Mosaic Co (NYSE:MOS)
F3Q2013 Earnings Call
March 28, 2013 9:00 am ET
Laura Gagnon - Vice President, Investor Relations
James Prokopanko - President, Chief Executive Officer, Director
Lawrence Stranghoener - Chief Financial Officer, Executive Vice President
James O'Rourke - Chief Operating Officer, Executive Vice President - Operations
Richard McLellan - Senior Vice President, Commercial
Mike Rahm - Vice President -- Market Analysis and Strategic Planning
Vincent Andrews - Morgan Stanley
Joel Jackson - BMO Capital Markets
Bill Carroll - UBS
Kurt Schoen - CLSA
Adam Samuelson - Goldman Sachs
PJ Juvekar - Citigroup
Chris Parkinson - Credit Suisse
Kevin McCarthy - Bank of America-Merrill Lynch
Don Carson - Susquehanna Financial
Ben Isaacson - Scotia Bank
David Begleiter - Deutsche Bank
Mark Gulley - BGC Financial
Michael Piken - Cleveland Research
Matthew Korn - Barclays
Jeff Zekauskas - JP Morgan
Good morning, ladies and gentlemen, and welcome to The Mosaic Company's third quarter earnings conference call. At this time, all participants have been placed in a listen-only mode. After the company concludes the prepared remarks, the lines will be open to take your questions.
Your host for today's call is Laura Gagnon, Vice President, Investor Relations of The Mosaic Company. Ms. Gagnon?
Thank you, and welcome to our third quarter fiscal year 2013 earnings call. Presenting today will be Jim Prokopanko, President and Chief Executive Officer and Larry Stranghoener, Executive Vice President and Chief Financial Officer. We also have members of the senior leadership team available to answer your questions after our prepared remarks.
After my introductory comments, Jim will share our views on current and future market conditions. Larry will discuss capital management, as well as provide insight into our future expectations. 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 managements’ beliefs and expectations as of today’s date, March 28, 2013, and are subject to significant risks and uncertainties.
Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release issued this morning and in our reports filed with the Securities and Exchange Commission.
Now I would like to turn it over to Jim.
Good morning. Thank you for joining our third quarter earnings discussion. The quarter played out essentially how we expected it would. The potash we opened with products flowing once again to India and China and those flows facilitated increased demand in North America late in the quarter. At the same time, the phosphate market remained in balance.
As you are well aware, our fiscal third quarter, which typically was slowest of the year. So this morning, we will focus more on our outlook than on the quarter. Before we get to that, I will review the numbers quickly. For the quarter, we reported operating earnings of $419 million on net sales $2.2 billion, both up slightly over a year ago.
The potash business unit contributed $216 million in operating earnings and the phosphate business unit contributed $197 million. In total, we reported earnings per share of $0.81, or $0.88 per share excluding the notable items, compared with $0.64 a share a year ago. We generated $371 million in operating cash flow during the quarter and we continue to maintain a strong cash position with $3.3 billion of cash on hand.
Now, I'll spend some time on our overview. First, agricultural fundamentals remained strong around the globe. This bodes well for the world's growing population and also for Mosaic. Even with the expected bumper crop in Brazil and other parts of South America, food supply is fragile. As a result, farmers preparing for spring in North America, have many incentives to plan every available acre and to ring out maximum yields from every field.
Commodity prices have declined modestly as futures markets recognize the potential for a big 2013 crop. The prices remain high relative to historical norms. In part, that's because many analysts do not expect yields to return to the trend level this year and because there were significant pent up demand world-wide for grains and oil seeds. We share that point of view. In fact, while there are a number of potential outcomes for the 2013-2014 crop, the likely place from our advantage point builds back only one-half of the inventory drawdown this year leaving commodity prices at elevated levels.
And, I would remind you that agricultural commodity forecasters were signaling similar expectations at this time last year and farmers responded by planting 96 million acres of corn in North America. As we all know, the big anticipated crop withered and prices left to new heights. Farmers nevertheless delivered the second largest global crop in history last year and the world still consume more grains and oil seeds than it produced. So, my message is this, the world needs everything that agricultural land can produce while volatility will always exist in our markets, this simple fact more people need more food will not change.
So, our outlook for the long-term remains strongly positive, even as we face challenges. Of course, the challenges are ever changing. Three months ago, we had no potash contract with India. We just completed a protracted contract negotiation with China and lower Mississippi River levels with threatening the supply chain. All those issues have now been resolved.
To help you understand the challenges we face today, I will describe in more detail the dynamics affecting the potash and phosphate markets. In potash, the market is on track to reach our forecast for global shipments in 2013. In fact, we believe shipments will reach the upper end of our expected 55 million to $57 million ton range. The contracts with India and China, provided a better-than-expected base load for demand. Established a floor for prices and should reduce inventories to low levels. The expectation of a strong spring planting season further improved short-term sentiment.
Our operating rates reflect the improved conditions. Mosaic's potash mines operated 78% of capacity during the quarter, and we expect operating rates to increase in the fourth quarter as we continue to meet the better-than-expected demand from China and India. We expect potash prices to remain in the current range until we see how fundamentals play out later this year. Our 3 million tons of ongoing potash expansions are proceeding as planned. Overall, they remain on budget and on time. That said, we are continuing to evaluate the remaining 2 million tons of expansions and expect to make a decision to proceed or delay sometime this calendar year.
The phosphates' market remains balanced. We are seeing outstanding demand in the western hemisphere, and as supply has tightened, we have seen Tampa export prices improve by $50 per ton from their lows. The story is more difficult in Eastern Hemisphere, where Indian subsidy policy continues to hurt soya health and fertilizer sales. We don’t expect the Indian buyers to come back to the market until the end of our fiscal 2013.
Longer term, out outlook for the phosphate business is positive as the joint venture we announced last week illustrates. We are thrilled that Ma’aden invited us to participate as an equity partner for their second phosphate project, validating our technical knowledge, industry expertise and positive global reputation. It is important to highlight that this new project has long been incorporated into industry supply expectations.
This investment has many benefits for Mosaic. It supports our growth strategy and partially meets the growing demand from our international distribution operations. It is expected to generate attractive returns. It gives us access to very low cost phosphate production. It provides more cost-effective access to India and other Asian markets. It gives us opportunities to participate in future Ma'aden expansions and it further diversifies our sources of products.
It's important to note that this project is part of our phosphate growth strategy and does not change our plans for our Florida and Louisiana phosphate business. The rock and fertilizer we produce in the U.S. remain critical to Mosaic and to the world's farmers. Once the Ma'aden operations are in production, which we anticipate to begin in late 2016. We also would be able to allocate more of the domestic production to North America and South America. In turn, we should be able to generate higher netbacks from these operations. Our domestic facilities will also continue to be the source of our innovative higher margin MicroEssentials product.
Before I call upon Larry, I would like to highlight some recent external recognition we have received. For the second straight year, we were named to the Ethisphere Institute's list of the world's most ethical companies and we are the only large agricultural company on the list. We are proud of this achievement because it demonstrates that we are living up to our values of excellence, integrity, sustainability and connectivity.
Now I will ask Larry to talk through our thoughts on capital allocation and provide updated guidance. After that, I will conclude with some further thoughts on the outlook. Larry?
Thank you, Jim and good morning. We have been traveling to meet with investors frequently over the past few months and we put one refrain rise above all others. You want to understand our capital allocation policies and just what we intend to do with our balance sheet. So rather than go through our quarterly numbers in detail, I will provide as much insight as I can on capital.
We have been working to refine our financial policies to align them with the updated strategic priorities we revealed last fall and to ensure that we effectively operate as a fully independent company following the final completion of the Cargill transaction. The policy work is nearly complete and we are planning to provide more detail before the end of the fiscal year. In the meantime, I can give you some previews.
While we will always seek to retain our investment grade ratings and a reasonable liquidity cushion, you should expect a substantially more efficient balance sheet in the future. By more efficient, I mean we would carry less cash and more debt. To get to that more efficient balance sheet, we would like to return excess capital to shareholders through share repurchases which become possible when tax restrictions expire in late May.
To remind you, there are 129 million Class A restricted shares in three tranches, each with 43 million shares. These tranches are expected to be sold or convert to common in each of the next three years beginning this summer. It is possible but by no means a given that we could negotiate an accelerated release of all of those shares. Our initial focus will be on the first 43 million shares per the existing agreement.
We look forward to initiating discussions regarding those shares this summer.. We have the financial flexibility both available cash and unused debt capacity and importantly, the desire to consider a repurchase of some or all of those shares, as well as other options The repurchase of shares in the open market becomes an option once put off related restrictions fall away in November.
It is important for you to understand that we cannot engage in any discussions regarding the restricted shares for another two months, and we may not have a resolution or agreement until later in the summer.
Turning to financial flexibility, note that our quarter end cash balance stood at $3.3 billion and we expect strong cash flow generation in our fourth fiscal quarter to further increase our cash available for repurchases. However, there are some existing calls on our cash or debt capacity, and I would like to remind you of a couple of our previous comments and ongoing 10-Q and 10-K disclosures.
First, we believe a reasonable liquidity buffer will include approximately $750 million in cash as well as available committed lines of credit. Second, we have also disclosed that a portion of our cash would be taxed if repatriated. Today that cash totals approximately $600 million exposed to a 35% U.S. tax rate with both, the cash and income statement impact. This cash is available without penalty to fund non-U.S. investments such as the Ma'aden joint venture and provide a portion of our liquidity buffer.
Finally, in connection with the [enforcement] matter that has been ongoing for several years, we may choose to establish a trust to pre-fund existing phosphate asset retirement obligations, which would result in a restricted cash balance of approximately $600 million. This would be simply funding in an existing liability and would have no P&L impact. Note that we may elect to fund the trust by issuing debt given attractive borrowing rates. This matter has not yet been finalized and likely will not reach a conclusion until the end of this calendar year.
All told of course, we have substantial cash and borrowing capacity and we look forward to deploying it. After achieving our targeted balance sheet, our cash flow priorities will not change. Our first priority will continue to be investments for organic growth like our current committed potash expansions, which are expected to produce strong long-term returns for shareholders. Second, as our joint venture with Ma'aden demonstrates, we seek strategic investment opportunities. As always, we will only enter into an acquisitions or joint venture if we believe the transaction meets our return hurdles and fits with our strategy and culture.
To summarize, Mosaic is in excellent financial condition and we clearly understand the significant opportunity and importance of returning capital to shareholders. Your patience is much appreciated as we work through our complicated but ultimately constructive process. I want to repeat, do not look for a transaction announcement from us in late May as that is only the kickoff date for discussions with the other parties to any transaction.
Now, I will turn to guidance. We expect fourth quarter potash sales volumes to be in the range of 2.3 million to 2.6 million tons, compared with actual volumes of 2.0 million tons in the fourth quarter of last year. If we reach the top end of this range, our potash shipments would set a new quarterly record. We expect average realized potash prices to be in the range of $350 to $380 per ton, which reflects a substantially higher mix of lower priced standard product. The gross margin rate for the potash segment is expected to be in the range of 40% to 45%. Clearly, this would be a step down from prior years as higher operating rates are expected to be offset by lower prices.
While we continue to aggressively focus on expense management and maintaining our cost curve positions, year-over-year margins are also being impacted by higher depreciation as we bring our new capital investments online and higher labor costs as we have staffed up for a new capacity. Our operating rate in potash during the fourth quarter is expected to be above 85%. Brine management expenses are expected to be in the range of $245 million to $260 million for the year. And phosphates, sales volumes are expected to range from 2.6 million to 2.9 million tons for the final fiscal quarter of the year, about in line with last year's volumes. We expect our realized prices for that to range from $475 to $505 per ton, roughly in line with the prior quarter. We also expect the gross margin rate to be about flat with the third quarter. Mosaic's phosphates operating rate is expected to exceed 85% of capacity during the fourth quarter.
Now I will turn the call back to Jim for his concluding comments.
Thank you, Larry. Here in North America, the searing drought of 2012 lingers in some regions. But these early days of spring are bringing renewed optimism and farmers are planning for an abundant crop. If you are concerned that I am on the verge of tearing up over bird stripping and seedlings reaching for the Sun, worry not. Solid economics lie at the heard of the expectations for a big crop. Grain and oilseed prices remain elevated for many reason. Weather conditions and government policies, for example but none as important as old-fashioned supply and demand.
In 2012, the world once again produced less grain and oilseed than are consumed despite the second largest global crop on record. You know the numbers. 9 billion people by 2050, a net addition the 75 million people per year and very little expected increase in land-use for agriculture. Demand is on a steady line pointing upwards and food production has got to keep up. The world's farmers simply cannot beat the population without good crop nutrition.
As we have seen recently, short-term volatility in prices and in supply and demand will always exist in our complex global markets. But the short-term does not change our story, our promise or our mission. We are well on our way to being the world's leading crop nutrition company and that is an enviable and encouraging position for all our constituents. It is also a stern responsibility. Helping the world grow the food it needs is no small task but Mosaic of the global reach and the expertise to make an important contribution to deliver benefits to global food security while delivering rewards for our shareholders.
Now we would be happy to take your questions. Operator?
(Operator Instructions) Your first question comes from Vincent Andrews with Morgan Stanley.
Vincent Andrews - Morgan Stanley
Thanks and good morning, everyone. If you could just talk about, if you evaluate the potash expansion is not board approved yet, what do you need to see going forward? What are you going to analyze or what are the big decision points which are going to make you decide either to go forward or not go forward?
Good morning, Vincent. Jim Prokopanko here. Good to have you on this call. You are right. We are taking that under final consideration now. We are looking and I will ask Joc to add a few comments but principally a matter of what the cost you are looking like, concluding our final cost outlook, as you would be aware, Saskatchewan is a hot economy with all the energy and other basic serial industries moving. So we are seeing some cost pressures come into these projects. So on the matter of the final cost, to build out the projects we still have on the drawing boards and take a look at where some these other projects in the industry are going. You have seen some changes in the plant outlook. Vale has backed away from its Rio Colorado project for reasons of cost that have gloomed on them and take a final look and balance by the end of the summer. Joc, do you want to add anything?
I think the only thing I could add is we are in the process of finalizing the cost, looking at the construction environment in Saskatchewan but the key thing for us, and as we have always said, that these projects have on rounds and off rounds. I do think it’s a matter of if we are going to do the projects. It’s a matter of what's the right timing for Mosaic so if we make a decision, it will be on timing. So we will be talking about delaying not finally cancelling a project.
Your next question comes from Joel Jackson with BMO Capital Markets.
Joel Jackson - BMO Capital Markets
Thank you. I wanted to ask a couple of questions about PhosChem and India. What I want to know is, it seems like you are giving guidance that you don’t expect the Indian import market to really return until the end of your fiscal year. So around May. We have seen some spot deals happening in India. So is your sense that the Indian market is changing its gear to more spot for DAP and it's part of that also longer-term. What's the feature of PhosChem with you now investing in Ma'aden project and maybe changing how you market around the world. Thanks.
Morning. India, I am going to ask Rick to address, but I'll just leave off with we are seeing a recovery in the Indian economy. There's definitely some impacts, negative impacts from the changes in their subsidy program, but we've seen a good return to potash demand. The phosphate is a little iffy. And I am going to ask Rick to speak to that.
Yes. Good morning, Joel. So your two questions, the first on PhosChem in India, I think that we will see longer-term contracts entered into in India, so we are not seeing a change to a spot market. Our guys were there last week, visited with them. There is belief in three things the inventory they have will carry them through until probably near June.
Second that to get product moving into place, so that they can take the 5.5 million roughly tons of DAP. They need for imports will lead the start May and everyone is sitting there waiting for the government to come forward with what the subsidy programs are going to be. The expectation was is that those were to be last week. Expectation now is, is that we'll see them next week as the government itself set after some up people. And so we expect India will come in. It will be of orderly buy and there is no question they want the tons that we have allocated towards them.
The second part on PhosChem is a question that we have been asked, but I think the key thing is, as we see no changes coming and that the to think about it, product that will come from Ma'aden is four years out. That's a long time.
Your next question comes from Bill Carroll with UBS.
Bill Carroll - UBS
Once the Ma'aden JV get scaling, how much you geographic phosphate mix change? That is do you expect the Ma'aden output to go mainly to India and Asia, while the Florida and miss key [mile] our product will be market predominantly in north and south America and then how much might be the overall phosphate cost structure changed because of the new project?
Rough connection on your question.
I think, what I heard on the first part of the question was, what is going to happen with the Ma'aden tons come on. As Rick mentioned, there's going to be four years off. Those tons are going to be cost advantage given this location into Asia. What that would do is leave more Mosaic products available in North America and the western hemisphere and then to Latin America. Now, it's not all going to be run purely that way. The tons don't all move in one lump sum to one geography, they move all year long, so it's generally going to be Ma'aden directed to Asia, cost advantage for freight reasons. Our tons, there's nobody yet to play in phosphate cheaper onto Latin America or North America in the Mosaic camp.
The next question is about the cost structure. I am going to ask Larry to talk about that.
One of the great appeals of the Ma'aden investment is that, we believe we will be investing in what will end up being the lowest cost phosphate production operation in the world. And in this business, as you know, being at the low end of the cost curve ultimately wins and so that was a key part of the strategy for us. We're delighted with the partnership we've struck with Ma'aden and with SABIC, and we believe this project will generate very good returns for our shareholders.
Your next question comes from Mark Connelly with CLSA. Your line is open.
Kurt Schoen - CLSA
Thanks. This is Kurt Schoen filling in for Mark. Do you expect the logistical issues in the ports in South America to any way affect your fertilizer shipments?
Hello, Kurt. With Rick McLellan, having just back from Brazil last week. He is the best answer to that.
Yes, good morning. Really good question. I don’t think until you get to Brazil, you fully understand the logistical issues that are being faced there. To your question about will it, first I will describe what I saw and what I heard. I had a chance to visit to get to our Paranaguá facility and the truck lineups there which are normally long in harvests, like we are in right now are much worse than they were other years. Then I happened to visit with a farmer who was probably 400 kilometers from the port. His trucks had been in line for, I think, it had been seven days and he did not expect them to move for another two days.
There was some real gridlock going into the ports and its causing some extremely increased costs for both the farmer and people operating there. T think the one thing that’s good about what we see happening with the Brazil market is that people believe that the market is going to be a big market and so the buying is being much more spread out than it was last year. They realized they cant just come in and expect just-in-time shipments.
So there a positive outcome of that. The issue though is, is that Brazil needs significant investment in ports, in real capacity and in roads. It is clear that the government understands that but taking it to action is going to be something that’s going to have to happen for them to continue to grow like they have.
Your next question comes from the Adam Samuelson with Goldman Sachs.
Adam Samuelson - Goldman Sachs
Thanks, good morning. I was hoping to get some color on the fiscal fourth quarter phosphate margin guidance. At the midpoint of the range you have guided volumes up sequentially and prices really only down $5 a ton. You have also outlined an outlook for lower ammonia costs and lower sulfur costs, at least based on your purchase, the purchase cost that you realized in the fiscal third quarter coupled with what more another quarter of optimized (inaudible) production. Maybe break how phosphate margins are so only flat sequentially in the fiscal fourth quarter? Thank you.
Adam, its Larry. All of the trends you mentioned are true and yet they are not strong trends. So what we are seeing is the likelihood of relatively flat performance in phosphates in the fourth quarter. Prices may be down slightly. You are right. Ammonia cost maybe down slightly. We are continuing to see progress on rock cost but when we put the whole mix together, what we are seeing is the likelihood of relatively flat gross margins.
As you know, some of the raw material cost trends take some time to work through their way fully through the P&L. So while we are pleased by the trends we are seeing, we don’t expect to see the full impact of those fairly recent trends already in our fourth quarter P&L fully. So positive directions but perhaps not as many fold changes as we might like to see just in this coming fourth quarter
Your next question comes from PJ Juvekar with Citi.
PJ Juvekar - Citigroup
Yes, hi good morning. The issues with Ma'aden one was that some of the rock quality was quite poor due to impurities which caused Ma'aden one to ramp up slowly. So what can you tell us about Ma'aden two project and the rock quality there? How does it compare to your Florida or pro mines and does this impact your Miski Mayo two expansion. Thank you.
Very good to have you on the call. Good to hear from you. We cant really say much about Ma'aden one. We have not had involvement in that, engagement in that and its best to ask the Ma'aden folks how that’s coming along. It’s a 3 million ton plant. I can tell you that. Our sense is that producing in that 2 million ton a year range and I have little doubt that by the end of this calendar year or sooner they are going to have the capacity if they choose to run it at the 3 million ton range. The Ma'aden two mine is a separate project, part of the investment we are making along with the granulation plant and until we start developing that mine, we won't know for certain, but I am going to ask Joe to speak to some of the issues that we may face in mining.
Hey, Jay basically we are just starting out in terms really evaluating long-term processing the rock and everything, so a lot of rock quality isn't what necessarily in how you process it, so I think that's one of the things that Mosaic will bring to the table. We experienced with a range of rocks and rock types and also a range of experiences with respect to how to process that rock into final product. So, in terms the raw quality, we see rock quality is good from what we've seen so far. It's not the same as quality, it's different but in some areas it's better, some areas it's not as good as Florida, but all rocks are slightly different.
Second part of your question in terms of what does it mean for Miski Mayo, I recognize that Miski Mayo is a rock mine which supplements our Florida operations, so the Miski Mayo is quite separate we will be producing phosphate product like DAP, etcetera, where at Miski Mayo, we use the rock for Florida operations, so they really don't compete in that sense or they have a fairly separate strategic purpose for Mosaic, so we are committed to diversifying our rock sources in Florida and if the economics and the long-term focus Miski Mayo supports that commitment to Florida, we may go ahead with it despite Ma'aden.
Your next question comes from Chris Parkinson with Credit Suisse.
Chris Parkinson - Credit Suisse
You mentioned you are seeing some improving sentiment in most of your geographies. Can you add some more color in which geographies in particular you this in for potash and where are you seeing the biggest material differences versus what you've seen in January? Thank you.
Good day, Chris. I am going to ask Mike Rahm and Rick McLellan. Mike Rahm, our economist strategy leader to speak to that.
Good morning, Chris. Generally it's been wide spread improvements in most geographies. As you probably know, we are guiding total MLP shipments in the range of 55 million tons to 57 million tons nearly through the first quarter of calendar year 2013. Our estimates are now at the high-end range of the range.
Starting in the Americas, we're seeing just outstanding shipments and in North America this past fall. The middle, the quarter here in the December, Jan, February, it was a little bit slower. We saw an uptick late in the quarter. Prospects for our final fiscal quarter as we've indicated guidance are very good. Brazil is probably going to [with] 8 million tons of imports this year and some of the Asian markets after a big drop-off in Indonesia and Malaysia, we think there is a very good rebound there.
And if you look at the two big contract markets like China, first half China, if you include the option tonnage has contract for about 3 million tons by vessel, and if they continue to import 200,000 tons to 250,000 tons per month by rail, you can add up about 4 million tons to 4.5 million tons of imports by China in the first half of the year, and I think that either indicates they are front-end loading their purchases or maybe we're on the brink of seeing China break out of that 6 million tons to 6.5 million ton important appetite
And even in India. India contracted for close to 4 million tons of product and we have guided I think in the past 3.2 to 3.7 with the 3.5 midpoint estimate or point estimate. And then so, even India is exceeding our expectations in terms of contracting. So, put that all together, I think the probably an underappreciated story is the emergence of a very strong rebound in global potash shipments in 2013.
Your next question comes from Kevin McCarthy, Bank of America-Merrill Lynch.
Kevin McCarthy - Bank of America-Merrill Lynch
Yes. Good morning. Larry, if you look a couple of years ahead, let's say, beyond the Cargill trust episode in Mosaic's history, is there a particular leverage ratio or range of leverage where you would feel comfortable striking a balance between running the balance sheet more efficiently and maintaining your investment grade status with the one times EBITDA in terms of net debt or two times or somewhere in between? How would you evaluate what is appropriate to maximize the efficiency?
Kevin, we are just going through the final process of finalizing that policy reviewing with the board and we look forward to sharing it sometime in the mid-May timeframe, we think, and then we will give you a much more exact idea at that point in time. I think, for now, I would just remind you of what we said in our prepared comments. We recognize that we have got the opportunity to put more debt on the balance sheet. We intend to do so and we intend to use some of the cash that’s on our balance sheet.
So we will certainly have a more efficient balance sheet going forward. I think if you simply look at what the typical credit agency, the rating agencies' metrics are for BBB companies, you would typically see anywhere from two to three times the debt to EBITDA leverages as being typical for AAA or for BBB companies. I think in our industry, they would be a little bit more conservative than that. So we will use those as guidelines as we finalize this policy. But please be a little bit patient, give us a little more time and look for us to provide you more detain in the mid-May timeframe.
Your next question comes from Don Carson with Susquehanna Financial.
Don Carson - Susquehanna Financial
Yes, good morning. I wanted to follow-up with Mike Rahm just on your potash comments. Mike, you indicated that you were seeing strong volume recovery globally this year but it seems in some of spot markets like Brazil, South East Asian and more importantly the U.S., we are not seeing any price movement. So why is it that this volume recovery isn’t treating you too more price momentum in the domestic market in particular? Just as part B of my question, with prospective plantings is coming in a few hours, Mike, what's your view, the USDA has this very big recovery in production and in stocks this year but will they return to trend line yield, just wondered what your view of that forecast is?
Hi, good morning, Don. I guess I would take exception to the view that product prices haven’t moved. If you look at what's happened in Brazil, right after the settlement of the China contract in the 400 range and the Indian contract in the 427 range, prices traded down and Brazil, the most active spot market into that 410 to 420 range. Today, our product is moving into that market at 440 and offers for the April, May June period, the gut slide of their big import period are up in the 450 to 460 range. So we have always said the larger than expected baseload contracts to China and India probably set the stage for fundamentals to play out and then as they play out and we see this rebound in demand this year, we are seeing some decent price appreciation.
In North America we think these recent developments have set a floor under North American prices which had traded at a premium to some of the international values. So I think when you look at the projected stocks of North American producers, while they remain elevated today with the exports of sales on the books by Canpotex, plus the outlook for a very strong fourth fiscal quarter for Mosaic. We see those inventories getting pulled down to normal levels. So I think that will help support the price momentum that we see right now.
In terms of the U.S. acreage report, we are all excited about the release here in a few hours. In terms of acreage, we are in that 97 million to 97.5 million acre range. I think the consensus is right in that range as well. As far as the expected yield, I think the short answer to that is, no one knows what that is going to be. We went back and looked at what's happened to yields following the last three major droughts, in 1983, 1988 and again in 1993. And in each of the years following those droughts, we saw a very strong rebound back to trend. And so, I think, yield is going to depend largely on rainfall and growing degree days this summer and I think that's the bottom line and I'd like some of the analyst views that everyone's growing a very large crop in their spread sheets and we are not going to know what's going to happen until we see how weather plays out, so its' far too early I think to make a call.
I think one of the things that's happened is that with the improvement in moisture conditions, there's less concern of drought, but that has raised all of set of issues looking at late spring as everyone is aware. I think last week rather than ice melting what happened ice was forming and now the first barge is expected to arrive in same fall somewhere the week of April 20th. So, we sort of transitioned here from a concern about drought to late planting, the potential for serious flooding in many parts of North America. And bottom line is to a great extent our fate is in the hands of mother nature and we simply don't know how that's going to play out yet.
Your next question comes from Ben Isaacson with Scotia Bank.
Ben Isaacson - Scotia Bank
Jim, maybe you can just provide some color as to how the JV with Ma'aden evolved and how that was formed. And then I was also a little unclear did they as ask you for technical expertise on the first phase and you said no, or they did not ask you? And then finally, what is the timing on the Bayóvar Phase 2 decision? Thank you.
Hello, Ben. I'll take your first two questions and I am going to ask Joc to answer the Bayóvar Miski Mayo second question. Important and you raised it to understand that this is a joint venture investment. This isn't purely an equity investment. We are making an equity investment, but we do have claim to 25% of the product that will come through the joint venture, and we will sell that product to customers as we choose to. That will be similar for the partners SABIC as well as the Ma'aden fertilizer. They will sell their share of the fertilizer. The revenues go to the joint venture and we're sharing that profit, and that's how it's going to work. This has nothing to do with Phase 1. This is strictly the Phase 2 project, which is going to be in approximate 3.5 million tons of finished phosphate fertilizer. And Phase 1 will just be kept right out of it.
You asked the question how did we get involved in this, we've known the Ma'aden people for some while. Phase 1 just didn't happen. The two organizations didn't get together on that. It was well down the road when those opportunities were there. And as far as technical expertise, we have an understanding between two parties more details yet to be ironed out, but we will be making contributions through know-how and personnel in the design and operation of the Phase 2 facility.
Now I am going to move this over to Joc to talk about the timing on Miski Mayo.
In terms of the Bayóvar 2 or the Miski Mayo expansion, I think it's almost too early to talk about. I recognize we have two joint venture partners in that project. We are just getting ramped up to the design rate for Phase 1. We have a lot of what I would call betting in or stabilizing of phase, making sure that that's running well at which point three joint-venture partners and we are the engineering and design, but at that point three joint-venture partners will seriously at the economics and the future of Bayóvar too, including market question. So, that's probably ways off yet before we make that decision.
Ben, I just want to add another item too, which is the Ma'aden Phase 2 project, and you will be hearing more details as we get further into the finalizing of many of the details that are involved but there will be a board of the Ma'aden Phase 2 we are going to have. I guess we will have two members on the board, SABIC will have one, Ma'aden will have four or five. So we are going to be quite involved in the management operations and direction of that investment. Thanks, Ben.
Your next question comes from David Begleiter of Deutsche Bank.
David Begleiter - Deutsche Bank
Thank you. Jim, I know you are still doing your cost work on the last 2 million ton of the potash expansion, but can you give us a rough estimate of how much more expensive that could be than the first 3 million ton? If the last 2 million tons is delayed, does CapEx approach $1 billion in 2015? Thank you.
David you asked the question, if I have this right, what is the difference in per unit cost for Phase 2, is that correct?
David Begleiter - Deutsche Bank
Yes, that are the next deferred base. These are the higher cost based projects. The ones we commenced with and started with were the lower per unit CapEx cost, the easier projects, if you will, and the quicker projects. As we go further down, these projects become more complex, become more expensive and I think the only guidance we have given is blended all-in the 5 million tons that we have talked about is going to be in the $5 billion range.
So, you are averaging $1,000 $1,200 to a ton. These latter projects are going to be more than the $1,000 a ton average there, so to speak. Some of these were $500 to $600 ton projects, there were some $1,500 ton projects. So it's difficult to say. We are not prepared to say what these latter projects are but suffice to say even these latter projects and certainly the earlier projects these are far, far better than anything you would expect with a greenfield and probably in the range of, at worst case, half the cost of a greenfield project.
Your next question comes from the line…
Excuse me, I am sorry. David, you had a second part, if it's delayed what would CapEx for 2015 be and I am going to ask Larry to speak to that.
I would suggest that we are trying to give some more guidance on financial policy in mid-May. At that time we will also give some more highlights with respect to long-term CapEx plans. But just keep a couple of things in mind.
One is that sustaining capital requirements are probably in the $700 million to $800 million annual range. We will likely face the opportunity to build two new phosphate rock mines beginning later in the decade to the tune of $1 billion dollar each spread out over a number of years. As many of you know, we are still in the final decision-making stages on a new ammonia plant. So, there are a number of items in our CapEx plans that we will be giving more clarity on sometime before the end of this fiscal year. So, my point is, just because we maybe delaying if we choose to do so, our potash expansions, I don't want people to think that our capital expenditures are likely to be declining dramatically. We will give you more color on that soon.
Your next question comes from the line of Mark Gulley with BGC Financial.
Mark Gulley - BGC Financial
Good morning. Larry, let me try another balance sheet question recognizing that we will get more detail in a couple of months. If I look at the math that you went through with respect to uses of cash, short-term. If I start off with a cash balance of $3.3 billion, the buffers that you talked about added up to roughly $2 billion. So therefore, what that suggests that cash available for share repurchases is going to be in that $1.3 billion area. Thanks, Larry.
I think, Mark, that we are not looking at only cash available for share repurchases. We have got this great opportunity to rebalance the balance sheet with increased debt. So we will be looking for a combination of debts and available cash for share repurchases. Much of our decision will depend upon circumstances at the time and what is the price of the stock, what is the cost to borrow, what is the aptitude of the other parties to this transaction to participate. So I can't give you any more detail or anymore precision at this point in time. I would simply emphasize the point that we've made many times. And I'll repeat, we have very deliberately built a strong balance sheet to allow us to take advantage of the opportunities we are going to have this summer and whether we are looking at cash on hand, available cash or debt capacity, we've got ample opportunity to return capital to shareholders as well as to continue to invest in our business for growth and for returns.
Your next question comes from the line of Michael Piken with Cleveland Research.
Michael Piken - Cleveland Research
Yes. Hi. I was wondering if you guys could give an update sort of on the Faustina ammonia potential expansion project and kind of your thoughts in terms of what some of your competitors do and whether that might influence your decision at all and some of the other factors you're considering. Thanks.
Hello, Michael. The ammonia expansion you've heard us talk about, I think we are one of the earliest out of the gates on that and it has become a crowded field since then. The point that we are at is that we are continuing our feed or frontend engineering design work. We are going to have that wrapped up over the next, I think, 90 days to be complete. This is a large project. The price range would be for 1 million tons of additional ammonia production, which is a combination of greenfield ammonia plant and debottlenecking expansion of our current approximate 0.5 million tons of production.
It's going to range, we think, between $1 billion and $1.2 billion. That's a lot of money. So once we have the final numbers, and that's just our practice, for major expansions like this, we like to have a high confidence in what the final cost is going to be before we make the final call. There has been more to be seen on that. There has been a big gold rush mentality on nitrogen.
U.S. imports about 7 million tons to 8 million tons of ammonia a year given the price spread between marginal costs of production, which is Russian gas into Ukrainian plants. That's about equivalent to $8, $9 MMBTU gas prices, so U.S. has a considerable advantage, so 7 million tons or 8 million tons are imported into the U.S., I expect that farmers working we are going to see 7 million to 8 million tons of new capacity come into the U.S.
These are long lead time projects. If we made a decision today, we expect it is going to be upwards of four years before we get the first ton of the project out considering all permitting and construction costs, so giving you a long story here to say that it's a long lead time, a lot of things can change, so looking at the final cost over the next few months get a better sense of who is really serious about making these serious $1 dollar-plus investments and we will make the call later in the summer.
Your next question comes from the line of Matthew Korn with Barclays.
Matthew Korn - Barclays
Hey, good morning. We've talked a little bit about the positive outlook you are seeing for global potash shipments in relative to your earlier projections for 50 million ton level. How are indications looking for phosphate shipments globally? I believe you had forecast somewhere around 63 million, 65 million tons before largely predicated on demand in the Americas?
Hi. Good morning, Matthew. This is Mike Rahm. Yes. In terms of our global phosphate shipment forecast, we have not changed that we are still in that 63 to 65 range through the first quarter of the year, basis our current point estimate we are kind of right in the middle that range.
I think with the exception of India, it's pretty much the same story. Starting in the Americas, North American phosphate shipments have just been phenomenal, frankly. If you look at the numbers from last fall, they are well above the seven-year average, well above the maximum of the seven-year high/low range. We had good follow through during our third fiscal quarter, and we think the fourth fiscal quarter will be about average, so extraordinarily good shipments in North America.
Same story in Brazil. As you know that last year total fertilizer shipments there were 29.5 million tons. We think that will increase to 31 million tons. We expect that Brazil will import more than 4 million tons of phosphate products. A record, seeing good demand in most of the other Asian markets. So, we are on track to hit that 63 million, 65 million range, I believe.
But one thing I would like to mention that it kind of relates to Don's earlier question, is that even with a good rebound in global yields this year, an important point is to note that I think there is some pent-up demand. If you looked at the chart in our presentation that showed global grain and oilseed stocks you saw the big drawdown that is occurring in 2012, 2013. That drawdown assumes a very modest increase in grain and oilseed use.
In fact, if you look at the projected growth in grain and oilseed use in 2012, 2013, it's 0.6%. That followed the previous four years when grain and oil seed demand grew at 2.2%, 2.3%, 2.3%, 2.6% per year. So, I think even if we get a very, very good supply response, what we are going to see is that, some point of grain prices begin to come down or moderate a bit, there's a potential for an unleashing of this pent-up demand and the fact that crop nutrients remain highly affordable simply underpins our forecast for record P&K shipments this year.
Your next question comes from the line of Jeff Zekauskas with JP Morgan.
Jeff Zekauskas - JP Morgan
Hi, good morning. I have a question for Mike. In your potash shipment expectation of 55 million to 57 million tons for the industry, what's your China number?
China number is, imports of about. Sorry, Jeff, didn’t have the microphone on. Our forecast for China, I believe are, imports of about 6.5 million tons and their domestic production will probably be in the range of 4 million tons. So call it 10 to 11 and as I noted before if you look at what they have contracted for the first half of the year, it's just probably in the 4 million to 4.5 million ton range. So that's a number we are watching very carefully that we think that there could be some upside in that forecast if things play out the way we think they could.
With that, I am going to conclude our call and reiterate a few of the key messages we want to leave you with. First, agricultural fundamentals remained very strong here in North America and elsewhere around the world. Second, we are seeing strong global demand for our products. Third, we have substantial cash and borrowing capacity and we look forward to deploying it in the year ahead and you are going to hear much more about that later this fiscal year sometime in May. Finally, we have got great confidence in Mosaic's future. Our critical mission of helping the world grow the food it need bears very substantial promise for our customers, our employees, our communities and of course for our shareholders.
Thanks very much. Have a great weekend.
Ladies and gentlemen, thank you for joining. This concludes today's conference call. You may now disconnect.
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