The Mosaic Company - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered net sales of $2.82B, diluted EPS of $0.53, adjusted EPS of $0.45, and adjusted EBITDA of $594M; gross margin rate compressed to 11% vs 18% a year ago, with a notable FX loss partially offset by a $522M gain on the Ma’aden transaction.
• Phosphates outperformed on price and stripping margins (DAP $593/t), while Potash volumes recovered but pricing remained lower (MOP $199/t); Brazil’s Fertilizantes showed healthy underlying performance despite FX headwinds and structured payables impacts.
• 2025 guidance calls for Phosphate production of 7.2–7.6Mt, Potash 8.7–9.1Mt, CapEx $1.2–$1.3B, SG&A $470–$500M, and adjusted effective tax rate in the high-20s% (Q1 guidance: DAP $595–$615/t; MOP $200–$220/t).
• Management flagged strong 2025 ag fundamentals, tightening phosphate supply, improving potash markets (price momentum since year-end), and accelerated asset reliability investments; capital redeployment continues (Ma’aden shares received; Patos sale pending; Carlsbad review).

What Went Well and What Went Wrong

What Went Well

• Phosphate adjusted EBITDA rose to $341M in Q4 (vs $259M prior year) on elevated stripping margins and higher DAP pricing; segment adjusted EBITDA per tonne improved to $210/t (vs $164/t).
• Brazil Fertilizantes underlying operating performance was strong; adjusted EBITDA of $82M in Q4 (after ~$35M FX-payables drag) implies ~$120M run-rate as FX effects roll off and cost initiatives scale.
• Strategic portfolio actions: closed Ma’aden transaction (recorded $522M gain), signed agreement to sell the idled Patos de Minas mine for $125M; ongoing review of Carlsbad potash.
• Quote: “We delivered our highest quarterly EBITDA of the year with great prospects for all three segments for 2025…” — Bruce Bodine (CEO).

What Went Wrong

• FX-driven headwinds: consolidated foreign currency transaction loss of $418.5M in Q4 and $685.8M for 2024; Q4 notable FX/payables reduced Brazil EBITDA (~$35M).
• Weather-related disruptions: hurricanes (Helene/Milton) reduced 2024 phosphate production (~700kt) and increased idle/turnaround costs; potash production also impacted earlier in the year.
• Gross margin rate compressed to 11% in Q4 (from 18% prior year), while net income dropped YoY ($169M vs $365M), reflecting lower prices in potash/Fertilizantes and notable items.
• Analyst concern: operating cash flow in Q4 (~$219M) did not cover CapEx/dividends due to volume shortfalls and storm-related costs; management expects coverage in 2025.

Transcript

Operator (participant)

Fourth Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. And to withdraw your question, please press star and then two. Please note that this event is being recorded. I would now like to turn the conference over to Jason Tremblay. Please go ahead.

Jason Tremblay (Head of Investor Relations)

Thank you, and welcome to our Fourth Quarter 2024 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer. Jenny Wang, Executive Vice President Commercial, will then cover the market update. Luciano Siani Pires, Executive Vice President and Chief Financial Officer, will review financial results and capital allocation progress. We will then open the floor for 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 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 published today 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.

Bruce Bodine (President and CEO)

Good morning, and thanks for joining our call. I'd like to start by welcoming Luciano to his first call as Mosaic CFO. We've known him for a long time through his service on Mosaic's board, and we're thrilled to have him on our team. We're taking a different approach this quarter. During this first part of our call, I'll cover our high-level business performance and strategic progress, then Jenny Wang will give you an update on the markets, followed by Luciano providing more context on our financial performance and capital allocation strategy. After that, we'll take your questions. I'll start with our key messages for today. First, agriculture markets have improved, and we expect constructive ag and fertilizer fundamentals in 2025. Second, at Mosaic, we are making operational and strategic progress, and the business is positioned well to benefit from good markets this year.

Finally, our work to shed non-core assets and reallocate capital is taking shape. To cover the numbers, fourth quarter net income was $169 million, and adjusted EBITDA came in at $594 million. We saw strong phosphate prices and stripping margins, solid potash performance despite low prices, and excellent underlying business performance in Brazil. Let's talk about the segments first. In potash, the Esterhazy complex, which is the world's largest potash mine and among the most efficient, continues to generate strong cash flow across the commodity cycle, and we are continuing to optimize it. Our Belle Plaine potash mine delivered a 100% operating rate and record production in 2024. We resolved the electrical issues we experienced in the third quarter, and we are operating at full milling and hoisting capacity now, which will let us continue to drive costs down.

It clearly benefits us to produce every ton we can at Esterhazy, and we're investing to do just that. Last year, we finished a project to increase our compaction capacity by 500,000 tons, and this year we expect to complete a Hydrofloat project to provide an additional 400,000 tons of capacity per year. We expect potash demand to remain strong given affordability and the trends in crop prices, combined with supply reductions caused by recent news coming out of Laos, China, Belarus, and Russia. There's a lot going on in geopolitics that could impact potash markets. There is quite a bit of uncertainty around Canadian tariffs, and we're watching that situation closely. Even accounting for the impact of tariffs, potash prices will remain affordable. Therefore, we expect no major demand destruction. The potential resolution of the war in Ukraine would have very little impact to the global potash supply.

The same goes for Belarus sanctions: very little impact on supply. Jenny will give you more detail about these dynamics in a few minutes. In phosphate, supply remains tight, and demand remains very strong, which has led to prices and stripping margins remaining significantly above historic levels for the past several years, with no end in sight. I should note that we have secured our long-term ammonia supply. We signed the last of three supply contracts late last year, so we have locked up reliable supply at competitive rates. Restoring our U.S. phosphate production to historical levels remains a top priority. Fourth quarter production was lower than expected because of a challenging recovery from hurricanes Helene and Milton. Most of our storm-related downtime was in the fourth quarter. We've often said the pathway to higher levels is not straight up.

Early this year, we have turnarounds at Bartow and New Wales, and we have more work to do to improve asset reliability in Florida and Louisiana. To this end, we are accelerating capital spending to address these issues and expect that work to be finished by the middle of the year. Overall, we expect our production volumes to improve throughout the year and reach 7.2-7.6 million tons for the year. Our business in Brazil is performing very well even with the market and credit headwinds. Our fourth quarter adjusted EBITDA for the Mosaic Fertilizantes segment of $82 million shows strong underlying business performance. Our margins in Brazil are healthy. Our distribution margin was at the high end of the annual normalized range, and our production cost per ton trended down in the fourth quarter.

With the constructive market dynamics we see ahead in 2025, we feel good about Mosaic's business in Brazil. Our solid operating performance is supported by good cost discipline. We're making good progress toward our cost reduction targets, but I'll leave the details to Luciano. Now I'll talk about our strategic progress. We've told you before that we're analyzing our facilities on the basis of their returns on capital. The outcomes of that work are allowing us to find better owners of underperforming assets and redeploy capital for better returns. We've already announced several deals, including the pending sale of our Patos de Minas site in Brazil and the conclusion of the Ma'aden transaction. That deal gave us a transparent value for our investment, which is about $1.5 billion as of today, as well as a $522 million gain and a long-term capital redeployment possibility.

We have other moves in the works, including our pursuit of strategic alternatives for our potash mine in Carlsbad, New Mexico. We're not just focused on making our portfolio stronger. We're also investing in our strengths and growing in our core business in new areas. In addition to the compaction and Hydrofloat project I mentioned earlier, our new one million-ton blending plant in Palmeirante, Brazil, is almost finished. Our newest growth engine, Mosaic Biosciences, is accelerating. We doubled revenues and acreage on which our products were applied in 2024, and we expect a similar growth rate in 2025. We'll have a lot more to say on Mosaic Biosciences at our Analyst Day in New York on March 18th. I hope you'll join us, whether in person or online. Now I'll ask Jenny to give you her thoughts on agriculture and fertilizer markets. Jenny?

Jenny Wang (EVP)

Thank you, Bruce. We expect 2025 to be a good year for agricultural commodities. Let's start with crops. Fundamentals are strong for most crops around the world. Strong global corn demand in 2024 is leading to expectations of a much lower stock-to-use ratio, which in turn has led to rising corn prices since last September. Soybean prices have also moved off their lows set last year. Animal protein market remains very strong and is expected to continue to drive robust demand for grain and oilseeds products in feed rations. In addition, palm oil prices have stayed in a high range for some time now. All in all, the world's farmers have strong financial incentives to maximize yield in 2025. Of course, that bodes well for phosphate and potash demand. First, for phosphate, higher crop prices mean phosphate will be more affordable, and we believe demand will remain very strong.

Remember, phosphate fertilizer demand is driven by a combination of factors, including rising oilseeds production with the increase in global biofuel demand. At the same time, rising use of phosphate for battery production has created another pull on phosphate. With limited new phosphate production coming into the market over the next few years and with ongoing Chinese export restrictions, we expect supply to remain tight and prices and stripping margins to remain elevated by historical standards. Regarding stripping margins in the near term, we anticipate that they will remain attractive even with sulfur prices increasing, as ammonia prices are expected to come to ease. And as a matter of fact, March spot ammonia price was concluded at $40 below from the last month. In potash, as Bruce mentioned, global demand has been strong, and we expect that to continue.

Palm oil prices are supporting another strong year for potash application in Malaysia and Indonesia, while Chinese demand is expected to remain solid after two consecutive record shipment years in 2023 and 2024, with volume topping 18 million and 19 million tons, respectively. Bear in mind that shipment averaged just 15 million tons in the preceding five years in China. In addition, Brazil has walked through much of its inventory through the second corn crop, and we have seen very strong demand for potash in the soybean season. As a result, we expect 2025 shipments to set another record for potash. Supply is likely to be more constrained this year than last due to the two largest producers in China guiding to lower output in 2025, and both Belaruskali and Uralkali announced that they would produce fewer tons.

Additionally, there is significant uncertainty as to how much additional production will be available from Laos, given continued issues with mine inflows and sinkholes. As a result, we believe potash markets are improving and are very constructive. Now I will pass the call over to Luciano for insight into our financial performance.

Luciano Siani Pires (EVP and CFO)

Thank you, Jenny, and thanks to you, Bruce, for your warm welcome. I've been CFO of Mosaic now for two months, responsible for finance, strategy, IT. Coming in, I think Mosaic is mature, has a clear strategic direction, strong financial foundation. I can give you several examples. The balance sheet is a good place, BBB, where it's most efficient to be. We have lots of funding options in place. Share count has been reduced by almost 20% over the past years, something that maybe the market doesn't fully appreciate. Yes, after a few years of cost inflation, I believe there's good momentum in the cost control initiatives. The $150 million target, you know, I'm confident we will reach it, and we'll discuss this in a moment. Capital expenditures are also under control. Mosaic delivered on its commitment to reduce CapEx by about $200 million last year.

This year, we're flat CapEx to address some reliability challenges, but we will continue to reduce CapEx in future years. I'm privileged to step in with so much already accomplished. I'll give you some detailed comments and color on some of the most meaningful numbers on our financial statements and performance. This is a little new, but my goal is for you to be able to understand the drivers of our performance and to model it going forward, so I'll start with my comments with net income. Obviously, it's complicated. Lots of non-recurring events. First one, we exchanged our stake in the MWSPC joint venture for the shares of Ma'aden, and you see a $522 million gain on this one, and this is the difference between the market value of the shares on the date of the closing to the book value of our former stake on the joint venture.

But then you have another gain of $28 million, and this is now the increase in the market price of the stock between the closing date and December 31st. And going forward, you will see the mark-to-market of the value of those shares reflected in our financials. So this is going to be recurring. Net income was also impacted by this large balance sheet $390 million for exchange loss in the fourth quarter, which is in the notables table in our press release. That comes from the intercompany loans from the U.S. to Brazil and from the U.S. to Canada. They're both denominated in U.S. dollars. And the issue is that the Brazilian real weakened a lot during the fourth quarter by 14%, worst-performing currency in the world. And so the local Brazilian balance sheet debt also increased by a similar amount.

The Canadian dollar also weakened by 6%, so the Canadian balance sheet also faced a loss. These negative effects were huge in the quarter, and they go up into the consolidated financial statements of Mosaic as a whole. This foreign exchange story also goes into the adjusted EBITDA performance of our businesses, and again, and most importantly, into Mosaic Fertilizantes in Brazil. The Brazilian distribution business buys themselves finished product, and at any given time, we have open payables in dollars. The payables now in Brazilian reais are more expensive. As we pay the obligations, we recognize a loss in EBITDA in the local income statement. The difference between the payables in U.S. dollar, the current exchange rate, which is more expensive, and the older one, this goes into EBITDA.

There are other smaller losses in FX hedging, and all in all, that reduced the adjusted EBITDA for Brazil by $35 million in this quarter. And may continue to have around $20 million impact in the first quarter of 2025 just because we still have and working through the old payables. And why am I saying all of this? Because I want to call you the attention to the fact that our adjusted EBITDA for Brazil in the fourth quarter was $82 million, but that was after all these charges. So to see our underlying performance, you need to add back this $35 million loss. So instead of $82 million of adjusted EBITDA, we are in the $120 million territory. And once these payables thing is gone, that's the number you're going to see printed from the second quarter of 2025 onwards.

It's actually going to be even higher given the cost improvements ongoing. Why we're now into this $120 million plus territory for EBITDA? For two factors. The first, cost performance is really now strong. As part of the $150 million cost reduction program, we already captured $35 million recurring savings only in Brazil. Just to give you some color, one initiative, for example, we changed our mine plans, we increased rock production, and we ceased importing phosphate rock, which is much more expensive. That only change reduces our operating costs in Brazil by $35-$40 million annually, and about $15 million was already captured in 2024. The other factor is now that the FX rate provides a tailwind in costs.

So altogether, if you compare fourth quarter of 2024 with fourth quarter of 2023, you can see this in our performance data sheet, which is in the website. Phosphate rock costs are down 15%, and phosphate conversion costs are down 23% in that period. So very confident about Fertilizantes going forward. So one other highlight is SG&A. $497 million in 2024 is largely flat when you compare to $501 million in 2023. But 2024 includes a $30 million loss on receivables. You remember a significant Brazilian retailer that defaulted. So without this loss, SG&A would have been, like instead of $4 million less, would have been $34 million less, or a 6% year-over-year reduction. And considering other non-recurring, non-cash factors, we can say that $42 million have already been saved on intrinsic SG&A as part of the $150 million in cost savings.

By the way, we've got insurance on this $30 million debt. So at some point, we expect to recover the majority of this loss in bad debt. How about potash and phosphates? In potash, MOP costs have been largely flat, $65-$75 a ton in the past four quarters. But it should edge down as we produce more tons from Esterhazy, which is our most efficient mine, and with the Hydrofloat project coming online later this year. The margins will also improve as we make more granular products, which in average earn about $20-$30 more than standard products. In phosphates, the costs actually increased in Q4 due to the plants being idle following the hurricanes we discussed, but the recovering volumes in 2025 will dilute the cost per ton. We're already looking for more than $150 million in cost reductions.

So we have this digital acceleration program that should bring about $70 million in benefit. Another $50 million is coming from a better mine plant and mass recovery at our Patrocínio and Araxá complex in Brazil. And we will discuss all of this in detail, and we'll have additional news for you on our Analyst Day upcoming on March 18, which I invite all of you to attend. I'm sure we're going to be also discussing capital allocation in the Q&A, and I was very lucky to come in right in the middle of the conclusion of the $1.5 billion deal with Ma’aden shares. And I actually got my hands and worked in the $125 million Patos deal. I'm fully committed with the program to reallocate capital to the benefits of shareholders. And one final note, we've decided to discontinue our monthly price and volume releases.

We've received some feedback from you that these releases were not particularly helpful, more noise than signal, so we're discontinuing it. So with that, I want to turn the call back to you, Bruce.

Bruce Bodine (President and CEO)

Thank you, Luciano. To summarize, Mosaic delivered a solid year despite considerable market weather and operational challenges. Our outlook for 2025 is positive. With our improving operational performance, lower cost profiles, and excellent financial foundation, Mosaic is well positioned to benefit from the strong market conditions we see ahead. Now, Operator, we'd like to take questions from the audience.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. In the interest of time, please limit yourself to one question. And your first question today will come from Chris Parkinson with Wolfe Research. Please go ahead.

Chris Parkinson (Managing Director)

Great. Thank you so much. In your press release, you mentioned it's your belief that 700,000 tons were sacrificed in 2024 for your processed phosphate, and you mentioned some of this in your prepared remarks. So that would leave you about 7.1 at the midpoint for 2025. So at the midpoint for 2025 guidance, it's about 300,000 tons. Wouldn't just the phosphate turnarounds get you to that number anyway, or what's the best way to think about that? And if you could throw in some half-on-half comments, that would be very helpful. Thank you so much.

Bruce Bodine (President and CEO)

Thanks, Chris. Yeah, about 700,000 tons due to kind of those extraordinary events due to weather and some other things that we had to deal with in 2024 get you to that kind of 7-7.1, as you said. The phosphate turnarounds, it really is the sulfuric turnarounds that we've been focused on for the last several years coming out of the pandemic that really got upside down on a sequencing. And we've been talking about that and the catch-up work, and I think that might be where you're going, Chris, if I understand right. So yes, sulfuric is back, as we've said, kind of on those three-year turnaround cycles.

But what we found as we went into December, and actually, if you were to add in kind of the hurricane impacts to our December production, we would have had one of the best production years or quarters in maybe the last two years. So we had a chance to kind of put the accelerator down, given that some of our sulfuric issues are largely behind us. And we did find a couple of bottlenecks in phosphate, particularly at New Wales, that we need to address. And part of the reason that our CapEx is staying flat this year is we're putting a little more money in the first half of the year to deal with some of these lingering effects on downstream of sulfuric in some of our facilities here in Central Florida and Louisiana.

That is maybe the half over half difference that you're talking about, Chris, and what to look for. As we announced, quarter one was always going to be kind of a challenge quarter given the Bartow turnaround, which should be wrapping up next week. Then we've got some other turnaround work that was in our normal schedule, but now we're accelerating forward some additional reliability work in phosphoric acid at New Wales that's going to suck up a little bit more capital this year in order so that the second half of the year is at that max capacity run rate. You will see a difference between first half, second half, given that pull forward of some work that we're doing to really address those lingering reliability issues in phosphoric acid.

Operator (participant)

Your next question today will come from Andrew Wong with RBC Capital Markets. Please go ahead.

Andrew Wong (Equity Research Analyst)

Hey, good morning. Thanks for taking my questions. So Mosaic's obviously had some very interesting monetization of assets with Ma'aden and MWSPC. Just wondering what other assets might be considered. You've mentioned Carlsbad. Is there anything else that might be notable that we should be thinking about? And then just regarding the Ma'aden transaction, are there ways to monetize that investment before the lockup period?

Bruce Bodine (President and CEO)

Yeah, Andrew, no, thanks. I think we've been pretty consistent, and I'm going to turn over to Luciano in a minute to talk about some of the details because he kind of highlighted that on the prerecorded section. As we're looking at every asset within our portfolio to see if it generates returns that are acceptable, some examples, as you mentioned, the Ma'aden transaction was the kind of tip of the iceberg of that as we closed 2024. But even you go back to Streamsong in 2023, that was another example of looking at our portfolio. The Patos de Minas mine, which was an idled mine, had an opportunity to sell that for something that contributes very positively. And as you said, Andrew, we do have a process ongoing and are optimistic that we may have some news in the upcoming weeks to announce at Carlsbad.

So every asset is being looked at, and if we've got opportunities to think differently about that, opportunities to maybe even consider divesting of that, those are things that we're going to continue to look at. And we'll be talking a lot more about that in detail in our Analyst Day on March 18th. But Luciano, I'll turn it over to you.

Luciano Siani Pires (EVP and CFO)

No, Bruce, we said it all. We ask for patience from you on the street because there's a lot of studies ongoing. No stone is going to be left unturned. There will be specifics being given at the analyst investor day. And as Bruce pointed out, we're very optimistic with the Carlsbad, the way that things are going. So we should expect some important news for you maybe as early as Q2. And as regards the Ma'aden shares, yes, there are ways to monetize it beforehand. We are looking into it, but you shouldn't expect something, I would say, on the size of the entire shareholding simply because there are constraints, liquidity constraints to do it, like third parties to do it. Lots of ideas. That's something that we're looking upon very, very carefully.

But again, as news comes out, we're going to let you know as soon as we have decisions made.

Jenny Wang (EVP)

And your next question today will come from Steve Byrne with Bank of America. Please go ahead. Steve, your line may be muted.

Steve Byrne (Managing Director)

Yep, sorry about that. I'm struggling to understand your outlook for global phosphate shipments. It's the chart you have in slide 20. You look at that and you look at the 10-year period before 2022, and you would project something much greater than the low end of your forecast for 2025. So what has happened in these last few years? It's not like these growers' use of phosphate is discretionary if it's being removed with the crops. Is this a case where there has just been excess material in most soil? Has there been greater application rates than needed? Why isn't there a yield drag from this? And one more by extension, is there potential for this curve to really flatten longer term from your BioPath and PowerCoat products, which can release the immobilized phosphate in soil?

Bruce Bodine (President and CEO)

Okay, Steve, thanks for the question. And I'm going to end up kick it off and say a couple of opening remarks and then give it over to Jenny to kind of get into the specifics on the yield and application in phosphate and then the complement of your question on biosciences, but I think what we see is that it's actually a supply-side limitation on demand growth for phosphates. There just is limited supply in the marketplace, which is why stripping margins have stayed so constructive for so long, and we're seeing that kind of $630-$650 price point and north of $400 stripping margins, realized stripping margins for Mosaic, even above that by $20-$40 a ton, given our advantages.

So it really is the constructiveness and the tightness of the market largely driven by the export constraints and the discipline on exports coming out of China. So we don't see that changing much, Steve. And actually, competition for phosphate molecules outside of just pure-play agriculture are going to continue with our LFP. And this is probably where biosciences actually are complementary to that supply constraint to actually allow farmers to continue to get good yield improvements even with the supply constraint on phosphates until such time that there is significant new greenfield capacity announced, which just isn't the case. So a one- to one-and-a-half-pound compound annual growth rate in phosphates, I think, is what we would expect going forward through the decade. But Jenny, I'll turn it over to you.

Jenny Wang (EVP)

Sure. Thanks, Bruce. Steve, I think you raised a very good question. We actually project the demand growth for phosphate globally should stay at a trend line between 1%-2%. But you're exactly right. It didn't happen over the last couple of years. As Bruce mentioned, it's really constrained by supply. As a result of it, it's quite supportive to the stripping margin and prices. I would like to also mention, to answer your questions related to the phosphate application rate and how that might impact the yield. As many people know, or probably don't know, phosphorus is one of the least efficient applied nutrients, meaning in general, only 50% of the phosphorus applied on the ground are uptaken or used by plants or crops. So meaning there is a big amount of phosphate being applied and stayed in the soil.

With a reduced application rate over the last couple of years, we may see some of the underlying impact to the yield. Some of the biological products, like you mentioned, and thank you for calling out the two flagship brands that we have, PowerCoat and BioPath, these are two good examples that microbials, the bacterials actually could help to generate organic acid, which help to make the phosphorus tied to the soil to be more available for the crops to use, which in turn to make the phosphate use efficiency much higher, which helped yield increases. So more to come. Apart from these two flagship brands that we have, and we actually have even more advanced products in the pipeline. And stay tuned. We're going to talk more on our Analyst Day on March 18th. Thanks.

Operator (participant)

Your next question today will come from Joel Jackson with BMO Capital Markets. Please go ahead.

Good morning. This is Anthony on for Joel. Maybe just a question on potash. What could maximum potash production look like compared to the guidance range you provided if global demand surprises to the upside this year?

Bruce Bodine (President and CEO)

Thanks, Anthony. I think there's probably limited upside on maximum production, at least from us, and I think even on the Canadian producers, I mean, you have to talk to Nutrien about what they think. And I think that probably happened on prior call last week, but we're running at kind of full rate at Esterhazy, full rate at Belle Plaine. We use Colonsay as our swing facility. It will be running and is running right now. We will always continue to analyze that. But if there was upside, I think it gets down to can the supply chain getting out of Canada actually take significant more tons. For sure, there's more incremental on the fringes, and that's probably on the high side, well, not probably, it is on the high side of our range.

But there is a limit just given rail fluidity, capacity at the ports to get significantly more capacity out of Canada. So I think that becomes the limiting constraint. And that would, as I said, the high side of our guidance really assumes that supply chain works very well and demand is on the higher end of the trend. Jenny, anything to add to that?

Jenny Wang (EVP)

I think you covered, Bruce. I guess apart from Canadian producers, we do not really see any major spare capacities in the rest of the world. As we mentioned on our earlier commentary, the two largest producers in China announced their production cut this year due to very low inventories that they had last year in their pond. And then we also have seen the announcement out of FSU on their reduction of the production due to this long-needed turnaround. And lastly, the addition of the supply out of Laos, it is very uncertain how much more they can push out of the country due to the issues around the sinkhole and water inflow. So all in all, we do not see really any meaningful extra capacity really for potash to be able to get out for this year.

Operator (participant)

Your next question today will come from Vincent Andrews with Morgan Stanley. Please go ahead.

Vincent Andrews (Managing Director)

Thank you. Good morning, everyone. I could just ask on CapEx and working capital. Luciano, you've been in the seats for a couple of months. Can you talk about sort of how you view the CapEx level now? Obviously, it's down versus the last few years, but do you think this is the right level? Are you comfortable with where maintenance CapEx is? And do you think CapEx will stay flat at these levels over the next few years? And then if I could just ask on working capital, whether you think there are any opportunities there. And in particular, maybe you could talk about how much working capital the fertilizante business consumes.

Luciano Siani Pires (EVP and CFO)

Vincent, thank you. Starting by CapEx, we're not happy with the level of CapEx where it is. We do have a target to reduce specialty sustaining CapEx throughout the years. We can shave probably over the next few years, maybe $200 million-$300 million of the level that we are today. As Bruce said, we are spending perhaps $100 million more this year to fix the reliability issues. That reduction will mostly come over the next few years on maintenance CapEx. That's what we are targeting. We would like to continue to have about maybe $100 million-$150 million every year put forward into very creative opportunity projects like the ones which were already discussed, like the Hydrofloats, compaction, MicroEssentials. But maintenance CapEx is where we need to do some work.

As for working capital, there will be a buildup in working capital this year, especially in the second half, just because the business is resuming its growth. The larger volumes in phosphates and in potash will point in that direction. The same thing in Brazil with Palmeirante coming in. In the second half, our target for sales this year is much greater than last year. Brazil will continue to grow. All in all, it will be a consumer of working capital. Actually, this plays out in our outlook for cash flows this year. We should expect, I would say, given the same levels of production, stronger cash flows in 2026, even more strong than the second half of 2025, just because of this working capital buildup. That's an intrinsic, I would say, part of the business.

It is well financed, so we have access to a lot of short-term options to fund it. So that's the way it is. We build up in the first half, we generate cash in the second half. But this year, despite the cash flow generation in the second half, there's still a little bit more of buildup because of the growth, which is a good thing.

Operator (participant)

Your next question today will come from Richard Garchitorena with Wells Fargo. Please go ahead.

Richard Garchitorena (Equity Research Analyst)

All right. Thanks. Good morning. Just all the progress on the cost savings and the structure that Fertilizantes, obviously, you've seen $35 million or the $150 million come from that in 2024. Just wondering, for 2025, the remaining cost savings from the 150, how much of that is going to be coming from Fertilizantes? Is the rest going to be from SG&A? And then just on the Brazil market in general, maybe if you could give some color in terms of what you've been doing to ensure that credit issues that you saw in 2024 won't continue, anything that you've done that maybe protects you from potential further downside, that'd be great. Thank you.

Bruce Bodine (President and CEO)

Richard, no, thanks. Just on that, I appreciate the recognition on the cost reduction. As we said, half of that's already been delivered from a run rate standpoint. And the remainder of that is going to come from a number of different areas. As you said, SG&A still got some cost savings to capture. We're going to see some fixed cost absorption benefits as we get that extra 1 million tons of production and then growing to 1.5 million tons of production in phosphates in North America. The improvements in production volume and reliability in South America are going to start to bring fixed cost absorption benefits as well. And then there's the hard savings that Luciano has talked about. But I think Luciano is going to. I'll turn it over to him to talk more.

But we're really looking at doubling down on even more cost reductions and turning more stones over in all corners of the business. So more that we'll talk about there, and I'll turn it over to him. And then maybe over to Jenny if Luciano doesn't answer it first on the credit issues in Brazil. Luciano?

Luciano Siani Pires (EVP and CFO)

Well, thank you, Bruce. The 150, it's going to be pretty much in the bag just by cost dilution in phosphates and in potash. And in fact, anything else in the fertilizante side will probably be on top of that. And so we are already crafting what can we achieve in addition to the 150. And you will put some aggressive numbers coming soon. We also appreciate this. I think the performance of Fertilizantes was a little clouded because of this FX effect.

So pardon me if I spent too much time discussing it initially. But I've got to reemphasize that we are really, really confident in the performance of this business going forward, precisely because of the cost performance. And I'm going to go back to one of the things which I mentioned in the briefing. For example, we have this mine, Araxá in Patrocínio. The mine life is up to 2062. So by changing the mine plan, for example, and yes, shortening mine life by maybe 10 years from 62 to 52, we're accessing much better high-grade areas. The improvement in mass recovery is substantial. So only at this particular site, we're going to get another $50 million U.S. run rate starting in January 2024. So there's a lot to extract from the Fertilizantes business. I encourage you to watch out for the performance of this line of business going forward.

Jenny Wang (EVP)

Your next question today will come from Lucas Beaulieu with UBS. Please go ahead.

Chris Perrella (Director)

Hi, good morning, everyone. It's Chris Perrella for Lucas. Following up on the potash commentary, prices were up in the first quarter. There's a pop ahead of potential tariffs. Could you just expand a bit on what you think potential tariffs on Canadian potash would have on pricing and demand and trade flows? And with the price up in the first quarter, do you realize that benefit in 1Q or 2Q?

Bruce Bodine (President and CEO)

Lucas, I'm going to get your question down. I'm going to answer because we had a mic issue here. Didn't get to answer the second half of Richard's question on credit in Brazil. So let's do that first, and then we'll hit your tariffs, demand, and trade flows issue. Jenny, you want to talk about credit in Brazil?

Jenny Wang (EVP)

Yes. Thank you, Bruce. Richard, to your question on the credit risk issues in Brazil, we've been very diligent in managing our business in Brazil. We made some tough choices between volume and margin and the credit risk. As a result of it, we have been really focusing on margin, focusing on lower-risk customers, and we have shifted our business away from traditional retailers in Brazil and more towards to, A, end users, mega farmers, B, traders, the grain traders who have very good better businesses with the farmers, lastly on the co-ops, so the customers with solid credit have given us a lot of insulation and assurance on the business quality, and we will continue to do so in this year.

Bruce Bodine (President and CEO)

So Lucas, on the tariff question, obviously, that's topic du jour in many corners of the globe. It's a dynamic situation, one that we're watching very closely. I know even as of yesterday, reconfirmed these March 25% tariffs. But we have numerous teams across our organization in all functions and facets working on this and paying attention to it. But listen, at the end of the day, if tariffs are imposed or when, we see that it's going to be borne by downstream customers of Mosaic. So that's unfortunate, but it is the reality of that situation. With 80%-85% of the potash demand in the U.S. coming from Canada, it's just hard to replace that. And so again, the downstream customer is going to bear the brunt of that cost.

The good news, if you want to look at good news or silver lining, is that given the affordability of potash today and the increase in corn prices and wheat prices and the general affordability of commodity on the ag side in general, affordability is not that significant of an issue for potash, even with a 20%-25% tariff on top of it. The other advantage is that spring tons, spring season demand is pretty much already baked and in place in space in the U.S., so don't see any immediate impacts for spring on the downstream side. And just to reinforce that, Jenny and I were with one of our large customers out of Ohio, a cooperative, and we asked and had a lot of discussion around the tariff impact and sentiment of farmers, and to be honest, they're not even concerned.

The additional cost is not something that they're worried about, and again, it gets down to the affordability, which, to be honest, surprised me a little bit, but it just goes to show the confidence in the market and the farm gate on the pricing and affordability and that transfer of cost on a per-acre basis at the farm is not that significant in the big scheme of things, so don't see the tariffs having a huge impact on demand and anything to do with the profitability for Mosaic. Now, in the marketplace, to your point, prior to any tariffs, we have seen good price appreciation, greater than $40 a ton up in the U.S. and Brazil on potash since December of 2024 or the turn of the year, and even higher than that if you look at domestic prices in China.

There is good price momentum around the globe and some of the first good price momentum we've seen of this magnitude in a couple of years. Where we'll realize that, I'll turn that over to Jenny from a Brazil export standpoint.

Jenny Wang (EVP)

Sure. Lucas, I believe the price momentum, as Bruce mentioned, some of them will be reflected in Q1 and much more will be reflected in Q2, it is just because of the selling cycle between Canpotex and ourselves in the domestic market are very different, so you should see from our guidance that we're guiding a higher price in Q1 and more to come in Q2.

Operator (participant)

Your next question today will come from Jeff Zekauskas with J.P. Morgan. Please go ahead.

Jeff Zekauskas (Equity Research Analyst)

Thanks very much. Your cash flows in the fourth quarter and for the year in 2024 were quite low in that your EBITDA was almost $600 and you generated roughly $220 in cash. You weren't able to cover your dividend and your CapEx this year from operating cash flow. Was there something in the large currency events that pushed cash flow down, and do you expect to cover CapEx and dividends next year with operating cash flow?

Bruce Bodine (President and CEO)

Yeah, Jeff, good question and something we've had a lot of discussion around ourselves. So I'm going to turn it over to Luciano to get into the details of that.

Jeff, indeed, the shortfalls in volumes and production volumes and sales generated a shortfall in cash flows, especially in the second half, which was not in the forecast, so yes, it's true that the cash flows didn't cover the dividend and the CapEx. You can estimate the shortfalls at perhaps around $300 million just by multiplying the shortfalls in production by the margins and with the additional costs involved, so I'll give an example. Just in AROs, we spent another $20 million in the fourth quarter just to remove the water brought by the hurricanes, and you see an uptick in ARO in the quarter as well, but for this year, the situation is different.

Chris Parkinson (Managing Director)

Yeah, we do expect to cover the minimum dividend, the CapEx, and even have some excess cash in order to either distribute to shareholders or roll back some of the working capital funding additional that we did.

Operator (participant)

Your next question today will come from Edlain Rodriguez with Mizuho. Please go ahead.

Edlain Rodriguez (Equity Research Analyst)

Thank you. Good morning, everyone. I mean, first of all, just a clarification. In terms of the model and assumptions you provided, you gave production volumes for potash and phosphate. What do you expect sales volume to be for Mosaic? Or is it the same number that we should think of? But for my real question, so again, in the potash outlook, you talk about farmers. I mean, potash will remain affordable and everything else despite the tariffs. If that's the case, if farmers can and are willing to pay more for potash, why didn't producers push through those price increases, say, a couple of months ago last year when corn prices, if you look at the December corn 25, it's almost the same level as it is now?

If the corn prices are not attractive, so why didn't producers push for higher potash prices if farmers were willing to pay for it, essentially?

Bruce Bodine (President and CEO)

Yeah, Edlain, thanks for the question. Good nuanced catch on our guidance. And we don't provide sales guidance and aren't providing sales guidance for the full year. We did decide to give production guidance as something for you all to have better clarity on where we are. But I'll leave it at that for the time being. On the pricing thing, a couple of things changed. I mean, one is the price of corn continues to appreciate as well as some of the other grain commodities. But the other one was the late announcements since December of significant production supply side constraints. And that has tightened the market. So as much as you'd say, why didn't prices get pushed? It really was a global supply and demand phenomenon that changed from where it was, say, going into September, October, November.

What changed December to now is about 1.5 million tons or more have come out from the supply side, particularly in our forecast, with the announcements in China on domestic production going down, with the announcement and issues with the sinkholes in Laos and what could be the effects of that, with the announcements from Uralkali and Belaruskali on their significant maintenance outages. It really comes back down to fundamentals on S&D on why we've seen that price appreciation over the last several weeks.

Operator (participant)

Your next question today will come from Ben Theurer with Barclays. Please go ahead.

Ben Theurer (Managing Director)

Yeah, good morning, and thanks for taking my question. I just wanted to follow up, Luciano, on some of the items you've flagged for Fertilizantes down in Brazil. And I was just wondering about the cost you've talked about that you've taken out. And obviously, you expect some of it to come back from the losses in the third quarter with AgroGalaxy. But as we think about 2025 and the modeling go forward, just that SG&A run rate, how much right now of that low level that we saw in 4Q was really just FX-related and what would be called a more normalized level if we expect something in the five and a half to six and not maybe beyond six as we've seen it in fourth quarter?

And then to the timing of these insurance reclaims, if you can comment anything on how you think to gain back those $30 million? Thank you.

Bruce Bodine (President and CEO)

Okay. Thanks for the question. I would say if you look at our performance sheet data, we do provide an audited non-GAAP costs, mining costs, and phosphate conversion costs, and even potash costs in Brazilian real. So whatever exchange rate you want to model, just think of those as, I would say, the ceiling levels going forward. So you have a parameter here. But as I said before, we're trying to reduce those even in the Brazilian real. So that's for one. As for AgroGalaxy, I'm pretty confident that we will recover it this year. Cannot be precise about the quarter, but for sure, these types of processes, they don't take as long. So we're confident that we're going to get the cash flows back this year.

Operator (participant)

Your next question today will come from Kristen Owen with Oppenheimer. Please go ahead.

Kristen Owen (Managing Director)

Hi, good morning. Thank you for taking the question. Sort of a follow-up to the Fertilizantes question here, a little bit more granular. The $120 million quarterly run rate that you outlined is sort of the underlying performance of that business. Can you give us a little bit of color, first half, second half, and then from an underlying demand perspective, how you're thinking about recovery in the back half of the year given some of the distribution challenges and your shift toward the larger customers or direct-to-co-ops? Is there an opportunity to refill the channel, or should we just think about sort of a gradual increase in the back half of the year? Thank you.

Bruce Bodine (President and CEO)

Yep. Kristen, thanks for the question. Let's unpack that one a little bit on two sides. One, Jenny, maybe a timing of how things shape on cash flows, and then I'll turn it over to Luciano on anything on the underlying financial performance effects.

Jenny Wang (EVP)

Sure. Thanks. To your question on the customer selection or move between different segments, Chris, that has happened. So we actually, over the last year, we've made that move. And we think we are in a good place this year towards the customers that we're going to do business with, with a much more solid credit profile. So I don't necessarily see a major volume change from Q1 to from first half to the second half. I would say the volume growth this year is pretty much going to depend on, A, if the market is going to go as what we forecasted and we anticipate the market is going to hit a new record from shipment point of view, from demand point of view, B, from customers' credit profile point of view, we feel comfortable as where we are today.

And so just to summarize, we don't see major change from first half to the second half.

Luciano Siani Pires (EVP and CFO)

Yeah. And on the cost side, yes, you're right. That's exactly the message we want to convey that the 120 run rate is a floor for the performance of Fertilizantes going forward. And again, I just gave an example in the prior question about something that is not in that 120. So you should expect upside from there. And we're positive that we'll start showing those results from Q2 onwards.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to Bruce Bodine for any closing remarks.

Bruce Bodine (President and CEO)

Thank you, Operator. And I'll close the call by reiterating a few of our key messages. First, the market backdrop is promising. Global agriculture fundamentals have improved, providing plenty of incentive for farmers to maximize yields. Second, at Mosaic, we're making meaningful strategic progress. Our work to restore phosphate production to historic levels is proceeding well, and we've completed low-cost, high-return projects to enhance our production and distribution in all segments of the business. Third, our efforts to reallocate capital in pursuit of better returns is coming to fruition, and we're excited about that. We've announced or completed several transactions, and we expect to have more news in the near future. All in all, we have a strongly positive outlook for 2025 and a well-defined path to benefit from good market conditions. Thank you all for joining the call, and have a great and safe day.