美盛公司 (MOS) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to The Mosaic Company's fourth-quarter 2015 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.

Thank you and welcome to our fourth-quarter and full-year 2015 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 question 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 and 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.

In addition, we will be presenting non-GAAP financial information that we believe will provide insight into the Company's results. Reconciliations to the nearest GAAP numbers are found in the presentation slides and in today's press release. Now I'd like to turn the call over to Joc.

Good morning. Thank you for joining us for our fourth-quarter and full-year 2015 earnings call. It seems clear to us that you all understand the market-related challenges we face. To summarize, we're experiencing a major decline in the broader commodities markets as well as global economic uncertainty and unprecedented strength of the US dollar.

In agriculture, the grain and oilseed supply and demand situation remains relatively balanced. Even after three consecutive huge harvests and despite the severe price decline across other commodities, crop prices have been relatively stable. Unlike hard commodities, we do not see a structural imbalance in agriculture.

We have a positive outlook for the 2016 global shipments in both potash and phosphates. We believe recent price declines in potash and phosphates have been driven more by macro economic trends then by the current supply and demand balance.

Weak currency evaluations against the US dollar are lowering production costs for exporting nations and raising prices for importing nations. Normal seasonal pressures are exacerbating the fertilizer price trends. As a result, our realized prices were down in the fourth quarter and have been under increasing pressure since the beginning of this year.

We see several factors that are giving farmers around the globe incentives to use fertilizer to maximize yield and revenue per acre. The price declines in fertilizer have led to high crop nutrient affordability. Farmers are experiencing lower energy costs. Currency valuations are providing tail winds for non-US growers selling US dollar-priced crops. The recent big harvests have withdrawn large amounts of nutrients from the soil, which must be replenished. As a result, demand is expected to remain strong.

With that operating environment as a backdrop, we have three important concepts to discuss today. First, we expect Mosaic to emerge a stronger Company from this difficult period. Second, the resilience we built into our business is real, as demonstrated by the strength of our balance sheet, our cost control and our strong execution. We believe it will yield compelling opportunities for growth as this cycle plays out. Third, agricultural commodities bear different dynamics than many other commodities and that's a fact that we believe has been overlooked amid the general commodity market pessimism.

Cycles can turn more quickly in agriculture because of unpredictable weather and the consistent underlying global demand for food. We understand that cycles are inevitable and that they are neither tidy nor predictable. We have always managed Mosaic for the long term for success across the business cycle. That is a lot easier to say than it is to do, so let's explore the characteristics of our franchise that we believe will allow us to emerge ahead of our competition as the business improves.

First the earnings we reported today show our resilience. We reported $0.44 per share, or $0.53 per share excluding notable items and a catch-up in our tax accruals. This catch-up was a result of higher accruals through the first three quarters of the year and a true-up in this quarter, which resulted in a low effective tax rate in the quarter. For the full year, we earned $1 billion and our earnings per share of $2.70 were higher than the $2.68 per share Mosaic earned in 2014, reflecting both our execution and our capital allocation. It is important to note that Mosaic remains solidly profitable and free cash flow positive despite the very tough markets.

We've taken the actions necessary to ensure stability. We've made tremendous progress on costs. We are well ahead of schedule on our initiative to generate $500 million of cost savings by 2018. It's important to note that we began that work with Mosaic already occupying competitive cost positions on the global potash and phosphate cost curves.

We've made tough decisions, including difficult moves to stop our MOP production at Carlsbad, New Mexico, and de-commissioned our potash mine in Hershey, Michigan. We've also save significant cost through innovative decisions and by investing the necessary capital to improve processes for the long-term.

We've made major progress towards a strong and efficient balance sheet. We've reached our leverage targets while maintaining enough cash to provide a buffer. That seemed conservative to some, no doubt, but it will prove prudent and provide flexibility others do not have in this environment.

In 2012, when potash prices were close to $450 per ton, we indefinitely postponed a $3 billion potash expansion. Two years ago, we had the opportunity to contract for ammonia with natural gas base prices and decided to forgo building a $1.2 billion ammonia plant. We took that capital and returned it to shareholders, retiring nearly a quarter of our an outstanding shares since we were split off from Cargill.

We are executing at a very high level. Our plants and mines are efficient. We've had very little unplanned downtime and as an indicator of our effectiveness, we delivered another year of record low reportable injury frequency.

To put it simply, we have not built the Company just to weather storms. We have built it to succeed across the cycles that we all know will come. We've also created a great deal of potential and that's why we believe so strongly that Mosaic will emerge a winner. We expect to realize the value of our many growth initiatives across the cycle. We believe we have created a tremendous amount of leverage for when better conditions arrive.

We've covered our many growth initiatives in the past, so I'll provide you with a short update. The Esterhazy K3 potash mine remains on schedule and on budget. When the project is completed, the mine will be amongst the lowest-cost, most efficient mines in the world. It will give us important operating flexibility, including the ability at some point to fully eliminate it material brine management costs.

The CF phosphate acquisition has exceeded our expectations. Those facilities generated excellent margins for the first 18 months we owned them.

The ADM acquisition in Brazil and Paraguay continues to hold significant promise. The current difficult economic and political situation in Brazil is temporarily muting the benefit we expect.

Our work to ensure stable cost-effective access to our phosphate raw materials is nearing completion. We have finished the sulfur melter project in our New Wales facility in Florida and our ammonia supply agreement with CF begins next year. While the economics in the near-term are less attractive with $310 per tonne ammonia, long-term economics remain highly positive.

Also at New Wales, our project to increase MicroEssentials capacity is nearing completion. We will have the ability to make 3.5 million tonnes of MicroEssentials, which provides significant value to the farmers, the retailers and to Mosaic. The Wa'ad Al-Shamal phosphates project in Saudi Arabia is also progressing and we expect initial production of ammonia later this year.

Taken together, all this work is Mosaic resilience and potential, which in turn gives us the opportunity to emerge from the weak part of the cycle in the lead. Now I will turn the call over to Rich Mack for insights into our financial results and our guidance. Rich?

Thank you, Joc, and good morning to you all. To briefly reiterate Joc's commentary on the markets, our financial results are being impacted by a confluence of challenging factors: global macro economic uncertainty; ongoing currency volatility and weakness in key currencies against the US dollar; the lack of sufficient credit in Brazil; and in potash, a recently completed Canpotex proving run the added supply in the seasonally slow part of the year. Over the longer term, though, we see cause for optimism, including a balanced supply and demand picture in phosphates, a manageable supply and demand picture in potash and good conditions for agriculture in Brazil, where the weak real leads to high prices in local currency for grains and oilseeds.

Now I'll provide an overview of results in each of our three operating segments. In phosphates, our margins were lower in the fourth quarter primarily because of timing. We were selling fertilizer manufactured when raw material prices were higher than they are today. At the same time, prices dropped quickly as traders anticipated the impact of lower raw material costs and buyers delayed purchasing.

So for the near term, we are seeing seasonally limited sales volumes and softer prices before we can realize our lower raw material costs. These trends are expected to continue into the first quarter.

If we look longer-term, however, our stripping margin is expected to remain healthy, with much lower raw material offsetting lower fertilizer prices. We expect continued declines in sulfur, reflecting a number of curtailment announcements in China as well as our own. These lower raw material costs, combined with a firming of phosphate prices in the spring, leads us to expect margin rates to rebound to normal levels after the first quarter.

In the first quarter, we expect the seasonally slow sales to continue and raw material costs to fall further. Last week we announced that we are once again curtailing production to avoid the building of high-cost inventory. As a result, we expect our phosphate operating rates to be in the range of 70% to 80%. These factors are all embedded assumptions in our phosphates guidance.

It is noteworthy that sales volumes picked up after we announced our decision to reduce production. For the full year, we expect margins to be similar to last year, underpinned by our constructive view of the industry. We expect to ship between 9 million and 10 million tonnes of phosphates with global market shipments increasing yet again this year to a range of 65 million to 67 million tonnes.

In the potash segment, we remained solidly profitable despite the drop in prices. Our work to reduce costs as well as the tail winds provided by the weak Canadian dollar have enabled us to maintain reasonable margins.

Looking back at potash supply and demand, in the latter part of 2014 customers built significant inventories with the expectation of a draw down in 2015. That inventory reduction occurred to some extent but it was less pronounced than we had expected.

Heading into the 2016 planting season in North America, we expect strong demand and good shipment levels, tempered by the fact that retailers continue to hold higher inventories. As a result of these factors, we have lowered our estimate of global potash shipments by 3 million tonnes to a range of 58 million to 60 million tonnes, consistent with 2015, which was the second-highest year of shipments ever.

We do not believe the potash supply and demand scenario is grossly out of balance. Many producers, including Mosaic, have cut back volumes in response to the seasonal lack of demand. Per our earlier production curtailment announcements, we reduced our operating rate in the fourth quarter by about 20 percentage points compared to last year.

In the first quarter, we plan to operate our potash mines at approximately 70% to 80% of capacity in order to meet global demand we expect to emerge during the second quarter. We expect pent-up demand to come from most of our major markets, China, Brazil, India, Southeast Asia and North America as well as from Europe, all at roughly the same time this year, which should provide a solid foundation for prices.

In the meantime, we will maintain our disciplined approach meeting our customers demands. We have operational flexibility, a low cost structure, including the benefit of low natural gas prices at our Belle Plaine solution mine, and the benefit of a weak Canadian dollar, which in 2015 was down as much as the Russian ruble against the US dollar.

Our first-quarter potash volume guidance anticipates demand emerging around the world toward the end of this quarter and as a result, our expected operating rate is well below the same period last year. Margins are expected to be in the low- to mid-20% range, reflecting both lower realized prices and our decision to produce only to expected market demand.

We expect our shipments to North America to be about flat with last year's levels, with the reduction in volumes primarily a function of delayed demand in the export markets. Our full-year volume guidance of 7.5 million to 8.5 million tonnes reflects an expected increase in Canpotex potash exports.

In our international distribution segment, we continue to be impacted by the difficult political and economic situation in Brazil. Fertilizer demand remains slower than usual, primarily because farmers are having difficulty finding appropriate access to credit. The credit situation is giving farmers incentive to acquire their inputs through barter, a system that can benefit Mosaic because of our strong relationships with key players in the Brazilian barter market. These arrangements also allow us to take a conservative approach to granting credit, which lowers overall credit losses.

Farmers in Brazil continued to plant for big crops. In fact, a high percentage of second-crop corn already has been sold in advance because of the favorable currency dynamics, so farmers need to plant their acres and maximize yields. We believe that will facilitate additional fertilizer demand.

Brazilian credit availability is the swing factor in our volume guidance assumptions for the first quarter and full year. Because of the relatively high proportion of fixed costs, higher volumes positively impact margins per tonne as does a higher proportion of micro essentials in our sales. Finally, I should note that our forecasted margins anticipate relative stability in the real. For 2016, we expect our distribution volumes to range from 6 million to 7 million tonnes.

For calendar 2016, our annual guidance ranges are as follows. Canadian resource taxes and royalties are expected to be in the range of $180 million to $220 million, down from $281 million in 2015. Brine management costs are expected to be consistent with 2015, in the range of $160 million to $180 million. Our SG&A expense is estimated to be $350 million to $370 million. We will continue to look for opportunities to take additional costs out of the system to increase cash flow and to manage the Company for the inevitable cyclical upturn.

Our effective tax rate is expected to be in the high-teen percentage range. Capital expenditures are expected to range from $900 million to $1.1 billion, plus around $300 million for our interest in the Ma'aden Wa'ad Al-Shamal Phosphate Company. As we have previously guided, approximately $600 million of our at capital expenditures is sustaining capital and the majority of the remainder is for projects already well underway.

We are prepared to calibrate capital spending further to reflect current market conditions. Given the current attractiveness of Mosaic share price, new capital commitments must meet a very high risk-adjusted hurdle rate.

One more note on capital. Today we announced an accelerated share repurchase program of $75 million. As you know, cycles bring opportunities and during the fourth quarter we were evaluating some unique opportunities and did not effect additional share repurchases. We are pleased to be in a position to make today's announcement and we will continue to embrace the capital management philosophy we have often articulated in the past.

To conclude, I would like to reiterate Joc's main points. There is no doubt that markets are challenging on several fronts but Mosaic has made, and will continue to make, notable progress. We have the financial and operational resilience and discipline to succeed in weak markets and we have significant leverage to outperform as conditions improve, which they always do in this sector. With that, I'll return the call back to Joc for his closing comments. Joc?

Thank you, Rich. To summarize, we're operating in a challenging environment, with volatility and headwinds coming from many fronts, but at Mosaic, we have learned to embrace the cyclicality of our business. Our philosophy, to produce to demand in both potash and phosphates has not changed.

We are also managing costs, remaining flexible on our capital spending and looking for opportunities to create long-term value for our shareholders. We have been profitable through the troughs. We have created the potential to accelerate quickly in better markets and we believe agricultural markets will prove more resilient then current sentiment expects. Mosaic is in excellent position, for now and for the years to come.

Now we would be happy to take your questions. Thank you.

(Operator Instructions)

Ben Isaacson of Scotiabanc.

Just wanted to dig a little bit deeper on Rich's comments on the phosphate market. Can you start by talking about how finished phosphate fertilizer inventory levels look worldwide right now?

Secondly, what changes to global supply do you see occurring in 2016 with a particular focus on China's export capability? Thank you.

Thanks, Ben. Joc here. I'm going to hand that straight to Mike. I think this is really an area where he can give us the best answer. Mike, do you want to just take that?

Sure. Let me start with the second question first. In terms of Chinese exports, I'm sure you're all aware that exports spiked in 2015 to -- I believe the China customs number is in that 11.6 million tonne range. As I think was noted earlier, there have been some shutdowns in China. Those tonnes, we think, will be lost. Our projection that we are using right now in our S&D is somewhere in that 10 million tonne range. We think we will be off a bit from the record last year.

In terms of the first question, phosphate inventories, and Rick, you should comment as well, I think it varies from region to region. Certainly, continuing in China, we know that inventories have built up at the plant level, we think they are high there. Distributors in China are the same as distributors around the world in terms of when prices are trending down, they tend not to take positions, so we've seen a backup of inventories at the plant. But overall, we don't think inventories in China are excessive.

The situation in India may be a little bit different. They had a 2.5 million tonne increase in imports last year and we think that inventories there are certainly greater than what they had been the last couple of years when they were pulled down to very low levels. North America, I think, is in good shape and in terms of Brazil, inventories end of the year maybe a little bit above average but I think we are seeing some positive signs there that things are beginning to move. I'll let Rick provide his color commentary as well.

Yes, good morning, Ben. I just spent some time going through, with our Brazilian team, some things that are happening in the marketplace there. We've seen over the last -- since the start of the year some pretty significant moves of volumes that had waited to come to market, so these are blunder volumes that are going out and we see the phosphate inventories, frankly, being drawn down. Mike described them as about even year over year but the sales that are going on right now for the first quarter reflect farmers coming back in to that marketplace.

I think those inventories get drawn down and we just finished spending time this week with some of our larger North American customers and I would say their buying is probably lower than it's been for the last (technical difficulty) years. They are going to wait and move hand to mouth and so they are not sitting on a lot of inventories. There's not a lot of inventory sitting in North America and so we expect when the season hits, this bodes very well and volumes will move through the system.

Vincent Andrews of Morgan Stanley.

Good morning. This is Neil Kumar calling in for Vincent. I had a couple questions regarding MicroEssentials. Would you characterize demand as still in excess of supply in the current operating environment? Can you also talk about how you've been managing the price premium versus DAP and whether night pricing has been stickier than DAP?

Neil, Joc O'Rourke. I'll start off with just a quick comment. As you are probably well aware, our production capacity for MicroEssentials was reaching its limit in the last year or so and we are just in the process of expanding that capacity at our New Wales plant up to 3.5 million tonnes so as the future goes by, we will actually have sufficient capacity. In that timeframe, volumes have not necessarily increased but we've really focused on the value add that we can achieve through that. I'm going to let Rick just talk about this for a little while and maybe come back with some closers.

Good morning. Joc is right. We saw volumes stay relatively flat year-over-year but we saw the increases in the premiums we've been able to capture for both on MicroEssentials. We really are looking forward to the fact that we will have this increased production sometime in 2016 and our focus is really on expanding significantly into Brazil. Last year we did grow but it stayed relatively flat. Our plans were for it for it to grow further but I think a lot of activity in Brazil, a lot of uncertainty and so we felt real good that we stayed flat.

We really are looking for opportunities to grow in the Caribbean basin as this new production comes on, fill in the holes in North America where our customers and people that have not been able to get access are asking for it. And still I think I mentioned it before, we are doing research in Europe because the crop cycle there is very similar to what we see in Canada, which is one of our fastest growth markets.

We continue to have a very good view on the future of MicroEssentials and it's a ability to add real value to Mosaic on the long term. I will close with that.

Don Carson of Susquehanna Financial.

Couple questions on potash. Given your more conservative view on shipments this year despite the benefit of falling prices, do you have any plans to idle Colonsay indefinitely or do you think others should be doing more to idle production as well in Saskatchewan? And then just from a market perspective, can you talk about your FPD program in potash, given falling prices? Are you finding that you are shipping more potash with the price to be determined post shipment?

Let me start off with the -- we have said and we continue to say we will operate to the demand in the market and of course as we look at that, we will make sure that the production that we curtail gives us the most long-term benefit. Whether that's because of the higher cost operations or whether we need maintenance or are deferring maintenance at certain plants, I think that decision gets made based on the value it adds to Mosaic. We are certainly not going to specify how we plan to do that, but we expect to make sure that our production meets expected demand.

That's why our guidance this year is 70% to 80% in the first quarter and it was about 70% in the fourth quarter against last year we operated 91% in the fourth quarter and 90% in the first quarter. We are looking at controlling that to meet the market.

I'm going to give the FPD question straight over to Rick.

Good morning, Don. It's a very apropos question. We are seeing people take advantage for us and them of using our FPD program. I think we saw the impact of that showing up in our fourth-quarter. There was questions about our third-quarter volumes into North America and frankly, we saw those volumes come back in the fourth quarter.

I think the one thing that people don't understand is, our program separates price from shipment and so it allows the dealer to put product into place but the pricing mechanism is they can by up to the moment they sell to the farmer. At that point, they have to price at the current price. So their revenue recognition and ours match up. We think it creates a competitive advantage for us and it certainly does for our customer base.

Just to reemphasize Rick's other point there which is, we believe the FPD program allows a much smoother logistics or supply chain for our products. In other words, we can get the products to market on our convenience and allow them to be where they need to be when the markets really start moving.

Andrew Wong of RBC Capital Markets.

Thank you and good morning. In Rich's prepared comments, I think he mentioned that Mosaic was evaluating some unique opportunities in the fourth quarter. Can you talk about which parts of your business you would like to see maybe the footprint expanded? Would it be distribution or production and geographically what sort of regions you might be interested in? Thank you.

Andrew, thank you. Obviously, were not going to comment on specifics of any M&A type activities we might be involved in, but I would say, and I'll give it back to Rich for some more color, but I would say, look, we're interested in both of our sectors. We are certainly interested in anything that gives us a long-term, risk-adjusted superior return above our cost of capital. Now having said that, as per Rich's comments, the hurdle rate has to be adjusted for what we believe is a low stock price right now. So we're measuring any investment we make against the benefits of buying back our own stock. Rich, do you want to add something to that?

Sure. Andrew, what I would say is, it goes to, in part, capital management. It goes into the cyclicality of the industry and if you take a look at Mosaic historically, going way back to the Cargill years, the down parts of the cycle do present opportunities and if you take a look at our track record, Cargill got into the phosphate business at the down part of the cycle. We, years later, ended up consolidating with IMC Global. That was a great opportunity for us. Just a couple of years ago, I would argue that we rolled up the CF phosphates business at a very attractive valuation.

As Joc noted, anything that we would do would go through a very strong filter but the fact that we have a strong balance sheet, which I would argue would be the envy of many in the mining sector in any sector today, is of great benefit to us. We will continue to balance between repurchasing our shares and looking for opportunities out there and if there's something that is extraordinarily compelling, it's something that we could act on.

Jeff Zekauskas of JPMorgan.

Good morning. Two-part question. When do you expect the Ma'aden phosphate plant to come on stream and how much more do you have to spend on it?

Secondly, your corporate costs this quarter, I think, was an income benefit of $29 million. I was wondering why that was a case. Your other current assets year over year are up about $260 million and I was wondering what that was, too.

Okay, I'm going to hand the more technical finance questions over to Rich in a second here. Let me just quickly touch on Ma'aden.

I was actually over there a couple weeks ago and it's really coming along well. I think we are pretty pleased with where we sit with Ma'aden. They were just adding gas and starting to commission the boilers for the ammonia plant, and recognize a big piece of the value of the Ma'aden joint venture will be that ammonia plant. That will come on mid-year this year and probably finish commissioning somewhere around the third quarter.

The rest of the plant should be ready by, let's call it, late 2016 or early 2017 and then start commissioning at that stage. That's kind of the timing. I believe we have about $300 million left to spend on it, but again, I'll get Rich to give you a little more background and then give you answers on our corporate spending. Thanks.

Thanks, Joc. Jeff, your two-part question had five questions in it, so I'll try to address them.

This year, we are at the tail end of Ma'aden, is what I would say, 2016 will represent the vast majority of our remaining expenditures there. I think we're suggesting about $300 million in 2016. There could be some spillover effect that goes into 2017. That's yet to be determined based on a variety of factors in terms of how the construction is progressing today.

Joc noted ammonia production comes online later this year. Phosphate production will come online sometime during 2017 but there will be a ramp-up period. We are progressing, I would say, very quickly right now in terms of the construction process and those time horizons are still generally consistent with what we thought about a couple of years ago.

Your question about the positive contribution in the corporate segment really relates to inter-Company eliminations between our phosphates segment and our international distribution segment. When we sell phosphates to international distribution, primarily Brazil, we do not take -- we back off the profit, or the profit is recognized, I should say, in the phosphates segment and then it's eliminated in the corporate segment until that product is sold by international distribution. What you are seeing here is product that moved in the fourth quarter out of international distribution and therefore the profit is fully being recognized by Mosaic.

I think your third question was an increase in other current assets. I think the answer to that is primarily additional FPDs this year compared to the last relevant period. I hope that's responsive to your question.

Adam Samuelson of Goldman Sachs.

Yes, thanks. Good morning, everyone. Maybe I'd love to hear your thoughts on India and particularly both on P&K near term seems the inventories there have built up pretty sharply and demand has weakened. Can you help me think about how the back half of the year could progress to actually get that import demand back up? Is a probably pretty important swing factor in the sea-borne P&K markets. Thanks.

Sure, Adam. Thanks for the question. I'm going to hand that straight over to Rick McLellan to answer. I think that's --

Yes. Good morning. I think it is a swing factor. I'll ask Mike to add in after I'm done, but late in January the Indian government stopped allowing shipments to be moved from ports in country, so inventory had built up. It will get cleaned out quicker. How long that lasts, and we've seen it before where it allows inventory to be cleaned up in country and it allows them to reset the subsidy. We have no idea what the subsidy will be for P&K in India, but it will be lower.

I think the other piece that the inventory buildup for a couple reasons and I think the biggest one was that the expectations for demand last year were a little higher than people -- than what ended up happening. The impact of the drought in India impacted both P&K usage and right now what we are seeing in country, with our own in-country business, is product is moving from the distributors' shelf to the farmers and so we have to separate what happens on the import side from what happens on the distributor shelf. Frankly, this move of theirs will help clean up some of that inventory and we look forward to the back half of the year will be very good going into India but it won't be at the level we experienced last year.

Mike, you want to add something there?

Just a couple of notes. Obviously there are a lot of uncertainties there with respect to how good or bad the monsoon and will be this year, what happens to exchange rates, what, if any, changes to subsidies. So a lot of moving parts there but bottom line, our best guess at this point is in terms of MOP imports, we think they will be off a little bit. Recall that in calendar year 2005, India imported 4 million tonnes of potash, off a little bit from 4.3 million tonnes the previous year but up from 3 million tonnes in 2013. We think they will be in that 3.7 million tonnes to 3.9 million tonnes range this year, so off a little bit.

Phosphate may be a little bit story. As we noted earlier, imports surged to 2.5 million tonnes last year from very low levels. We think that they will probably be off maybe 0.5 million to 0.75 million tonnes this year and how much depends on all of those factors we noted earlier.

Jonas Oxford of Bernstein.

Good morning. A bit curious about those timing effects in the phosphates. I understand most of that is ammonia moving down quite dramatically. You guided for Q1 on a 10% gross margin but can you talk a little bit more about what we expect Q2, Q3 when it starts equilibrating, both the percentage and absolute terms?

Sure. Thanks, Jonas, for your question. Certainly in Q1 we are faced with the impact of declining ammonia prices. Now, that takes about a quarter to work through our system so whenever the price is declining, the inventory value of your product tends to be higher for about that quarter until we work the higher cost material through our system.

As we said in our guidance, by about the second, third quarter we expect our gross margins in phosphate to be returning to more or less what I would say is our normal range of high teens. So we would expect the last three quarters to be in that high-teens area.

Rick, did you -- or Mike, did you want to add anything on those movement of those products?

No, I think -- you hit it, Jonas, that the change year over year in raw material costs and even quarter over quarter, if you look at our sulfur core cost Q1 of 2015, it was $147 a tonne. Q1 of 2016 is $95. Our ammonia costs in January 2015 were $545. We bought ammonia in 2016 for $350. In February of 2015 we bought ammonia for $495, at February of 2016 it's $310. So those are significant drops and so as that stabilizes and we move through Q2 and Q3 and Q4, those are going to drive and improve gross margins.

Joel Jackson of BMO Capital Markets.

Thanks. On the potash guidance you've given for volume, you're giving guidance that Mosaic will have roughly flat shipments on its own but that global demand for potash will be down 1.5 million tonnes. Can you talk about how you see Mosaic gaining share?

I know there's some flips going on in Canpotex allocation between Vanscoy and New Brunswick being taken out of and potash getting more allocation there. In your base case, do you assume that the Belarusians and the Russians cut capacity? Thanks.

Thanks, Joel. Good to hear from you. Our base case actually is pretty darn flat for both world shipments and I'll let Mike expand on that, but also on our shipments. We go down slightly in Canpotex but with the inclusion of the New Brunswick tonnage into Canpotex, I think our overall Canpotex tonnage goes up slightly and then North America is quite flat for us. We are expecting, with sort of normal ranges, a very similar year to what we had this year.

Rick or Mike, do you want to expand on the global?

The only thing I would point out in terms of our global shipments, we revised up our 2015 estimate to 60.7 million tonnes, largely based on a big surge of imports by China. And our point estimate for 2016 is 59.7 million tonnes, so we are looking only at about 1 million-tonne drop, so I don't think there's a great inconsistency there between what we are projecting internally and what we are projecting for the market.

Chris Parkinson of Credit Suisse.

Good morning, everyone. This is Graham Wells on for Chris. I'm just wondering if you could talk to us a little bit about where we stand on the CapEx spend for Esterhazy percentage wise versus your total target? And then also wondering, longer term what's the potential there to improve your cost per tonne? I know you mentioned that eventually there would be the opportunity to potentially eliminate the brine cost but just wondering X that, how much could you potentially bring down your cost per tonne? Thanks.

Thanks, Graham. Let me highlight with Esterhazy. It's a little difficult to give an absolute CapEx number because much of it will be -- going forward will be development money that we spend developing the add-its and mining area underground at Esterhazy and that is money we will not be spending at K2 or K1, so there's a trade-off there. We have probably about $300 million to $600 million to spend over the next three years at Esterhazy for the other equipment like the conveyors, the shaft and development around the shaft. I would say those are the expected and then there's a net tax effect.

Overall, the net money we are spending, I'm not sure the exact number, but it isn't -- the gross number is about $600 million. The thing I'd point out is once we do have that completed, once we have ramped up Esterhazy, if we can remove our total brine cost at some point, that is today costing us about $18 a tonne across the whole business. So we see the Esterhazy cost as being extremely competitive, probably some of the best and certainly some of the best in North America once we get this done. Rich, do you want to continue that?

The only thing I would as is just maybe in terms of the total CapEx program at Esterhazy, on a percentage basis we're somewhere probably in the low- to mid-30% range in terms of completion and then in terms of overall costs, I think as we've commented previously, once K3 is completed not only will it eliminate obviously the brine inflow as Joc just noted, but the distances to the main shafts and so forth are going to be significantly closer and the overall operating cost environment for that mine will be extremely good.

PJ Juvekar of Citi.

Good morning. I think Mike mentioned that North American inventories of P&K are in good shape. One of retailers' complaint about the wet fall season that prevented some application, plus you talked about your FPD program, given all that, one more thing that retailing regularies are slightly higher than normal, but maybe you can just talk about how do you see inventories currently?

Thanks for the question, PJ. I'm going to hand this to Rick pretty quick here but I think the inventory buildup is more in the nitrogen suite than it is in the P&K suite. We did not see the same. Although we didn't see a big fall season because of the weather issues that were mentioned, we see probably a lot of pent-up demand and not a lot of inventory moved out to the retailers yet. Rick, do you want to expand on that?

Yes, good morning, PJ. You are saying on weather conditions, frankly, is very regional, but there is big chunks of the US market that need to get product out this spring. All of them are hoping for an early spring so that they can get at some of that work.

I think the biggest thing that will be a challenge in 2016 spring is the fact that dealers have held off placing the inventory into bins so there are bins out there that are empty. And when everyone starts, it will be where is the inventory, how close is it to them and frankly, if everyone comes to the trough at the same time, it's just -- the inventory is not going to be there. I think that's a good place for us to be.

The other thing is, is that it will help pricing because inventory in place is going to be worth what people want to pay for it that day as they go to the field. Mike?

I'll just add a couple of comments. One, I think we would characterize the fall application season as being generally average, that we didn't see a major drop off. There may have been pockets here or there but there are also pockets where it was very good. Case in point, in talking with one of our larger customers in the Eastern corn belt, they actually sold more tonnes this fall than what their average was. I wouldn't characterize it as necessarily a poor fall application season.

The other factor is what the expectation of corn acres being north of 90 million this year, we think that overall usage in the United States for P&K likely will be up 1% to 2%. Given that, coupled with the fact that there was good pull this fall, we think it bodes well for spring movement.

Jacob Bout of CIBC.

Good morning. Wouldn't mind getting your thoughts on the dividend, specifically as it pertains to your capital allocation decisions in the context of CapEx, share buyback, that type of thing.

Thanks, Jacob. Good to hear your voice. I'll hand this over to Rich pretty quickly but suffice to say, from my perspective, our capital planning, our capital strategy is unchanged. With that, I'm just going to hand it to Rich to just reiterate our --

Sure. Jacob, our stated philosophy on dividends is we're going to grow the dividend as our business and our earnings grow. Obviously, in the last 12 to 18 months it's been a much more challenging environment out there but in terms of our overall capital management philosophy, I think the dividend is a very important component of it. I think that it is something obviously that is entirely sustainable going forward and as the cycle turns, we will continue to evaluate that against what our current share price is and make decisions accordingly.

And we believe we have strong enough cash flow capabilities through the whole cycle that we can not only pay a reasonable and fair dividend but we can also balance that with our growth opportunities and returning money to shareholders through share buybacks as we've demonstrated through our accelerated share repurchase plan that we've announced today.

Steve Byrne of Bank of America.

Thank you. I have a couple government actions that I would like you to comment on, first being Brazil's action last week to release some farmer credit. Would those monies impact fertilizer demand in the near term? Are you seeing any activity as a result of that?

The other one being China's decision to terminate the crop support price there. Are you expecting any impact from that action on fertilizer demand in China? How much of that 60 million-tonne shipment of yours, Mike, worldwide for potash is China versus a year ago level?

I'm going to hand that straight to Mike I think he really has a good handle on our world supply and demand balance. Let me hand that straight to Mike.

Once you have -- Rick, do you want to talk about Brazil?

I will talk about the Brazil credit. Good morning, Steve. I think that I expressed earlier that our team in Brazil is reporting for the second crop corn and second crop period that we've seen demand increases from the January 1. That credit being freed up by the government is very good to see. It's not new credit. It's credit that was -- that had been announced in last year's budget but the fact that they'd freed up is really quite significant. We see that as positive.

Farmers are still having issues with access to credit, but from our own business, we are doing a nice job of managing credit, helping farmers connect themselves with either banks or with barter opportunities. Mike, you want to take the China question?

Sure. I guess in terms of what we know, obviously last year the Chinese dropped their corn support price 10% but that basically took their support price down from big round numbers, $10 to $9. We expect that there will be further cuts in that but it still keeps Chinese support prices for corn at relatively high levels compared to the rest of the world.

Just in terms of farm economics, we think farm economics remain healthy in China. The drop that we're showing in, for example, in potash shipments relates more to the build up of inventories than any drop in demand. I think the bigger concern there is making Chinese corn, for example, more competitive will cut into their imports of corn substitutes, whether it's DDGs, sorghum, barley, or whatever. But by and large, we think Chinese farm economics and the demand drivers there are still okay.

Mike, just one thing I'd add is our local team in China made a point of saying, farmers are seeing their support coming from the government not in the support of corn prices but in other subsidies that are replacing that. So as Mike said, and just add on to it, the farmer economics in China are really very good today.

We have time for probably one more question before we close.

John Roberts of UBS.

I think you give guidance for 70% to 80% mine operating rates in potash for the first quarter. That would seem like a pretty wide range, given we've only got six weeks left in the quarter.

Thanks, John. Yes, it probably is a wider range. We in general give about a 10% range or an estimate on that. Due to the high level of uncertainty in this first quarter, we thought it was prudent to make a maybe a little higher range than we would normally give. Rick, do you have any comments on that, that you need to add?

No, Joc. This is Q1 with -- it's interesting, we could run at higher rates if we see both the Chinese and the Brazilians come back into the marketplace, but we're putting the range in so that our assumptions on the lower end of the range reflect a little movement into either of those markets.

Okay, thank you, everyone. Before I even start my concluding remarks, I just want to point out maybe a bit of a -- Graham reminded me of a point that we haven't made much of lately, which is, we are now at 2,600 feet deep in our two potash shafts, on our way to 3,100. Those projects are getting very near to completion in terms of the two shafts. It's been a very well-executed project from our perspective, continues to run right on budget and right on schedule. Just a call out to our potash team that has really done an extraordinary job of a very complicated, big project.

Let me give my conclusions. To conclude our call, I just want to reiterate our key themes. First, we expect Mosaic to emerge as a stronger Company from this challenging part of the cycle, because we built a resilient business. Second, demand for agricultural commodities remains strong because global demand for food continues to grow.

I know we harp on that, but the reality is, the whole thing is based on the food story and it continues to grow. We have created significant potential to accelerate when business conditions improve and we know that business conditions will improve.

Thank you very much for joining us today. Have a great and safe day. Thank you.

This concludes today's conference. You may now disconnect.