Ricard

The Mosaic Company - Former SVP of Commercial

* James C. O'Rourke

The Mosaic Company - CEO, President and Director

* Laura C. Gagnon

The Mosaic Company - VP of IR

* Michael Rahm

* Richard L. Mack

The Mosaic Company - CFO, Principal Accounting Officer and EVP

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Conference Call Participants

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* Adam L. Samuelson

Goldman Sachs Group Inc., Research Division - Lead Analyst

* Andrew D. Wong

RBC Capital Markets, LLC, Research Division - Associate Analyst

* Christopher S. Parkinson

Crédit Suisse AG, Research Division - Director of Equity Research

* Donald David Carson

Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

* John Ezekiel E. Roberts

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals

* Jonas I. Oxgaard

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Michael Stuart Henry

Cleveland Research Company - Former Research Associate

* Oliver S. Rowe

Scotiabank Global Banking and Markets, Research Division - Associate

* P.J. Juvekar

Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD

* Silke Kueck-Valdes

JP Morgan Chase & Co, Research Division - VP

* Steve Byrne

BofA Merrill Lynch, Research Division - Director of Equity Research

* Vincent Stephen Andrews

Morgan Stanley, Research Division - MD

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to The Mosaic Company's First Quarter 2017 Earnings Conference Call. (Operator Instructions)

Your host for today's call is Laura Gagnon, Vice President, Investor Relations of The Mosaic Company. Ms. Gagnon, you may begin.

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Laura C. Gagnon, The Mosaic Company - VP of IR [2]

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Thank you, and welcome to our first quarter 2017 earnings call. Presenting today will be Joc O'Rourke, President and Chief Executive Officer; and Rich Mack, Executive Vice President and Chief Financial Officer. We also have other members of the senior leadership team available to answer your questions after our prepared remarks.

The presentation slides we are using during the call are available on our website at mosaicco.com.

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 uncertainties.

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 issued this morning and in our reports filed with the Securities and Exchange Commission.

Now I'd like to turn the call over to Joc.

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [3]

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Good morning. Thank you for joining us today. It's been just 3 weeks since our Analyst Day in New York where we focused on our medium and long-term outlook. So today, we'll focus on the quarter and the near-term. Rich Mack and I will keep our prepared remarks brief, and then take your questions.

Potash and phosphate prices continued to recover during the quarter as global demand remained strong. Our earnings do not yet fully reflect these dynamics for a number of reasons, but we expect market improvements and more reliable operating performance to drive higher earnings in the second quarter and in the second half of the year.

Our quarterly results were disappointing and fell short of our expectations because of several operational items. Rich will provide more detail on these shortly.

Despite the lower earnings, we continued to make progress on our priorities. I have 3 key takeaways for today's earnings call. First, we are continuing to manage our cost and capital carefully. Second, markets have moved upwards, even if the pace of recovery has not been linear. And third, we have taken necessary and bold actions to position Mosaic to capitalize on better business conditions.

For the first quarter, Mosaic reported a breakeven earnings per share on $1.6 billion in net sales. Looking ahead, we expect improvements in our business unit and consolidated margin rates driving strong earnings in the second quarter. Our work to reduce cost continues to provide meaningful benefits. We are ahead of schedule on our 2018 goal to reduce cost by $500 million, and we are well on our way to achieving the additional $75 million savings targets we announced a year ago. You can see the progress in our SG&A expenses and in cash production costs, with potash cost remaining near 10-year lows in spite of a mechanical issue at 1 of our Esterhazy shafts. In fact, total MOP cash costs per tonne for the quarter were $86, including $11 per tonne of expenses relating to the skip failure we had last month and $20 a tonne of brine management expense.

I want to emphasize 2 points on our expense reduction work. First, we're taking out cost across Mosaic in every business unit and support function. That requires innovative thinking from our employees every day. How to make processes more efficient without sacrificing safety, and they are delivering. And second, we are not going to take our eye off the ball as markets improve. We understand that being a low-cost producer is critical in this industry across the cycle.

In addition, our focus for the remainder of 2017 will be on integration planning for the upcoming Vale Fertilizantes transaction. As we said on our Analyst Day, we will continue to look for value creation opportunities in the medium-term, but first things first. We are giving the Vale Fertilizantes transaction a great deal of thought and attention so that it can achieve our strategic objectives. Little has changed in the market environment since our Analyst Day, so I won't go through all of that in detail.

Global demand remains strong, and we have narrowed our expected global shipments to the upper end of the ranges. I wanted to address 1 issue that is getting a lot of attention these days, Chinese phosphate exports. With economic and environmental pressures mounting on Chinese producers, we expect their exports to fall to somewhere around 8 million tonnes. The recently released March export figures show a modest increase in Q1 exports compared to last year. First quarter represents a small percentage of the yearly cadence of exports, and we continue to expect year-over-year declines for the remainder of the year.

Overall, while this quarter included some noise, Mosaic continues to make good progress and the markets are giving us some momentum. We are executing our strategy and managing costs and capital, and we are in excellent position to thrive as markets continue to improve.

With that, I will turn the call over to Rich Mack.

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Richard L. Mack, The Mosaic Company - CFO, Principal Accounting Officer and EVP [4]

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Thank you, Joc, and good morning to you all. Today, I'll briefly review our segment performance for the quarter, and take you through the reasoning behind our second quarter guidance. In phosphates, shipment volumes were at the top end of our guidance range due to continuing strong global demand and expectations of a strong spring application season in North America. Prices were in the middle of our guidance range and our operating rate was 79%, which was also in line with our expectations. The phosphates margin rate was below our guidance primarily due to an unplanned mechanical issue at our Faustina, Louisiana ammonia plant, where we experienced a failure in a converter 2 months before a planned turnaround. The plant was down for several weeks towards the end of the quarter, so some of the costs related to the downtime are reflected in our current quarter's results.

Additionally, we had to buy more ammonia on the spot market just after ammonia prices had risen significantly. The combined negative impact on gross margin was $14 million or 1.7 percentage points. The plant will complete its scheduled turnaround and is expected to be up and running by mid-May, so ammonia costs will continue to run higher in our Phosphates segment in the second quarter. Our guidance for the second quarter reflects the higher selling prices we are seeing in the market today, and robust shipments with continued strong global demand as well as higher operating rates. We expect the second quarter margin rate to increase compared to the first quarter, but we also expect that it will be negatively impacted by the higher ammonia cost I just reviewed. And to a lesser extent, the weather-related issues that have hampered our operations at our joint venture mine in Peru. The Western coast of South America has experienced record rainfall over the past 2 months, which resulted in severe flooding that had major impacts on infrastructure and the people living in the area. The Miski Mayo mine, which was down for parts of March and April, gets back to production now. As the weather issues played out, we and our joint venture partners have joined together to provide critical relief for the mine's employees and the surrounding community.

To ensure that we could keep our Louisiana plant running to meet demand, we purchased third-party rock. This was a temporary development and we do not expect long-term implications for rock supply or forward costs.

For the second quarter, we expect realized DAP prices to range from $320 to $340 per tonne, with volumes in the range of 2.3 million to 2.6 million tonnes. We expect gross margin to improve to approximately 10%. As we get into the second half, we see a continuation of gradual improvement in phosphate margins as we realized the benefits of higher industry stripping margins, improving cost control and more normal operating rates at Faustina and Miski Mayo. The second half margins will also reflect purchases of ammonia under the CF contract as we expect to begin taking product in early September.

In the Potash business, our operating rates were lower than expected because of the incident with a skip at the Esterhazy K2 mine. K2 is back up and running now, but we expect the incident to reduce our second quarter shipments by approximately 200,000 tonnes. Our Potash shipment volumes were below guidance for this quarter because of a Canpotex train derailment and weather-related port loading delays. Approximately 150,000 tonnes that we expected to recognize in the first quarter have been recognized in the second quarter. Our potash gross margin rate fell short of our guidance. There are 2 main reasons for the shortfall in margin rate and margin dollars. First, roughly $22 million of costs associated with the skip incident were reflected in the current quarter's results. And second, lower-than-expected sales volumes due to the Canpotex-related logistics issues I just highlighted reduced per-unit profitability. Otherwise, as Joc noted, our excellent cost control in the Potash business unit continued. For the second quarter, we expect potash shipment volumes in the range of 2.0 million to 2.3 million tonnes with strong demand persisting. Prices are expected to rise modestly to a range of $170 to $185 per tonne, and margins are expected to improve to the low 20% range.

Moving on to the International Distribution segment. Results were generally in line with our guidance. We sold 1.3 million tonnes of product and realized a gross margin per tonne of $21 in our international markets.

International distribution sales volumes are expected to be in a range of 1.4 million to 1.7 million tonnes in the second quarter, while our margins are expected to remain in the $20 per tonne range. Our full year guidance ranges have not changed.

Beginning in 2017, we have changed our depreciation method from straight line to a units-of-production method for certain mining assets to more appropriately reflect the utility of these assets. The change in depreciation method to a units-of-production method is consistent with our peers, and will be more comparable going forward. In connection with the change, with the increased focus on mechanical integrity and capital expenditures, we have taken action to allow us to operate our assets over a longer period of time and have extended the lives where appropriate. As a result, we expect an approximate $70 million noncash P&L benefit in 2017 from a reduction in depreciation expense.

Before I conclude, a couple of notes on the Vale Fertilizantes acquisition. First, we are planning to issue debt to finance the cash portion of the purchase price in the late summer timeframe. And second, we expect to change our segment reporting post close. We will give you plenty of notice before our first reporting cycle under the new structure and we plan to provide adequate historical detail.

To summarize, we are continuing to focus on the things we can control. We are controlling our costs and we are making prudent capital position decisions to ensure we can deliver strong shareholder value the future. We expect meaningfully better results in the second quarter and the second half of this year.

With that, I'm going to turn the call back over to Joc for his concluding remarks. Joc?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [5]

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Thank you, Rich. Mosaic continues to focus on controlling costs and capital in challenging but improving markets. If we look at this in stages, I believe in the near-term, we will continue to see modest improvements in the business environment. In the medium-term, as we bring on the Vale assets, Mosaic can accelerate its ability to outperform. And over the longer term, as global demand continues to grow and absorb the industry's capacity expansions, Mosaic's potential is very bright.

We have made tremendous progress as an organization, and we've made bold decisions to build our potential to win in the market place and to grow.

With that, I will take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Vincent Andrews from Morgan Stanley.

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Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [2]

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Rich, I'm just hoping you can get us just a better sense on the phosphate side of things. Obviously, a lot of moving parts this quarter, and maybe a bit into next quarter, but where would underlying margins have been without sort of all the issues? And then you did talk about things getting better in the second half. Can you give us a rough range of where you think phosphate gross margins can come in, in the second half?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [3]

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Thanks, Vincent. As you asked this of Rich, I'll hand it straight over to him to answer. Go ahead, Rich.

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Richard L. Mack, The Mosaic Company - CFO, Principal Accounting Officer and EVP [4]

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Yes, Vincent, I think that absent some of the issues that we saw in Louisiana, we probably would have had a couple of percentage point improvement to gross margin. As we look forward to the second quarter, our guidance for the gross margin rate of approximately 10% does take into account some of the additional costs that we will incur in the second quarter related to that same issue. And then going forward, we do see an improving market environment on a gradual basis on the pricing side, and hopefully some tapering off of the recent run-up in raw material costs. And so as we look towards the second half of the year, I think 10% in the second quarter, something hopefully a little bit better than that in the second half is what we would be expecting.

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Operator [5]

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And our next question comes from Jonas Oxgaard from Bernstein Research.

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Jonas I. Oxgaard, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [6]

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Can you talk a little bit about the impact of the Chinese contracts? If they don't get renewed or if they do get renewed with a higher price, how does -- what does that mean for your Q2?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [7]

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Okay. Thanks, Jonas, and good morning, as you started with. Look, let me start by saying, first of all, from our perspective, the Chinese contract is becoming less and less relevant over time. The Chinese makes up a portion of Canpotex's overall sales and the buying committee who set this contract make up only a portion of that Canpotex shipments to China. So we see it as a less and less impact overall. The other point I want to make before handing it over to Corrine is that the conditions are significantly different this year than other years when it has been delayed. This year, the reason for the delay, I think largely is the suppliers aren't willing to make concessions. Asia is not waiting for China. You see the European prices are strong. Brazil prices have been strong. I don't think we're seeing the slowdown that we might have expected if China doesn't settle. Corrine, do you want to talk a little bit about that China contract and just the details from Canpotex?

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Corrine D. Ricard, The Mosaic Company - Former SVP of Commercial [8]

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Sure. Just a couple of things that I would add, Joc. I think the inventory levels at the ports are not a lot higher than last year at this time, it's pretty normal levels. We're seeing good purchasing throughout Asia and values are significantly up. And as Joc said, suppliers are not willing to break on the price levels that they're getting in the rest of Asia. And we could see India get ahead of China again this year like they did last year.

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [9]

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So I guess the summary of that, Jonas, to just to answer the first question. Q2 impact, we don't assume a whole bunch of Chinese product in our Q2 guidance. And if they come out and don't settle, like I guess it will make a small impact but pretty minor.

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Operator [10]

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Our next question comes from Don Carson from Susquehanna Financials.

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Donald David Carson, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [11]

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Two questions. One on potash. What are you seeing in terms of domestic dealers, their willingness to buy ahead of the legacy ramp? Are they trying to get inventories down as low as they can ahead of that start up? And maybe you could comment on what your FPD book looks like. And then on the phosphate side, how should we think of the CF contract? At current ammonia prices and natural gas cost, would that be a net positive for you from a margin standpoint?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [12]

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Okay, Don, I'm going to hand this one straight to Corrine to talk about the Potash customers and their actions as we go into the middle of the year, and then I'll hand it to Rich, who has a handle on the CF contract.

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Corrine D. Ricard, The Mosaic Company - Former SVP of Commercial [13]

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Sure, thanks, Joc. For potash buying, we aren't seeing a big impact in the market. Domestic buyers are positioning for a good spring season. It's still pretty wet out there and they haven't gotten started to the full extent for season. So we're still seeing good shipments, good demand, and really little prepositioning or worrying about K+ S coming in with big tonnage in the domestic market. In terms of the CF contract, current values today, and Rich, I will turn it over to you to add, I would just say that the spike in the ammonia prices today, it's pretty close to market value on these contracts, and I'll leave it to Rich to comment further.

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Richard L. Mack, The Mosaic Company - CFO, Principal Accounting Officer and EVP [14]

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Yes. So Don, just a reminder, this is a producer type sharing relationship that we have with CF. And so there are going to be times where we're going to be in the money, and there will be times when we are out of the money. And as Corrine just said, not long ago, phosphate -- or excuse me, ammonia prices were $40, $50 lower than where they are right now. And in that environment, we were probably out of the money relative to what we were going to be paying CF under the contract, but it's a very volatile market. And with that uptick, now it's closer to parity is what I would say. I think the bigger issue on that we want to keep in mind here as well is we just -- our commissioning a brand-new ammonia vessel and tug and that's been a project that has been long in the works. Those pieces of equipment are in the water, in a testing mode right now. And we believe, long-term, that is going to be very beneficial for Mosaic to arbitrage and basically keep down where world ammonia prices go for the betterment of our overall phosphate business. Because as you know, the relationship that we have with CF is only for about 1/3 of our ammonia requirements compared to the additional 1.2 million tonnes that we're still buying in the marketplace.

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Operator [15]

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Our next question comes from Andrew Wong from RBC Capital.

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Andrew D. Wong, RBC Capital Markets, LLC, Research Division - Associate Analyst [16]

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A couple of questions around price realization. So the first one would be on just the general ranges of the DAP and the potash price outlooks. They look like they're about flat at the midpoint, but then the benchmark prices look like they've actually strengthened a bit. So could you talk a little bit about why there's a difference in the movements there? And then just on the quarter, the realized DAP price was actually up quarter-over-quarter, Q1 versus Q4. But when I look at the overall segment average realized price just by dividing revenues by volume, it actually looks like it's down quarter-over-quarter. So is there something that's driving that weaker realization numbers versus our reported DAP price?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [17]

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Okay. Andrew, I'm going to hand this straight over to Corrine and Mike Rahm to give you some answers here. But I will say at the outfront, I'm not sure I fully understand your DAP price question, but I assume what you're probably seeing is the lag between when we actually book a sale and what you see as spot prices. And then the other one is the mix of products that we sell on an ongoing basis. And so as the mix changes, so does the average of the prices. But I'll leave it over to Corrine to answer that first guidance question.

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Corrine D. Ricard, The Mosaic Company - Former SVP of Commercial [18]

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Price realizations have been moving up steadily. Rich talked about this in his comments. Q4 was 3 17 for DAP; Q1, 3 27. You're right, the guidance is right on the midpoint, but when you've got the seasonality, that Q1 sales included a lot of fill tonnes and a little bit for spring. And the Q2 guidance include spring season as well as postseason. We've got quite an influx of import barges that have dampened price levels that we expect postseason when we get past this peak, we're going to see some of that mixing into the price levels. Mike, do you want to add on the comments on the...?

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Michael Rahm, [19]

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I think the only thing that I would add is that we think in terms of margins. And as we get into the second and third quarters, we expect there will be continued relief on raw material cost, so while price -- DAP prices, the benchmark may be up less than people expect, I think the margin has the potential to increase more with some raw material cost relief. I think the other issue is just the product mix that we talked about, even with microessentials, that's a product that there's a greater margin but more moderate prices associated with that. And as well as some of the changes that have taken place in the feed market, which also has been hurt pretty badly by the big surge of imports recently.

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Operator [20]

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Our next question comes from P.J. Juvekar from Citi.

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P.J. Juvekar, Citigroup Inc, Research Division - Global Head of Chemicals and Agriculture and MD [21]

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So you changed your depreciation method from straight line to more unit-of-production. So a couple of questions. On the straight line, what was your lifespan of your assets in both P&K? And then when you switch under the new method, what would be the implied life of your assets in both P&K?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [22]

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I'm going to hand this to Rich right away, but let me make a general comment on our depreciation method and the change. Clearly, and this came up quite a bit last year, when you have assets that you shut down for a period of time, you're not reflecting the real rate of decline of the asset if you don't match your production rate with the depreciation rates. So if you do a straight-line depreciation, it does not match well with the type of wear and tear that our actual equipment is exposed to, whereas if you run with depreciation according to units of production, you're more closely aligned with what actually is happening. So that's the underlying reason for it. Rich, I'm going to give it to you to give the details.

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Richard L. Mack, The Mosaic Company - CFO, Principal Accounting Officer and EVP [23]

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Sure. P.J., this is a project that has been in the works for a long period of time. Obviously, you can't make a change like this without a lot of work that goes into the analysis. There's no simple 1 answer to your question because asset categories change and they vary, and we had a comprehensive review of all of our assets classifications, and what the estimated useful life was for each of the categories. Some of them changed, some of them were lengthened, some of them did not change at all. And so it just really depends on what you're looking at. I would say when you take a look at how we went about reviewing this and the move to the unit of production methodology, we're probably still far more conservative than some of our peers are in terms of the useful life that we would assign to our assets. And the fact of the matter is that we've been through a significant mechanical integrity program over the last several years. We have maintained our assets very well. We're reducing our capital expenditures across the board, as you know, and it's our full expectation that we're going to be using these assets for a longer period of time in the future. And it's just some background in color in terms of depreciation change.

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Operator [24]

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Our next question comes from John Roberts from UBS.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [25]

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On Slide 4, the forecast is for Chinese exports to be relatively stable, not much seasonality in the rest of the year. Is that normal? It's different than the pattern that we've had the past couple of years, but there's no real pattern, maybe we just averaged it because we can't really figure it out yet.

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [26]

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Thank you, John. In terms of the Chinese exports. Let me start by saying -- I mean, there's obviously seasonality to that and the first quarter is historically a very low quarter. Mike Rahm has the details on how we see that playing out through the year. So I'm going to give it to him to talk about the seasonality, if you will.

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Michael Rahm, [27]

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Sure, John. As you can see from the chart, first quarter was up about 22%, but as it indicates, that is a seasonally slow quarter. We do expect that exports will pick up in the second and third quarter. Much of that tied to Indian purchases. What I will say is that these numbers come straight from our China team and their assessment of how that pattern plays out. And obviously, what's reflected in that is the expectation that the environmental audits taking place today will have an impact as will some of the changes taking place in the phosphate industry. So I would say that yes, that the seasonality looks a bit different but we do expect that there will be significant changes coming down the road for the rest of 2017.

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Operator [28]

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Our next question comes from Ben Isaacson from Scotia Bank.

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Oliver S. Rowe, Scotiabank Global Banking and Markets, Research Division - Associate [29]

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It's Oliver Rowe on for Ben. I just -- will do a follow-up on that last question that was asked. So you're forecasting about a 15% decline this year on Chinese exports. So what's your longer-term view for sort of the sustainable expert level? And then how long do you think it'll take to get to that level?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [30]

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Yes. Again, I'm going to -- Mike looks after our long-term strategic analysis, I'm going to hand it to him. But we do expect a long-term sustainable lower rate out of China, and we've talked about that a little bit before. But I would say that makes China to be a smaller but a much stronger and more stable supplier. Mike, do you want to?

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Michael Rahm, [31]

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Yes. Thanks, Joc. Yes, we've done a lot of work here recently on that and while we expect exports to drop from 9.5 million to 8 million tonnes this year, when we do kind of an import demand versus exports supply analysis, and assuming that demand grows about 2% per year, in fact, we assume that demand will grow about 2.1% per year from the 66.4 million tonnes in 2016 to about 73-plus million tonnes in 2021. And when we boil that down to what's import demand relative to export supply, assume that the Saudis ramp up, the Moroccans ramp up, everyone else runs at normal type rates. We see a sustainable number out of China still in that 7 million to 8 million tonne range during the next 5 years. So that's what our analysis tells us at this point.

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Operator [32]

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Our next question comes from Adam Samuelson from Goldman Sachs.

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Adam L. Samuelson, Goldman Sachs Group Inc., Research Division - Lead Analyst [33]

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Maybe a question on -- in phosphates, and continuing with some of the previous questions in China and the seaborne trade. Can you talk about the confidence of supplier rationalization that you have there, domestic offtake this year has been lackluster and some of the industry supply discipline doesn't seem to have come to fruition? And then somewhat related, in the seaborne market you're going to have more capacity available out of Morocco and Saudi Arabia later this year. Can you talk about the seaborne market balances for DAP as you move later into '17 and into '18?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [34]

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Yes, and on that basis, I'm going to hand that straight to you, Mike.

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Michael Rahm, [35]

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All right. Good morning, Adam. Yes, just to follow-up on what we said earlier, we do see decent demand growth over the next 5 years. And just when you do the math, we're projecting about a 7-plus million tonne increase in domestic -- in global shipments between 2016 and 2021. When you lay that up against the expected increases in capacity during that period, with the third and fourth hubs in Morocco, you have another couple of million tonnes. And with the Phase II expansion at Ma'aden, you have another roughly 3 million tonnes. And if you assume that you get maybe a little bit more tonnage coming from places like Tunisia and so forth, it looks like a well-balanced situation over the next 5 years. Now -- and that goes back to what we said on the previous answer that we think China still needs to probably export 7 million to 8 million tonnes. That's not to say that over the next year or so when some of this new capacity comes on, there may not be some pain or disruptions caused by a big surge of capacity, but over the 5-year period, we certainly see a well-balanced situation in the global phosphate market. And frankly, when you look beyond the next 5 years, you're probably going to hear rumblings of additional hubs getting built in Morocco, additional phases of expansion in Saudi Arabia. And frankly, after 2021, there will be the need for additional capacity coming from somewhere if you expect phosphate demand to continue to grow at a couple percent per year. So with that in mind, balanced longer-term outlook in our view with -- as new capacity comes on, there will be some pressure likely until the market absorbs some of that.

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Richard L. Mack, The Mosaic Company - CFO, Principal Accounting Officer and EVP [36]

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And Adam, just one, this is Rich, one thing to supplement, keep in mind that this plan is not like you turn a key and all of a sudden, you're producing 3 million tonnes of product on an annual basis. The Ma'aden project will start producing phosphate sometime during the second half of 2017. We probably estimate anywhere from 300,000 to 500,000 tonnes of production this year. And then that project will be ramping up for the vast majority of 2018. And so if you take the first project as an example in terms of how that has progressed, it's going to be a period of time before that is operating at, call it 85% or higher, operating rates.

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Operator [37]

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Our next question comes from Jeff Zekauskas from JPMorgan.

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Silke Kueck-Valdes, JP Morgan Chase & Co, Research Division - VP [38]

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It's Silke Kueck for Jeff. I was wondering how much of the 70 million in lower G&A you may have already realized in the first quarter? And whether you'll get this on a straight-line basis? Or it all shows up in, like, 1 or 2 quarters? And then it seems like that most of it benefits the Phosphates segment, is that correct?

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Richard L. Mack, The Mosaic Company - CFO, Principal Accounting Officer and EVP [39]

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Silke, the first quarter, we have made the change and you see about $20 million of benefit in terms of reduced depreciation. And in terms of the mix, keep in mind that we had the skip failure, which resulted in some downtime in the Potash business in the first quarter, and therefore, that's probably why you're seeing more of the benefit on the phosphate side.

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Operator [40]

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Our next question comes from Steve Byrne from Bank of America.

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Steve Byrne, BofA Merrill Lynch, Research Division - Director of Equity Research [41]

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A couple of mining-related questions. This 90-10 split between phosphate rock out of Florida versus Miski Mayo, what do you think that could be longer-term? And why? Is that proving deposit lower cost or higher phosphate content? What's your longer-term outlook on that? And then with respect to potash mining in Saskatchewan, can you just provide a comment on where the brine inflow issue is in Esterhazy is? Are there still ongoing efforts to grout that and change that longer-term?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [42]

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Okay. Thank you, Steve. Look, let me take the 90-10 question first. I think the question as you ask it -- so the big opportunity for us with Miski Mayo is not to replace Florida rock, but to supplement Florida rock, which allows us to have, as you say, a blend which gives different sets of impurities, but also allows us to extend the life of our Florida operation. Now as we go forward, one of the benefits of the Vale Fertilizantes acquisition is the increased ownership of Miski Mayo. So we could suggest -- we could probably double the amount of Miski Mayo rock that we bring to either Florida or Louisiana in the next couple of years based on the Vale Fertilizantes acquisition. So long term, what's the benefit? It really doesn't make a huge difference between costs from Miski Mayo, although we pay a, what I would call transfer price and then the earnings come in equity earnings. So it's a little bit different because of being a joint venture. In terms of brine inflow, our cost in brine inflow have been relatively constant now for probably a year, and we expect those to stay relatively constant going forward. Are we still grouting? Yes. Are we -- do we still have a long-term focus there? Yes. That will change probably somewhere around 2018, '19 as we are able to take more risks on that. And I don't think we need to -- that's good.

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Operator [43]

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And our next question comes from Michael Piken from Cleveland Research.

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Michael Stuart Henry, Cleveland Research Company - Former Research Associate [44]

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This is Mike Henry in for Mike Piken. Just jumping back to the Chinese exports on the phosphate side. Wondering how important those reduced exports are to your expectations for improved phosphate margins in the back half of the year. If Chinese exports are offset by some amount of new overseas production, what type of impact does that have on your margins? Or will margins still improve just from a cost basis? And then also, just wondering if you have seen any kind of impact from the wet start here in the U.S. planting season.

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [45]

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Okay. So let's do this in reverse. In terms of the wet start, I'm going to hand it to Corrine to answer some questions. But clearly, we expected an early spring here in North America, and this weather has slowed it down to be at best average and probably actually a little behind average. So certainly, there is an impact to our first quarter, and it allowed a lot of imports to come in to the U.S. that wouldn't have otherwise had time to get here. So it did have a reasonable impact on us. In terms of Chinese exports, I'm going to leave that straight to Mike. Corrine, did you want to talk about the weather impact?

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Corrine D. Ricard, The Mosaic Company - Former SVP of Commercial [46]

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Sure. So it is a wet start to spring. It's a little behind where we'd like, just where we thought it would be and where we would normally see. We're pleased to see prices holding well at the interior warehouses, where we've got potash positioned. Phosphates have been impacted by the barge -- excessive barge imports that have happened late, they arrived late. And so we're seeing a little bit of a price impact there, but upcountry, the prices are holding quite a bit better than what you see out of the New Orleans market. And we're looking forward beyond spring season it looks like good application rates. Downspring season, really strong demand is still ahead of us with Indian imports going well and Brazilian imports expected to be strong for later in the season.

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [47]

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Mike, do you want to talk about the S&D for phosphates?

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Michael Rahm, [48]

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Sure. As we said, we think the market probably needs 8 million tonnes or maybe a little bit more coming from China this year. That's what we've baked in. We think that's consistent with the developments that are taking place in China in terms of the impacts of the environmental audits and some of the changes in industry structure there. As we get into the second half of the year, I think there's a very good demand story unfolding that we think Brazil has big buying needs ahead of us. We think Indian imports are going to be up more than 0.5 million tonnes. Brazil will be importing record volumes. So we do see a strong pull second half of the year. As Corrine and Joc mentioned, North America season, while few fits and starts, is still going to be a very good season, following an outstanding fall application. So demand is a very good story and it’s -- the drivers, whether they're the agronomic and economic drivers remain very positive for both phosphates and potash. So as we get into the second half of the year, if the Chinese export 8 million tonnes, we think that's going to allow margins to move up given the supply and demand dynamics.

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Operator [49]

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Our next question comes from Chris Parkinson from Credit Suisse.

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Christopher S. Parkinson, Crédit Suisse AG, Research Division - Director of Equity Research [50]

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In Central Asia, it seems like prices are falling a little bit for DAP. But could you just comment overall on your global sales mix on a go-forward basis, Central Asia versus Lat-Am South, and feel free to bring any comments on Brazilian map or microessentials. Just overall as the demand picture develops, how should we think about your regional mix netbacks versus prior years and subsequent effects on second half margins?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [51]

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Corrine, I'm going to hand that straight to you again.

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Corrine D. Ricard, The Mosaic Company - Former SVP of Commercial [52]

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Sure. I suspect, Chris, that you're referring to some slip in price that we've seen for the Indian imports. And there has been a little bit of a price break, although I've been impressed at how well it's held. We're still seeing 3 65, and admittedly down a little bit from the 3 70 starting point, but nowhere near the prices that were bid by the Indian buyers earlier when they were issuing these tenders. And so really relatively strength, a couple of dollars off into Central Asia. I think over the longer term, as you think about our mix and netbacks, we will, as you see, the second Ma'aden project coming up, our joint venture, you're going to see our mix won't appeared to change what ships out of Florida, maybe not making it all the way to India in quite as big a volumes and we may be taking more of that tonnage out of that Ma'aden joint venture. And so it'll be a little bit heavier appearance as the tonnage going into Latin America, I suspect in North America, but we will still be there in the Indian market with other origins of product.

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Operator [53]

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Our next question comes from Howard Flinker from Flinker and Company.

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Unidentified Analyst, [54]

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What was the D&A for this quarter? And what was it in the same quarter last year, please?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [55]

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Okay. I think that might take us a couple of seconds to drag up here, Howie, because that's fairly technical.

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Richard L. Mack, The Mosaic Company - CFO, Principal Accounting Officer and EVP [56]

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Howard, I'm just taking a look at it here. So in Q1 of 2017, our D&A was $159 million, and the same quarter a year ago, it was $184 million. I hope that's responsive to your question.

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Operator [57]

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And our next question will come from John Roberts from UBS.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [58]

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I asked the earlier question on the Chinese, another major player in the market is OCP, and they're going to host a group of local investors in about 2 weeks. Are they expected to be relatively stable from a competitive perspective over the rest of the year here? Do you have any thoughts on them in the markets since you commented on the Chinese as well?

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [59]

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Yes, I'm going to hand it again -- hand it to Mike. Mike, OCP's market response this year?

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Michael Rahm, [60]

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Yes. Just in terms of their capacity, they're bringing on their third hub now, and they've indicated that their fourth hub will be coming on later this year. I think when you look at their sales mix, they're doing a great job in terms of developing the African market. Just looking at their lineup periodically. There are times when well over half of what they are shipping is going to the African markets. So they -- they're developing markets that they're serving. And I think they've indicated that as time goes on, they expect to capture about half of the growth in global demand, and they are a very formidable competitor in this market.

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James C. O'Rourke, The Mosaic Company - CEO, President and Director [61]

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Okay. With that, I think we're about ready to close. No more questions. What I just want to end the call with, though, is to say, we have to be careful to separate the operational issues with the market. In the market, we have to separate seasonal slowness in the first quarter with the long-term upcycle that we're starting to see in overall. So to conclude the call, I just want to reiterate our key points. While our results for the first quarter did not meet our expectations, we have moved past the operational issues we encountered. Our cost and capital continued to be well controlled and we are building considerable leverage to deliver shareholder values as the market improves. We expected to deliver stronger performance in the second quarter and the remainder of this year as we focus on integration of our Vale Fertilizantes acquisition. Again, thank you for joining us today and have a great day.

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Operator [62]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.