Good morning and welcome to The Mosaic Company’s Third Quarter 2022 Earnings Call. At this time, all participants have been in a listen-only mode. After the Company completes their prepared remarks, the lines will be open to take your questions. Your host for today’s call is Mr. Paul Massoud, Vice President of Investor Relations and Financial Planning and Analysis of The Mosaic Company. Mr. Massoud, you may begin.

Thank you and welcome to our third quarter 2022 earnings call. Opening comments will be provided by Joc O’Rourke, President and Chief Executive Officer, followed by a fireside chat, then open Q&A. Clint Freeland, Senior Vice President and Chief Financial Officer; and Jenny Wang, Senior Vice President, Global Strategic Marketing, will also be available to answer your questions. We will be making forward-looking statements during this conference call. The statements include, but are not limited to, statements about future financial and operating results. They are based on management’s beliefs and expectations as of today’s date and are subject to significant risks and 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 yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures. Now, I’d like to turn the call over to Joc. Joc O’Rourke: Good morning. Thank you for joining our third quarter 2022 earnings call. Mosaic delivered record third quarter revenues of $5.3 billion, which resulted in net income of $842 million or earnings per share of $2.42. Adjusted earnings per share was $3.22, and adjusted EBITDA was $1.7 billion. These results are driving significant cash flow generation, which is allowing us to return significant capital to shareholders while also continuing to invest in the business and strengthen the balance sheet. During the quarter, we returned roughly $670 million to shareholders, including $600 million of share buybacks. Now, before diving into our operations, I’d like to address current market dynamics. Food security remains a concern around the world. Global grain and oilseed stock-to-use…

Thanks, Joc. Similar to last quarter, before we open the lines for live Q&A, we’re going to address some of the most common questions that came in last night. First, we received several questions on our general view of both the potash and phosphate markets. Where are we most optimistic? And where do we continue to see risk as we move into 2023? Joc O’Rourke: Thanks, Paul. I’m going to hand this over to Jenny for some detail here, but let me summarize by saying we’re very positive on both markets as both remain supply-constrained. Ag fundamentals remain strong and fertilizer prices have moderated from the previous peak seen earlier this year, which is driving a return to more historic levels. So, Jenny, can you give us some detail?

Thanks, Joc. I’d like to start from North America. The warm and dry weather has allowed farmers to go to the field for fall applications with a wide open window. And as of today, we are still saying products are going to hit ground. This improved farm economics and affordability has encouraged farmers to put down their phosphate and potash in the fall. In fact, we started to get customers’ inquiries and the request for the spring season demand. We sold a block of phosphate to one of our major customers yesterday as their customers, the farmers, have come to the table to buy product with the concern of the potential logistic issues for the spring supply and very strong cash flow the farmers are having to manage before end of the year. So, a good and normal fall applications are setting a good stage for the inventory drawdown in North America and set good stage for spring season in 2023. Moving over to Brazil. The barter ratios have improved significantly with the moderation of fertilizer prices and elevated ag commodity prices. We are seeing the Brazilian customers are reengaging in the purchases in order to prepare the coming safrinha seasons, and the inventories are coming down. Moving over to India. The farm economics have been very strong this year with the support from their government. The monsoon has also been helpful as we see demand increases, especially for phosphate. The recently announced subsidy program from the Indian government has been very supportive to their phosphate input and also consumption. We are seeing steady buy-ins from Indian customers on DAP recently at $750 per ton level. With the strong demand in Q4 and getting into 2023, we continue to see the supply constraints for both, phosphate and potash. On phosphate, we expect that Chinese export control will continue as we get into 2023 as the Chinese government to ensure the domestic supply availability and their farmers to be able to get fertilizers for their food production. And there’s very little new capacities coming online in phosphate production in 2023. Similarly to potash, we envision Belarus and Russia’s supply will remain constrained in 2023. And the alternatives as well will not be able to ramp up quickly to offset the continued constraints from that part of the world. To summarize, as you mentioned, Joc, we are very positive to both phosphate and potash as we move into 2023.

The next question is on channel inventories for both potash and phosphates. Can you provide some detail on recent channel inventory levels and what we expect for the balance of the year and early 2023? Joc O’Rourke: Thanks, Paul. I’m going to hand this one straight over to Jenny. Jenny?

Sure, Joc. The inventory level in most parts of the world are pretty low. In some of the regions like in Europe, the inventory level is really, really low given the supply situation in 2022. I probably want to provide some color on the inventory situation in North America and Brazil, where we believe most of the question is about. In North America, for both phosphate and potash, the current channel inventory are about average relative to historical norm at the same time of this year. As of yesterday, our other country warehouse capacity for phosphate has come down to 30% used. And for potash, that has come down to 50% used. This level of the inventory are right at the same level as we see historically at this point of time. As we are seeing good norm fall application, the channel inventories are expected to come down further. I also want to remind ourself, logistics remain very challenging in North America, particularly on the river, which highlights the unique strength of Mosaic’s assets, which can serve North America by both rail and barges. Move over to Brazil. Since the war started in the first quarter, a lot of Brazilian customers rushed to buy products from all around the world in order to ensure their supply. As a result of this rush buying, we are seeing a very high inventory building at port in Brazil started in July. That inventory at port has gradually slowed down over the last few months. By end of October, we are saying that inventory export has come down by 35% versus the peak in end of July. The other thing that I want to mention is the import shipments to Brazil. In the mid of the year, the vessels coming to Brazil had to wait for over eight weeks to unload product because the ports warehouses are so full. Now, the waiting time has come down to less than two weeks. That’s a signal. And in the meantime, we are seeing re-export vessels for both potash and phosphate. With that, we believe the market reached to the bottom in Brazil.

Joc, the next question is on the status of our potash production increases, especially given what we’ve seen with recent demand and price trends. Are we committed to continuing to increase production in 2023? Joc O’Rourke: Thank you, Paul. And let me start by talking about Esterhazy. Esterhazy has been a 10-year plan. And in that plan, we not only brought out a new mine at K3 but fully intended to bring on an extra 1 million tons of production, which was aligned with the capacity of the K1 and K2 mills. So, as we talk about that, we’ve always looked at Esterhazy as being our most efficient, lowest-cost operations. So yes, we absolutely will expand the capacity of Esterhazy’s K3 mine to meet the capacity of the mill. In terms of Colonsay, we see an immediate need for those tons as the gap in supply from Belarus has meant there’s been an opportunity for us and through Canpotex exporting more product. That near-term need, we expect, will continue into 2023. So, we certainly see a need for Colonsay in the near term. Bringing that production on has been relatively inexpensive, likely in the range of $50 per capacity ton. So on that basis, that’s paid off over a matter of months. So, how will we look at it as we go forward? We will always be focused on working towards value, not volume. And as such, we will meet the needs of the market and no more.

The fourth question we should cover is on Fertilizantes gross margins in the fourth quarter. How should investors think about the impact of cost inflation in Brazil across our production and distribution businesses? And what are the key takeaways on costs? Joc O’Rourke: Thank you, Paul. Yes, inflation is showing up in our cost structure through the increased price of commodities, labor and inputs as well as our raw materials. We expect, overall, the impact on our cost structure to be around 15%. Our distribution business in Brazil benefited by matching low-cost inventory with high-priced sales in Q2. We saw a reversal of that in the third quarter. For distribution business, due to the timing of purchases, a step down in gross margin per tone is expected. However, even with that, we are still seeing gross margins above our historic norms. With that, operator, can we open the call to questions from the audience?

[Operator Instructions] And the first question will come from Steve Byrne with Bank of America. Please go ahead.

Yes. Thank you. Joc, you were talking about lower pricing, kind of incentivizing farmers to start to purchase again. Is it -- is that what was delaying it, or were they just simply deferring purchases because prices were falling? And now that it’s showing some stabilization, there could be a bit of a flood of purchasing going on from here going forward? Is that reasonable? Joc O’Rourke: Yes. Thank you, Steve, and good morning. Certainly, as prices are declining, nobody wants to step into a market. There’s necessary caution. I would argue, probably when the prices were higher, there was also a psychological or sentimental response. The economics of planting and using fertilizer never went negative. So, it isn’t a matter of the fundamentals. It was a matter of the sentiment, I would think, at some point. And then, as the prices declined, as you suggest, the buyers take a step back and wait. If they think the price is going to be lower tomorrow, they’ll wait and start buying when they absolutely need to. I think the indication now is the price has in fact stabilized. It’s stabilized at a price where they can see easy value, if you will. And so, they’re stepping back in. And absolutely, we expect there will be a pretty steady buying. Remember, at least in North America, though, we are in the fall season. So, they are taking a price risk for next spring. So, there might be a little more caution in terms of coming all in. But we’re seeing good movement, and that indicates that they believe that this is good value and that will continue.

The next question will come from Adam Samuelson with Goldman Sachs. Please go ahead.

I guess my question is thinking about your market outlook into 2023 with the increases that you’re forecasting in potash and phosphate shipments. How should we think about Mosaic’s ability to grow shipments in excess of the market? Lapping some of the production issues this year, increased capacity at Esterhazy. I mean, what’s a rough framework, Joc, for how much production for you can be up in a market that has higher shipments next year? Joc O’Rourke: Yes. Thanks, Adam. If I think about 2023, starting with potash, and we’ve been saying this, and with the lack of -- or the lack of sales coming out of Belarus, we do see that the market is going to have to ration supply, which does, as you mentioned, bring up an opportunity for us to potentially move more product. I will say that North America, we expect to stay relatively flat. It’s not a high-growth market. So, this is all an export opportunity, if you will. The challenges there are twofold. One is, do we get to the right markets that really need it? And then the other question is, can we even move it? So, those are the first points. The supply chain is at its limit right now, and we struggle to get the tons out, particularly say in the first quarter, which I think everyone sees problems getting product out of Canada in the first quarter with winter and all the rest. And then, it comes down to what’s the production capacity. We have, I think, developed real great flexibility there with Esterhazy now reaching what I would call its full capacity, bringing on Colonsay to augment that capacity and give us some flexibility so that we can hit the seasonality as well as the increased demand. So, I…

The next question will come from Josh Spector with UBS. Please go ahead.

I guess just given consensus seems to be that the market will be short, something like 5 million to 8 million tons of potash next year, curious where you think support level is for pricing for potash in that environment. Just given your 4Q expectations of around $600 per ton, do you think pricing moves up from here as inventories come down, or is there a support level you would think about? Joc O’Rourke: Yes. Thanks, Josh. If I think about prices, I think there’s really, at this stage, it’s going to be sentiment that will really -- sentiment and fundamentals that are really going to be the limitation to prices. I would argue that what we saw, particularly in Brazil when the price of potash went to, say, $1,200, the economics was still okay, but it was starting to get pretty difficult for the Brazilian farmer. And the one that they probably work off more is their barter ratio, which became quite elevated. So in other words, it was costing them a lot more of their production to buy the inputs than it had in previous years. So, I think there’s a risk if you go too high in price that you will actually start really destroying demand. So look, I think there is a great opportunity for a -- at the same reasonable barter ratios as we’ve had with elevated crop prices that we can have very good margins and that the market should be able to move up from here. I don’t believe it’s going to move to $1,200, but I think there’s probably some good room to move from where we are today.

The next question will come from John Roberts with Credit Suisse. Please go ahead.

Thank you. Actually, it’s Edlain Rodriguez. Jenny did an excellent job highlighting the strength of both potash and phosphate. Granted, it’s always difficult to choose between your children, but if you have to differentiate between potash and phosphate, which one do you believe will prove more resilient price-wise over the next three to six months? Joc O’Rourke: Yes. Thanks, Edlain. So yes, we don’t -- we love all our children, as you highlight. If I look at the market fundamentals, and they’re both strong, but clearly, today, potash has a very good position in that as the slightly smaller of the two markets, and it has the bigger supply disruption. The supply disruption in China, while we believe will continue through 2023 or the export restrictions out of China, we expect those to continue. But that’s 5 million-ish tons on a 70-something million ton market, where in potash, you’re talking about a 8 million-ton decline on a 70 million-ton market. So, as you think about it from that perspective, the problems in Belarus in terms of exports are, A, less likely to be resolved; and B, more significant to the overall market. So if I had to be asked, which of the two had higher resilience, you’d probably say at this stage, it would be the potash market.

The next question will come from Christopher Parkinson with Mizuho. Please go ahead.

Joc, just taking a step back and looking at the various costs in both of your businesses. In potash, it seems like Esterhazy is running well and Colonsay is getting back on track. And on the phosphate side, you have relative stability right now in NH3, Faustina ops and then a decline in the sulfur price. So, just on any just preliminary basis, how should we, say, be thinking about the margins or the strip margins at phosphates? As we hit on ‘23, what are the big puts and takes in your team’s view? Joc O’Rourke: So, if I’m thinking about potash -- I’ll just hit potash real quick because I think you’ve touched on that. In potash, it’s two things that matter. One is where the product comes from. So obviously, running Colonsay at a little higher cost. The other thing that we have to take into account is Belle Plaine is highly dependent on the price of natural gas. It uses arguably some 30 million MMBtus per year of natural gas. So, if you add a couple of dollars to the natural gas price, it has a pretty big impact on that operation. So, other than that though, as you mentioned, the potash pricing or the potash cost is pretty stable. If we then look at phosphates -- and quite frankly, we are seeing some inflation in both, mining costs and processing. Mining, the distances are getting longer. The grades probably over the years is declining slightly. So, you’ve got some costs in there that come up. But they pale in comparison to when you look at the raw materials. If we think about $1,000 ammonia, that represents $200 on the cost of a ton of phosphates. If you think about a $400 sulfur, that represents about $180 cost on top. So, you could have -- at the peak, there was probably $420 a ton in our -- or sorry, $380 a ton in our phosphate cost just on those two raw materials. Now they’ve retracted back to $100 for sulfur and our average -- I think our average ammonia cost is now in the range of $600, if you take into account our own production and all the rest. So, that’s stable. And I think we talked about a $40 or $50 decline in raw materials costs, and that will fall straight to the margin. So, assuming flat prices, you could expect the margin to increase by about $40 to $50. And so, we’ll see where the price goes in the next quarter, but that’s kind of how that plays out.

The next question will come from Jeff Zekauskas with JP Morgan.

It’s a two-part question. In your slide deck, you said that you were contemplating a special dividend. Why is it that you’re contemplating a special dividend given your very low valuation and your high free cash flow generation? Wouldn’t continuing share repurchase be a higher return for your shareholder? And second, I was hoping you would comment on the possibility of Chinese phosphate rock capacity expansions or DAP or MAP expansions in 2024? Joc O’Rourke: Okay. So first one first, special dividend. I think we’ve been consistent in saying that we would be -- look at both dividends -- regular dividends, share buybacks and special dividends. So far, we have definitely focused on the share buybacks, and one of the reasons for that is -- or one of the main reasons for that is exactly as you say. We believe our shares offer as good a value as anything we can think of. And so, that’s a good place to return money to shareholders. At the same time, we have to consider all of our shareholders. Some of the long-term shareholders would like to see income. I would say, as a shareholder myself, I don’t mind the idea of seeing some of it come back as stable income. And quite frankly, if I decide, as I think I would, that the value of that meant I could buy more shares, I’m free to do that as well. So, I don’t think the idea of a combination is bad. We certainly have focused more on share buybacks. But I think we want to make sure we look at all of our shareholders. And if a small portion of our return to shareholders is through a special dividend when we’re doing well, I think that’s fair, too. And obviously, on a yearly…

The next question will come from P.J. Juvekar with Citi. Please go ahead.

Just a couple of quick questions. One, you kind of partially answered earlier. I had a question on raw materials, particularly sulfur impact on phosphates. I guess, my question there would be, you expect to keep that benefit, you said, straight to the bottom line. What gives you confidence that it falls to the bottom line and you don’t have to share that with your customers? And secondly, just on these LFP batteries that you just mentioned. My understanding is that the use of phosphate in LFP, it’s a very small part of phosphate that goes into LFP. Do you really think that LFP is going to have an impact on the phosphate markets? Thank you. Joc O’Rourke: Thanks, P.J. Okay. So, raw materials first, lithium-ion phosphate second. So, when I say that the benefit of the raw materials will fall to the bottom line, look, in general, that’s a flow-through to the customer. But what we find, of course, is always supply and demand impacts. So, in the case of a tight market, more of that sticks with us. In the case of a sloppy market, if you will, that goes -- the customer takes all of that benefit. Today, we see the market is relatively tight. So we think we can maintain our margins and potentially benefit from that falling cost. In terms of is LFP battery a significant use of phosphates, what we’re seeing today, I think, is -- I think we’ve gone from 100,000 tons of purified phosphoric acid, this is China alone, moving up in a couple of years to about 400,000 tons of purified phosphoric acid. And even year-to-date, the LFP has gone up to 670,000. And we expect 2022 will be 1 million tons total. So, what we’re seeing is an extremely quick increase in consumption, which we think, over time, definitely will have an impact on the supply and demand balance for the product. It is a big industrial use for phosphates.

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

I have two questions. Maybe I’ll ask them one after the other, if that’s okay. So -- sorry, so Mosaic had a... Joc O’Rourke: You know that. That’s three in a row.

What’s that? Joc O’Rourke: Sorry, Joel. I’m just kidding. Go ahead.

Oh, sorry, I missed that. Sorry. Mosaic had a relatively lower potash sales volume decline in Q3 than your CapEx part to Nutrien. You’re also guiding to flat volumes in Q4 versus Nutrien guiding lower. So, I mean, I know you’re just sponsor for yourself, but you’re linked on the offshore with Canpotex. So, are you -- like you just said that you think that potash volumes in the channel in North America are normal. But do you think that the pause in purchases in North America channel is a longer period than the offshore market? Joc O’Rourke: Yes. Look, first of all, I can’t comment on anyone other than Mosaic, obviously. And I also don’t know the differences in selling strategies or rev rec and all that, so making any kind of comparison. What I will say is what we saw in North America in the third quarter was a pretty good slowdown. What we did also see, though, was a reduction of imports. I mean imports year-to-date are probably down by 50% or close to 1 million tons. I suspect we had a pretty good uptake of our summer fill program or considering how the markets played out, we had a pretty good uptake of our summer fill program. So we think our customers came to the table and again, saw good value and saw that they were willing to price. And that was a good thing. So, we rev reced what we think was reasonable considering the market. In terms of going forward, again, there’s just a high level of uncertainty of where that market is going to be. And I would argue that that pertains both to Canpotex and to the North American market. In the North American market, we expect a decent fall season. If we do better than that, hey, all the better. But the expectation is a decent or normal fall season, and that’s exactly what we’re seeing. We expect to see the inventory work its way down throughout the season, which is good. I think Jenny said earlier, we’re down to 50% of our in-market inventory. So, that’s been run down significantly to a normal level for middle of November. So, we’re seeing a very normal sort of play out, and that is what we would expect. Now we had a summer fill program. It -- we didn’t discount or anything. So I think that just says the fundamentals are there, and people are ready to buy.

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

So, I just had actually a few questions on Fertilizantes. I find it a little bit difficult sometimes for us to get some good visibility there. In phosphate production, it looks like it’s kind of trended a little bit lower in the past few quarters now. Can you maybe shed some light on what’s going on there and what your expectations are on production going forward? And then on gross margins going into Q4, if I’m understanding the commentary correctly, it sounds like it will still be relatively quite high, but maybe sequentially down into Q3 even if you include the wholesale margins? Is that correct? And then just the last one is on... Joc O’Rourke: Could you repeat the second piece, Andrew? I just -- I didn’t quite get the Q4 question.

Well, just wondering like margins going into Q4, the commentary sounded like it will still be very strong historically, but maybe down sequentially versus Q3. It sounds like there’s some pressure on distribution. And then just wondering if you include the wholesale sales, which are typically higher margin, would the margins still be down sequentially? And then just on costs -- yes. Joc O’Rourke: Yes. Go ahead, cost. So, you want -- cost, margin and distribution?

Sure. And just like what you expect going forward, like should these costs this year that we’re seeing in Fertilizantes, is that what we should expect going forward? Thanks. Joc O’Rourke: Okay. Okay. That’s a brain full. Let me try and hit these one at a time. First of all, phosphate production, I guess, we have, over the last couple of years, up and down a little bit on phosphate production. Some of that, obviously, is from time to time, reliability; from time to time moving in different areas of mining, et cetera, which will happen. But the other piece is the market started moving pretty slow, and we ran into where our sales out of production haven’t really been up to where we might have loved them. And as such, you got to match your production to your sales. We’ve had a situation, particularly if you look at single super phosphate, SSP, where we’re actually pretty loaded up on our inventory. And so, continuing to run against a full inventory doesn’t make a whole lot of sense, so. And from a cost perspective, that hurts your unit cost. So, there’s a couple of things in play there. In terms of our -- when I was talking about margin, I just want to highlight we take positions. And normally, we try and keep our positions fairly balanced, but you tend to take a position as much as a couple of months ahead of when you sell. So, if you are in a declining market and you buy in July and you sell in September, you tend to take that price risk for those two months. If the prices are going up, you have extraordinary -- or you have gains in that positioning. And if it’s -- if the prices are going down, you have losses in that positioning. So, if we look at Brazil right now, you are seeing that. We had very good margins in quarter two that reversed to some extent in quarter three. Although as I said in the earlier comments, the margins are still looking pretty strong. And I think I would credit that with our product management teams not only globally, but in Brazil, specifically, who are able to understand the market dynamic, decide how far ahead or how late they want to address the pricing and how much inventory they’re holding. So, I mean, there’s a great art to that as a production company. However, there’s limitations on how much of that you can really do. So, I think that answers most of what you asked there, Andrew.

The next question is a follow-up from Joel Jackson with BMO Capital Markets. Please go ahead.

Sorry. I want to follow up that question. It’s a tough one. But Joc, so -- so Nutrien is going to add some tons going forward here. And obviously, their CapEx allocation is set because that capacity, I assume, proving them is already done. So for them to place those extra tons has to be all in North America. And then, you said that demand would be 64 million tons next year based on your preliminary guess, up only a couple of million from 2022, assuming -- has a little bit more -- assuming is really [indiscernible] a little bit more, assuming ICL a little bit more, assuming Belarus maybe a little bit out more. Who knows what happens with EuroChem. It would seem that Nutrien can’t place all those tons. So, I guess I’m trying to figure out, I don’t if you have an answer, but how do you think about all this? And if Colonsay is a swing mine, are you cautious to want to run it at the beginning of the year full out if it looks like, based on your own numbers, it may not be needed? Joc O’Rourke: Yes. So, as you aptly mentioned, I can’t and won’t contemplate either my competitor or partner or whatever and what their plans are. I think you have to ask their new CEO. However, let me say how we view the market. Like I said, we see next year that that 8 million tons won’t come back, yes. I’m sure ICL will try and push out what they can. I’m sure EuroChem seems to be reasonably effective in getting to market. I will say that Uralkali seems to be not as active in the market this year as previous, and there’s been a couple of rumors and whatnot…

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Joc O’Rourke for any closing remarks. Please go ahead, sir. Joc O’Rourke: Thank you. Well, to conclude our call, I would like to emphasize the strength of Mosaic’s financial performance. We delivered excellent results, and our outlook remains strong. Global agricultural market conditions remain constructive, and tight supply of grain and oilseeds is very likely to continue for the foreseeable future. As a result, fertilizer demand remains strong and supply constraints persist. We’re using this opportunity to return significant capital to shareholders to invest in our business and to strengthen our balance sheet. Mosaic is in an excellent position to continue to benefit from compelling business conditions throughout 2023 and beyond. Thank you for joining the call. Have a good and safe day, and go out and vote. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.