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The Mosaic Company (NYSE:MOS)

(Qtr End 05/31/2010) Earnings Call

July 23, 2010 10:00 AM EST

Executives

Christine Battist – Director, Investor Relations

Larry Stranghoener – EVP and CFO

Rich Mack – EVP, General Counsel and Corporate Secretary

Jim Prokopanko – President and CEO

Mike Rahm – VP, Market Analysis and Strategic Planning

Rick McLellan – SVP, Commercial Operations

Joc O’Rourke – EVP, Operations

Analysts

Vincent Andrews – Morgan Stanley

David Silver – Bank of America

Jeff Zekauskas – JPMorgan

P. J. Juvekar – Citi

Jacob Bout – CIBC

Edlain Rodriguez – Gleacher & Company

Fai Lee – RBC Capital Markets

Lindsay Drucker Mann – Goldman Sachs

Elaine Yip – Credit Suisse

David Begleiter – Deutsche Bank

Charles Neivert – Dahlman Rose

Michael Picken – Cleveland Research

Operator

Good morning ladies and gentlemen, and welcome to The Mosaic Company’s fiscal 2010 fourth quarter earnings conference call. At this time, all participants have been placed in listen-only mode. The floor will be opened for questions following today’s presentation.

Your host for today’s call is Christine Battist, Director of Investor Relations of The Mosaic Company. Please proceed Christine.

Christine Battist

Thank you, Chanel. Welcome to Mosaic’s fiscal 2010 fourth quarter earnings conference call. With us today are Jim Prokopanko, President and Chief Executive Officer; Larry Stranghoener, Executive Vice President and Chief Financial Officer; and Rich Mack, Executive Vice President, General Counsel and Corporate Secretary; and other members of the senior leadership team.

After my introductory remarks, Larry will review our fourth quarter results and provide some comments on the outlook and financial guidance for fiscal 2011. Following Larry’s remarks, Rich will provide an provide on the hearing yesterday related to the South Ford Meade permit, and Jim will wrap up with a recap of our strategic priorities, key accomplishments this past year and what lies ahead.

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

We will be making forward-looking statements during this conference call. These statements include, but are not limited to, statements about future financial and operating results. They are based upon management’s beliefs and expectations as of today’s date, July 23rd, 2010 and are subject to significant risks and uncertainties.

Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is included in our press release issued yesterday and in our reports filed with the Securities and Exchange Commission.

This call is the property of Mosaic. Any distribution, transmission, broadcast or rebroadcast in any form without the expressed written consent of Mosaic is prohibited.

Now I’ll turn the call over to Larry.

Larry Stranghoener

Thank you, Christine, and good morning, everyone. Fiscal 2010 was a transitional year in the agricultural markets and for us. Demand for our products began to rebound during the second half of the year and we finished on a strong note as we expected. Our financial results consistently improved each quarter this fiscal year. And, for the year, we earned $1.85 per share and generated $1.4 billion in operating cash flow.

Our fourth quarter results improved both sequentially and compared to year-ago results. Earnings per share were $0.89, nearly tripled the amount last year. Sequentially, our results improved due to firming debt selling prices and improved operating leverage in the potash segment, partially offset by lower potash sales volumes. We generated $532 million in cash flow from operations this quarter, primarily due to the increase in net earnings, up from $306 million a year-ago.

During the quarter, our phosphates business segment generated $221 million in operating earnings, fourfold the results in the third quarter. Sales volumes were slightly below the low end of our guidance range. However, solid operating performance, higher selling prices and a favorable product mix contributed to a 26% gross margin rate this quarter, an improvement of 15 percentage points from a quarter ago.

Fourth quarter potash sales volumes were up strongly compared to last year, but slightly below the low end of our guidance range. Potash operating earnings of $347 million were above the third quarter and substantially ahead of year-ago results. The gross margin rate improved sequentially 6 percentage points to 54%. The key driver in our performance was improved cost leverage due to increased production as well as lower brine inflow expenses.

Now, turning to our outlook and financial guidance for fiscal 2011, please refer to slide seven. We see strong demand for phosphates, lean inventories and improving grain and oil seed prices and fundamentals underscore our positive outlook. Global phosphate shipments are projected to climb to 54 million to 56 million tons in calendar 2010 and to 55 million to 57 million tons in calendar 2011. Key growth regions for phosphates include India, Brazil, and Argentina.

For our first quarter, we estimate total phosphate sales volumes of 2.8 million to 3.2 million tons and an average DAP selling price of $410 to $440 per ton. We expect to run our North American phosphate operations at 85% to 90% of capacity. As for raw material trends, we expect that the price of sulfur will decline in the third calendar quarter to a level in line with current international spot values. The price of ammonia in July settled at $355 per ton and we expect ammonia prices will exhibit less volatility during this fiscal year.

Remember that current raw material costs typically flow through our P&L with a two to three-month leg. This means that in our first fiscal quarter, we will be selling product manufactured at raw material costs higher than current market pricing. This coupled with an anticipated higher percentage of blend projects in our first quarter sales mix suggest a decline in our first quarter phosphate gross margin rate compared to the fourth quarter level.

Now shifting to potash, we expect a two-step recovery in global potash shipments. We estimate, shipments will climb to 46 million to 48 million tons in calendar 2010 and increase further to 52 million to 54 million tons in 2011, with imports by Brazil, China, India, and other Asian regions expected to drive this increase. North American producer inventory levels have declined sharply during the last six months and are expected to remain at more normal levels throughout the fiscal year.

For the first quarter of fiscal 2011, we estimate total potash sales volumes of 1.2 million to 1.5 million tons and an average MOP selling price of $300 to $330 per ton. With potash demand currently showing improvement, we expect stronger North American demand in our second quarter. Our potash operating rate for the first quarter is expected to be in the range of 60% to 65% of capacity, down from the mid-70s in our fourth quarter due to planned seasonal turnarounds. This will negatively affect first quarter margin rates.

For the year, Canadian resource taxes and royalties are estimated to range between $150 million to $200 million. Finally, we expect full-year SG&A expenses in the range of $360 million to $380 million and our effective tax rate for fiscal 2011 to be approximately 30% excluding tax items related to the Fosfertil sale.

We continued to invest in our business through growth, opportunity and sustaining capital projects. We expect capital spending for fiscal 2011 to be in a $1.4 billion to $1.6 billion range, including $450 million to $500 million of sustaining capital.

This range does not include the $385 million investment in the Miski Mayo or Bayovar mine which has accounted for as an equity investment. We do not expect meaningful earnings impact from Miski Mayo in fiscal 2011 as the mine starts up.

As you can see on this slide, we continue to enhance our growth prospects through our potash brownfield expansion program. We have also identified opportunity projects that will improve production processes and increased energy efficiency.

As we head into fiscal 2011, we maintain our focus on generating cash and creating long-term value through sound capital allocation decisions as outlined on slide nine. Our cash allocation priorities have not changed. First, we will maintain a prudent liquidity buffer.

Next, we will use excess cash to invest in our core businesses and fund a strategic growth opportunities. Finally, cash will be used for distributions to shareholders through our annual regular dividend and potentially through additional distributions like the special dividend we paid last December. Our cash position will be further bolstered with the net proceeds of about $900 million from the Fosfertil sale once closed later this calendar year.

In order to provide more clarity about our realigned phosphate segment, slide 10 includes a summary of the key components of this segment’s cost of goods sold for the past four fiscal years.

As you can see, there is about $1.4 billion to $1.6 billion of annual mining, production, and depreciation costs that remain relatively constant year-to-year, essentially regardless of production or sales volumes. It would be reasonable to ratably spread these costs over a fiscal year in your earnings models.

In addition, blends and other volumes for the past three fiscal years have averaged about 30% of total annual segment volumes. This benchmark can be used going forward, though amounts may vary from quarter-to-quarter.

Finally, not the blends and other sales have achieved an 8% gross margin rate for the past two fiscal years, though here again this rate can vary widely from quarter-to-quarter. We hope this added color will help you in your analysis of the phosphate segment.

Now, I’ll turn the call over to Rich, our General Counsel, who oversees Mosaic’s permitting efforts. Rich has been actively involved in the South Ford Meade matter, who’ll provide an update on the hearing yesterday in Jacksonville.

Rich Mack

Thanks Larry. I appreciate the opportunity provide an update on yesterday’s hearing in Jacksonville on the South Ford Meade permit. We were pleased to have the opportunity to share more information with the court and we thought the legal arguments provided to Judge Adams, including the facts and science relating to the South Ford Meade permit were both significant and compelling.

With a temporary restraining order expiring on July 28th, the Judge has invited us to submit additional information to the court on Monday and we anticipate a ruling on or before next Wednesday. Once his decision has been issue, we will timely communicate with the marketplace.

Given this matter is in litigation, it would be inappropriate for us to discuss or attempt to answer questions on the substantive issues being considered by the court. However, given the significant interest in the South Ford Meade matter, we want to provide a few additional facts on the permit and the litigation.

The substance of the underlying lawsuits filed against the Army Corps by the Sierra Club in two local nongovernmental organizations relate to mostly technical matters under certain Federal Laws, including MIPPA, The Clean Water Act, and the Endangered Species Act. These sorts of claims by anti-mining interests are not new or unique. In fact, if you look at similar litigation in other mining sectors around the United States, you will see a common playbook.

Yesterday’s hearing concerned the merits of a preliminary injunction which places a high bar on a party requesting such action and provides for substantial deference to the Federal agencies who actively reviewed and approved the permit. Let me assure you that the Army Corps of Engineers along with several county, state and other Federal agencies exhaustibly reviewed the permit applications over a seven-year period.

In fact, the process included dozens of in-depth meetings with regulators, numerous request for additional information and resulted in an administrative record in excess of 100,000 pages and a final permit exceeding 2,500 pages. This was comprehensive. This permit provides significant protections to the environment, including preservation of more than 73% of the site’s wetlands over 2,600 acres of permanent conservation easements and a robust mitigation plan using state-of-the-art reclamation practices.

The Department of Environmental Protection who also extensively reviewed and approved the permit has characterized the South Ford Meade tracking question as heavily degraded and has said that, it will be in a better environmental condition after mining and reclamation has been completed.

Given the amount of focus on the South Ford Meade permit by Mosaic in the scores of regulators with whom we had worked with, we have confidence both in the substance of the permit and the process by which it was issued. We will be certain to update you as soon as we receive a decision from the court next week.

Thank you. And at this point, I’m going to turn it over to Jim Prokopanko.

Jim Prokopanko

Well, thank you, Larry and Rich. Mosaic’s leadership in both potash and phosphates has been a key strength in fiscal 2010. While the potash market struggled to gain traction, our phosphates business made a quicker return to healthier sales volume and stable pricing. Mosaic’s ability to supply the world’s agricultural markets with a global scale, balanced portfolio of two vital crop nutrients, phosphate and potash is unparalleled in the industry.

Combination of these two strong product lines will continue to provide advantages in the years ahead. Through the year, we maintained focus on our strategic priorities, generated strong cash flow and maintained one of the best balance sheets in the industry. Our strong cash position and significant mineral reserves support extensive long-term investment in Mosaic’s future growth.

In potash, we launched the first phase of our multi-billion dollar expansion plan at our three large scale mines in Saskatchewan. Approximately 60% or 3 million tons of our projects have been approved and are in various stages of planning, engineering or construction. Our projects are core to our growth and are scrutinized on a regular basis to ensure they make sense from a return and market demand perspective.

Our plants include up to 5 million tons of expansion. When completed, we expect these projects would booster annual potash peaking capacity to nearly 17 million metric tons. This capacity includes the impending reversion of 1.3 million tons of potash, currently being supplied to a third party under a tolling agreement.

In phosphates, we made strong strategic investments in offshore sources of new phosphate raw to complement our extensive resources. We recently acquired a 35% interest in the Miski Mayo phosphate rock mine being developed in the Bayovar region of Peru. The plant is up and running and I am looking forward to visiting our facility in early August. Miski Mayo advances our strategic priority to secure additional phosphate rock and reinforces our commitment to remain the largest integrated phosphate producer in the world.

In addition, PhosChem entered a multiyear contract with our customers in India. This large base load contract of 2 million tons annually helped us optimize production rates and improved profitability this past quarter. More importantly, it demonstrates strong partnership with valued customers over a multiyear period.

We also announced the sale of our minority stake in Fosfertil in our Cubatao operations in Brazil. We view these as nonstrategic assets and we took advantage of an opportunity to sell them at attractive evaluations. We have a solid footprint in Brazil with our distribution business and assets that are key to serving this region and will facilitate sale of Mosaic produced products into this growing marketplace.

We made headway in aligning our assets to capture future opportunities. Our distribution network provides Mosaic efficient access to the global market. We’re move closely connected that network to our North American production assets to better serve our customers. We exited businesses in Thailand and Mexico to create a more streamlined and cost-effective distribution channel focused on distributing nutrients produced by Mosaic.

On the operational front, we are enhancing our efficiency and operational excellence across the entire enterprise. We launched initiatives that focus on process improvements and resource management to drive productivities in new levels, contain costs, and enhance our safety performance and ensure the sustainability of our company. We’re looking at a processes and costs from all angles in buying new and innovative ways to add value.

On the financial front, we posted strong margin performance in the fourth quarter and full-year cash flow was healthy, further strengthening our financial position. We continually evaluate the supply and demand fundamentals of our business. Phosphate and potash demand prospects look robust, driven by the need for farmers to plant record acreage and reaps ever increasing yields to meet accelerating grain and oil seed demand.

Our assessment is that global phosphate and potash markets will remain tight until new supplies come on line during the next several years. Beyond that, we project demand growth will absorb the new capacity that ultimately gets built. Our strategic plans are designed to capitalize on the attractive, long-term outlook for global agriculture. These fundamentals remain positive. At its core is the food store. This has not changed and many of you know it well.

The United Nations has recently estimated that by the year 2050, global food production will need to increase by 70% and food production in developing countries will need to double to meet projected demand. Clearly, agriculture, and the growing need for crop nutrients will be a major factor in meeting these increased demands.

To wrap up, I’m proud of our accomplishments and I’m committed to further strengthening our position as the world’s leading producer and marketer of potash and phosphates. We have developed a strong platform for the long-term growth, value creation and for fulfilling our mission of helping the world grow the food it needs.

We owe our success to the hard work and dedication of our employees, our customers and our business partners. And to the them I say thank you. Phosphate and potash demand is back on track. Make no mistake, fundamentals in our core businesses look positive and industry sentiment finally appears to be catching up with the marketplace realities. We are excited and optimistic about the prospects for the 2011 fiscal year.

Back to you Christine Battist

Christine Battist

We would now like to open the call to your questions. As a reminder, we will not be able to comment on questions related to South Ford Meade due to the pending litigation. I’d ask that you please hold your questions to one per person, so we can take questions from as many as people as people. You’re welcome to rejoin the queue for a follow-up question. Chanel, please open the line.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Vincent Andrews of Morgan Stanley.

Vincent Andrews – Morgan Stanley

Thank you, good morning. Could you just comment on the potash and phosphate volumes coming in below your guidance for the quarter and what do you think drove that and if anything’s changed on the margin? I guess, in particular, I’d want to know, as corn prices have rallied since the beginning of July, how has buyer psychology changed your interest in purchasing? Thank you.

Jim Prokopanko

Good morning, Vincent. You ask about what happened in Q4 with the phosphate and potash. We started to quarter off – in the first two months started off strong and the year came to a quick end. And the crop was planted in a record of short period of time, it was planted early. And dealers and the pipeline distribution pipeline wanted to finish the year with minimal inventories, no inventories if possible. So we had a decent year.

It went in quickly and we had as I said – as you said, moderately lower-than-expected demand and some of that was destocking of the pipeline and some of that was going in with – ending the season with short stocks and there you have it. Following that is a strong bounce back in our first quarter, with dealers preparing to fill up for the coming planting season this fall, which we expect to be very good as do they and the recent strength in the grain fundamentals provide good support for that.

Vincent Andrews – Morgan Stanley

So just as a follow-up, can you think that there is going to be sort of a more secular shift in sort of when volume is sold throughout your fiscal year? In other words, maybe that the fiscal fourth quarter is going to be little smaller than it used to be and maybe the fiscal first quarter is going to be a little larger just based on buyer psychology.

Jim Prokopanko

Vincent, buyer psychology is big part of it. Still not recovering from the shocks of a – fully recovered from the shocks of a – of September 2008 that we all remember. People are afraid to get too far off home base, so they want to finish the year with – finish their seasons with small minimal inventories and they are not really weren’t ready to fully jump back into the pool.

And I think when market sentiment can change again, that will depend on grain markets. And I think we will see just a little more cautionary tone going forward. But as our memories dim on that that time, we will get back to normal and driven by what’s happening in the grain markets.

Vincent Andrews – Morgan Stanley

Okay, thank you very much.

Operator

Your next question comes from the line of David Silver of Bank of America.

David Silver – Bank of America

Yes, hi, good morning. I had a couple of questions, I guess on your potash business. First, I was wondering if you could comment on your – you made a comment that you expect that China to be in the market for 5 million – I think 5.5 million tons of imports this year. And I personally, I wasn’t aware that they’ve made any indications about coming back into the market. So I was just wondering what your basis is for – for that comment might be?

Jim Prokopanko

Thanks and good day David. I am going to ask Dr. Mike Rahm to address that question.

Mike Rahm

Hi, good morning, David. Well, one reason if you look at a custom statistics from China, China imported 2.5 million tons of potash during the first half of the year. So China has been quietly buying and then tons have been moving into that market. And then based on the number of tons they’ve contracted, we think the number is going to fallout in that 5 million to 5.5 million ton range.

David Silver – Bank of America

Okay. And then, one other question on, I guess maybe your capital program, and again tilted towards potash. But I’ve noticed that domestic competitor of yours has been doing quite a few things and investing in the New Mexico assets that they have. And, I guess, by comparison, Mosaic’s comments about Carlsbad or that asset has been relatively limited or acquired. I am just wondering if you have any comments on a growth strategy or an investment plan for New Mexico potash assets. Thank you.

Jim Prokopanko

Sure, David. It’s Jim here. I’ll that question. Our Carlsbad facility is one of our smaller mines. It’s – and it’s been a good operation for us. It might not have gotten the attention from the – as same as the bigger Canadian operations. But over this past year, we’ve more than doubled, almost tripled our mineable reserves in Carlsbad.

We’ve gone from about 111 million tons of mineable reserves to 294 million that gives us about 25 years of reserves. So we’ve – we’ve got a very strong reserve base and a good underground mining operation. The product we produce there is potassium, manganese and sulfate.

And it is sold under the K-Mag brand which is the recognized leading brand name of this product around the world. There is just unquestionably and we – it’s a Mosaic brand and we have sole access to it. This is a well run underground mine and there’s some people that are converting their mines to solution mines. There’s not need to do that. That is not the first place you want to mine this product, it’ll be a solution mining.

Now we continue to optimize the efficiencies at that operation. There’s – you still see opportunities to lower cost, extract at a higher rate, and we continue to do that. So it’s a well run facility that we could even run better. So that is – that’s where we’re at with it and there is some other things that just aren’t necessary for us to – that others might be doing that’s not necessary and perhaps higher cost than what we are doing.

David Silver – Bank of America

Okay, thank you very much. I appreciate it.

Operator

Your next question comes from the line of Jeff Zekauskas of JPMorgan.

Jeff Zekauskas – JPMorgan

Hi, good morning. I was wondering whether you thought that the closure of Agrifos’s P-12 size capacity in early 2011 will make a difference to the supply demand balances in phosphate?

Jim Prokopanko

Jeff, good day.

Jeff Zekauskas – JPMorgan

Hi, good day.

Jim Prokopanko

It’s a thought that sometime in the first quarter, Agrifos will discontinued production of finished DAP products and that amounts to both 500,000 tons. And there’s something to keep in mind as – I’ll maybe get to a question that somebody else is going to ask is the Ma'aden project coming on line in sometime in 2011 we’ve got to keep that in mind.

Although there is some production coming on line in 2011 through Ma'aden, you are right to point out that some nonintegrated producers will be shutting this coming year. So it’s not all addition, there is some plants that are going out to production.

Will it impact the S&D, I guess depending on the how strong the D is, it might be more missed than we appreciate. But North American production over the next 12 months is not increasing in phosphate production and that’s a point that’s missed by many in the industry.

Jeff Zekauskas – JPMorgan

And just to follow-up, in Europe, is phosphate production increasing or decreasing, and why? And in terms of your capital expenditures of $1.4 billion to $1.6 billion, how does that split between phosphate and potash?

Jim Prokopanko

Mike – I’m going to ask Mike Rahm to talk about what’s happening in the supply side European phosphate production.

Mike Rahm

Good morning, Jeff. And in terms of Europe, they went through a transition a couple of decades ago where most of the phosphoric acid plants shutdown. There is some NPK production and less than a handful of phosphoric acid producers in Europe.

And similar to Agrifos, there is a Spanish producer that also will go out of business. So the European market is basically an import market in one form or another, whether it’s rock or a little bit of phosphoric acid or a finished phosphate product.

Jeff Zekauskas – JPMorgan

That’s great. And then the split in CapEx?

Jim Prokopanko

Phosphate or potash.

Jeff Zekauskas – JPMorgan

In other words, of the $1.4 billion to $1.6 billion you expect to spend next year, how does that split between your potash operations and your phosphate operation?

Jim Prokopanko

That will be about 75% it’s going to be on potash and 25% will be in phosphate operations.

Jeff Zekauskas – JPMorgan

Thank you very much.

Operator

Your next question comes from the line of P. J. Juvekar of Citi.

P. J. Juvekar – Citi

Yes, hi, good morning. You expect potash prices to be down in the first quarter in the range of 300 to 330, down from 4Q price of 336. And you talked about supply demand getting tighter next year, producer inventories are down. I was just wondering what’s the disconnect between that outlook and prices being down?

Jim Prokopanko

I'm going to ask Rick McLellan, our Commercial leader to address that and give his observations in the marketplace.

Rick McLellan

Good morning. Frankly what we saw in May and June was dealers stopped their purchasing to end the year empty. And we needed to find a clearing price where that market would start to move. Price – we decreased prices $30 a ton in North America on July the 5th, and since then, that market has begun to move. That’s a price that – and that will impact our netbacks in our first quarter.

P. J. Juvekar – Citi

Okay. And then I had a follow-up question on the previous China question. There’s a lot of talk about Chinese potash production capacity – production going up (inaudible). And I was wondering if you have any intelligence on that and what is the capacity now? Thank you.

Jim Prokopanko

Yes, P.J., it’s Jim here. Yes, you’re right. Last year, there was talk about increasing potash production in China. And, in fact, the International Fertilizer Association on conjunction with Chinese potash producers took a look at their reporting statistics and the numbers they reported to the association.

And what we found was there were some double counting, mischaracterization of some of the products. And, in fact, the 5 million plus tons that were reputed to be coming out being produced in China and potash was closer to the 3 million ton range. So we just haven’t see the material increase and potash production in China.

Now, China used to – not too many years ago was importing in excess of 9 million tons a year. This last year they imported above 3 million tons and that drop was accounted for some destocking of the pipeline, but a material drop in potash applications on the farms in China. And they absolutely have to come back to the market on that, they just can’t avoid putting potash on and we may be seeing signs of that.

China continues to import significant amounts of soybeans and this year they’re starting to import noticeable amounts of corn. And our reports are that China will continue to be importing corn at every increasing rates in the years ahead. And they know that they have to get their nutrient crop, nutrient balances back in line and the government has sent thousands of agronomists throughout the country to get this message back to the farmers.

So longer answer to a simple question, are the potash production numbers going up? No, we don’t see that. And two, do their potash consumption numbers have to go up? Yes, absolutely.

P. J. Juvekar – Citi

Thank you.

Operator

Your next question comes from the line of Jacob Bout with CIBC.

Jacob Bout – CIBC

Good morning. Maybe you can just comment on your ability to slowdown or speedup your brownfield potash expansions as demand dictates.

Jim Prokopanko

I’m going to ask Joc O’Rourke, our Operations leader here to address your question.

Joc O’Rourke

As I think it’s been stated, we sit at about 3 million tons of additional capacity has been approved and are proceeding through either the design or construction phase right now. And as we’ve said previously, each of those projects and particularly the ones after that, all have on rounds and off rounds, where we can speed them up, slow them down to meet the market need. So we think, because there are so many little pieces to each of these projects, we think we can actually very effectively meet the demand without over capitalizing or missing the opportunities.

Jacob Bout – CIBC

Just for argument sake, let’s say that potash demand was flat with in 2011 versus 2010 levels, would you – what would your – be your ability there to slowdown the brownfield over that one-year period?

Joc O’Rourke

Over a one-year period, I don’t think we’d have – I mean these are projects that takes arguably the minimum one to two years and as a maximum seven or eight years to do. So clearly on that kind of scale, you’re not going to move it. But, we’re looking at more of a long-term demand and supply balance and producing for that.

Jacob Bout – CIBC

Okay. Maybe just a follow-up here. I know you didn’t want to ask any questions on the South Ford Meade mine, but maybe just comment a little bit about your ability, would it makes sense to import rock or to get rocks there Bayovar for that South Ford Meade processing? Will that make any sense at all?

Jim Prokopanko

It might make some sense Jacob, but certainly, we’re doing some contingency. We’re doing a lot of contingency planning here on the results that we should hear next week. For now, it’s premature for us to comment on that. And, if necessary, and when necessary, we will be real clear to the market and we will – and to the investors and we will be back with information dealing with just those kind of questions.

Jacob Bout – CIBC

Okay, thank you.

Operator

Your next question comes from the line of Edlain Rodriguez of Gleacher & Company.

Edlain Rodriguez – Gleacher & Company

Thank you. Good morning, guys. Jim, quick question on the potash strategy in the domestic and the international markets. I mean, you’ve talked about the price decline in the US, when incentivized the summer we feel, yet at the same time, Canpotex is not willing to sell to China or India at the prevalent ongoing price essentially choosing to lose market share. I mean, can you talk about the discrepancy between the two markets had quite a different strategies there?

Jim Prokopanko

Well, the – good day to Edlain. Good to hear from you. We – in North America, let’s recall, I think it was through end of May, early June, grain prices were dropping and at steady rate and we were in low-3s on corn and below I think 9 on beans. And so there just was not a lot of marketplace, foreign marketplace confidence about what was ahead.

And as an early and potentially crop got planted, we found that it’s – it wasn’t fully grown yet and there was risk and weather risk and we’re seeing that and we’re seeing issues in Eastern FSU and Western Europe on grain production and how quickly those fortunes turnaround.

So we’ve seen a stronger pricing on grains, which is in the last couple weeks reinforce the mood and sentimental farmers and dealers. So it was a different marketplace over these last six weeks and eight weeks. So we see a strengthening tone.

We might not be moving the kind of volumes that we want on potash today, but we believe in our first calendar half, it’s going to happen sometime, either in August or September, we will see potash move and strengthen. And that’s not a – we’ve been negotiating in China.

We had some contract from the end of last year that we were shipping and subsequently haven’t come to terms on an agreement Canpotex continues to negotiate with China and I am confident that we are going to have another contract with China in the next while, when exactly I don’t know, one little wrinkle that’s been added, that might make a just a little longer is, there’s been some leadership changes in the (inaudible) organization, some people have been moved around at the senior level.

New people are coming in and those people are going to have to get their people under them and decide which direction they’re going. But we’ve got a good relationship with our Chinese customers and we’re going to have a contract in the next while. I have a little doubt that Canpotex will get there on it.

Edlain Rodriguez – Gleacher & Company

Thank you.

Operator

Your next question comes from the line of Fai Lee of RBC Capital Markets.

Fai Lee – RBC Capital Markets

Thank you. Jim, I just have a question regarding Ma'aden and I was just wondering if concerns about Ma'aden is starting up. Have they opened up new opportunities or better pricing for Mosaic in your opinion with respect to strategic phosphate acquisition opportunities?

Jim Prokopanko

Fai, how do you mean that? Has they made opportunities for us?

Fai Lee – RBC Capital Markets

Well, as you’ve seen the – are there more willing sellers of assets or in terms of your negotiations, are you seeing better pricing than maybe a couple – it might have a couple of years ago?

Jim Prokopanko

No. Both producers – crop nutrient producers are pretty proud of their assets. And with raising grain prices, increasing demand, we – everybody is pretty proud of the business they own and have and there’s under market and posted market on acquisition opportunities. So I don’t know how I could answer that in any kind of detail.

I just want to say again on the Ma'aden thing, they’re talking about – I think they’re marking public statements, they will be starting up in mid-2011 and that startup it’s going to take to a mid-2010, probably 12 months if things go well with them to get up to their 2.9 million ton capacity.

And let’s put in context with 2.9 million tons, that’s two years of demand growth that is not a lot of product demand for the world’s appetite of phosphates. Takeaway 0.5 million tons that a nonintegrated producer in North America is going to be bringing down and there might be another one or two of those that happen over the next 12 months and 24 months and Ma'aden is not coming in with a big hammer here. They’ve got a mono production that the world will eat up through demand growth in two years.

The last time the world saw new capacity come into the market was about 10 years ago with the Oswald and WPC plants in India, those came into production, at the same time, concurrently, China was becoming self sufficient, so there is a disruption at that point as well at the time the Indian plants came on stream, the pipeline, the inventory in the world was pretty flush.

We have a very short inventory in the world. The pipeline isn’t full, the stocks are lower than normal rates and we think mine’s going to come on and it could maybe have a bit of a wobble in pricing, but we don’t think that’s going to be very lasting.

Fai Lee – RBC Capital Markets

Okay. I guess, the reason I was asking was because I think you’ve mentioned that you would consider foreign regional producer is phosphate. I’m just wondering what’s driving the motivation to sell at this point?

Jim Prokopanko

We’re not seeing a lot of motivated sellers that are knocking on our doors. I think it’s – this is a hard business, a tough business. And, unless, it’s a major part of your DNA and you are committed to work for the long-term, you’ve got to have to work very hard if you’re running a regional operation, it’s a global business, it takes a lot of talent, lot of attention to environmental safety, risk issues that go with it. And, unless, you are a large global committed player, I just think it’s a – it’s awful hard work to make a living, running at regional smaller local either phosphate or potash business.

Fai Lee – RBC Capital Markets

Okay.

Jim Prokopanko

It depends on those people’s motivations and their purpose and we’ll see what comes.

Fai Lee – RBC Capital Markets

All right, interesting, thank you.

Operator

Your next question comes from the line of Robert Koort of Goldman Sachs.

Lindsay Drucker Mann – Goldman Sachs

Hi, good morning, everyone. This is Lindsay Drucker Mann filling in for Bob. I was just hoping maybe we could – you could dig a little bit deeper into South Ford Meade without commenting specifically on the trial. You mentioned that you are working through some contingency plans. Can you just talk a bit about – just give a little bit color on those plans?

Jim Prokopanko

If it’s necessary to do so Lindsay, we will at a later date. But we’re really sort of be a wet blank and we’re just not going to comment on this until we have a ruling from the – from that Federal Court that’s reviewing the matter.

Lindsay Drucker Mann – Goldman Sachs

Okay. And then, also, can you maybe just walk us through next step, should we get an unfavorable ruling – from a legal standpoint, should we get an unfavorable ruling from the judge?

Jim Prokopanko

I’m going to ask – Lindsay, I’ll ask Rich Mack to address that.

Rich Mack

Sure. Lindsay, what we would logically do is we would first take a look at the scope of the ruling and then we would see if we’d need to go back to the district court judge this is in front of for any additional clarification or relief.

But, I think in these situations, you would anticipate that you would quickly seek an appeal. And in this case, it’s with the 11 circuit court of appeals for the Southeastern region part of the United States and go to the substance as to whether or not his ruling had validity.

As I mentioned, in the prepared remarks, it’s a very high bar issue a preliminary injunction. There needs to be showing of a substantial likelihood of success, there needs to be a showing of the reparable harm, there needs to be an evaluation of the harms when you issue the injunction versus the impacts that would be inflicted on not only Mosaic, but all of the suppliers and customers and employees and local communities where we operate.

And then, finally, there needs to be a public interest to test. And suffice it to say, that yesterday’s hearing focused on all of those elements. And we think that the plaintiffs should have a very difficult time satisfying all four.

Lindsay Drucker Mann – Goldman Sachs

Okay. So – and you mentioned your confidence in the case you’ve made and also on the permitting process. What sort of degree of confidence do you have that this will be wrapped up relatively quickly?

Rich Mack

I think that – we’ll simply going to have to defer. Again, I think it would really depend on the approach that the judge takes and I would just ask you to stay tuned until next week when we have more information. One thing I can say is that the TRO does expire on its phase and cannot as I understand it’ll be extended by law beyond July 28th, so we should have a affirmative answer on the preliminary injunction issue by the 28th of July.

Lindsay Drucker Mann – Goldman Sachs

Okay, thanks very much.

Operator

Your next question comes from the line of Elaine Yip of Credit Suisse.

Elaine Yip – Credit Suisse

Hi, good morning. Can you discuss a bit what you’re seeing your resilient distribution business? What are your customers telling you and how does the distributor psychology there compared to the more cautious behavior that we saw in North America this past spring? And if you’ll comment on the credit environment and farmer economics in the region, that would be helpful.

Jim Prokopanko

Elaine, good day. Rick McLellan, our Commercial leader would like to answer that question.

Rick McLellan

Good morning. Yes, Brazil is – I’m not sure that Brazil is much different than we’re seeing in other marketplaces. People are conservative to bring in a lot of inventory and had been working to – it’s more or like – it’s more or like to have in the US, where inventories were cleaned out and now they’re starting to command on a more regular basis.

One of the issues that Brazil faces and has faced is a real lack of import capacity and we’re already seeing vessel lineup starting at the main ports because of the amount of product that has to be moved in a short time, so that’s the market. It’s not much different than any other market in world.

Buyers are conservative, buyers aren’t going to go – go along and fill up inventories like we saw six, seven years ago where traditional Brazil demand would be load up in May, June and ship in July, August, September.

As far as customers, farmer customers, economics for soybean production and sugar production are very strong. And farmers are in a good cash position. The government has come along with some programs to support it. So, effectively, the Brazil market we see is growing to 23.5 million tons this year and frankly there’s probably some upside to that if these grain markets continue to stay strong.

Elaine Yip – Credit Suisse

Okay, great. Thank you.

Operator

Your next question comes from the line of David Begleiter of Deutsche Bank.

David Begleiter – Deutsche Bank

Thank you, good morning. Jim, you had very good margins in both your phosphate and potash operations. How – are those margin sustainable and specifically in potash the lower brine inflow costs, are they sustainable as well?

Jim Prokopanko

David, the – yes, we below so, and particularly with the – on the margins, phosphates we’ve been seeing and as reported in the industry of papers, we’ve been seeing some strengthening in the market with the growing demand we think that’s where the pricing is sustainable, we’re seeing some – and I have an expectation for some sulfur prices, so margins on potash and phosphate I should say, will be as we see them now. And I think they’re improving going forward if these prices in the grain market stay where they are.

In the case of potash, I think it’s with growing demand, we should see a good foundation in the current prices we see at potash. And there too, I think Larry mentioned, with some of the turnarounds, we see – we could see a bit of erosion in the margins for Q1 due to reduced absorption costs, but it should be steady thereafter.

In the case of the brine inflow, that’s a – brine is – inflows are sort of in the lower end of the historic experiences we’ve had. We continue to aggressively monitor and to the extent that we can mitigate and manage that inflow and so the costs should be the kind of costs we see recently going forward. And we’re always working to bring those numbers down, but not at the risk of a – of increasing any chance of a damage from inflow.

David Begleiter – Deutsche Bank

And, Jim, just one more thing. Post Bayovar, are you still looking to procure additional rock assets around the world?

Jim Prokopanko

Yes, yes we are. We think rock is a – is in a critical component. And both in potash and phosphate you’ve heard me say before the goal chain and the supply chain is the ownership of the basic resource the rough, potash and phosphate. And opportunities to get economically viable phosphate rock reserves, additional reserves is, I believe an attractive opportunity, attractive investment to augment the good reserves we presently have.

David Begleiter – Deutsche Bank

Would you expect to realize those potential investments over the next three to five years.

Jim Prokopanko

That’s hard. I can’t say. They’ll occur when the price is right and they’re economically viable once they’re found. So I just can’t add anything more.

David Begleiter – Deutsche Bank

Thank you.

Jim Prokopanko

Specificity at that point.

Larry Stranghoener

Jim, if I could just something, David, to that question. With respect to margin, just remember what I said though for phosphates. The blend, because of the higher percentage of blends that we expect to see in the first quarter, and Jim’s comments are generally on track for the full year, but in the first quarter with the higher percentage of blend volumes, it was quite a bit higher than in the fourth quarter and the lower margin rates those carry that will have a negative impact on phosphate gross margins in the first quarter, so just don’t lose site of that within the context of Jim’s overall comments please.

David Begleiter – Deutsche Bank

Right. Thank you very much.

Operator

Your next question comes from the line of Charles Neivert of Dahlman Rose.

Charles Neivert – Dahlman Rose

Good morning. A couple of quick questions. The delivery schedule on product to India, is that something we can take as sort of being even across the quarters or is there any heavy load coming perhaps in this coming quarter and in part maybe explaining why you got such a strong number in the next – in this coming quarter? And also, has there been any forward placement of either potash or phosphate into warehouses of daily distributors where, again, it’s not their inventory, but still considered in yours, and what degree would that be versus let’s say here about this time?

Rick McLellan

I’ll take that. It’s Rick McLellan here. So there’s a couple of questions. We are seeing strong shipments into India in the next quarter and we have that plan, but it is nothing more than what we have had in our plans and so we see that as positive.

There is an impact in India that all nutrients going into the country are facing and that is that if Indian buyers on both P&K waited longer than they normally have to cement business for this year and it’s causing poor congestion and more importantly a real pressure on inbound rail or in-country rail assets to move the products from the ports into where it’s being used.

That will be a short term, they’ll work their way through it. So, I, frankly – and there is inventory moving into the country, but frankly no different than we’ve seen in other years.

Charles Neivert – Dahlman Rose

Okay, but it is heavier than, let’s say, if you’re doing 2 million for the year, if you were going to divide it in four, it’d be 500,000. So this quarter, this coming quarter is likely to be greater than that 500,000, up PhosChem as a group.

Rick McLellan

So PhosChem as a group, you – the product will get moved primarily in the – our first and second quarters.

Charles Neivert – Dahlman Rose

Okay, got it.

Rick McLellan

It’ll be some – a smaller amount of product in that back half.

Charles Neivert – Dahlman Rose

Got it. And then, forward placement, at this point, have we seen any movement of product domestically or into the US market?

Jim Prokopanko

In from our own – into our own domestic – into domestic warehouses?

Charles Neivert – Dahlman Rose

Yes, I mean, last year, there – because there’s a lack of movement of products, some producers were moving product into dealer distributor warehouses even though – in effect renting the warehouse space. Are we seeing that sort of forward placement again, because we still have that same resistance to taking on inventory, but it needs to be placed in order to get to the field. So I was wondering if you guys were instituting the same kind of program we saw last year?

Jim Prokopanko

I’ll answer it in two pieces. On phosphates in North America, we’ve seen buyers go from wanting product moved into warehouses and warehouse agreements to purchasing. Right now, we believe North American distributors have placed somewhere around 60% of what they need for fall and that 60% placed and appraised.

Charles Neivert – Dahlman Rose

Okay.

Jim Prokopanko

Potash, we’re moving product into warehouses and that’s a bit of the way the potash market has worked and people have got approximately 30% cover on what they require for this fall. But that’s changed really dramatically in the last two weeks.

Charles Neivert – Dahlman Rose

Okay. So what we’re saying is it looks like the phosphate side is, they’re taking – willing to take a little bit more risk then on the Potash side at this point from an inventory standpoint, the dealer distributors.

Jim Prokopanko

The dealer distributors see an opportunity to purchase, head start the opportunity to purchase on phosphates earlier than potash. But I think they’ll make that move in the next 60 days.

Charles Neivert – Dahlman Rose

Okay, thank you.

Operator

And your final question comes from the line of Michael Picken of Cleveland Research.

Michael Picken – Cleveland Research

Hi, just wanted to quickly kind of walk through sort of the rest of your phosphate in terms of where you are, in terms of rock permits and how many more years you have at some of your other mines, and maybe if you can provide an update on some of your future mining operations, when you might expect to see any product produced (inaudible) level?

Jim Prokopanko

Mike, I’m going to ask Rich Mack, the General Counsel, who leads our permitting efforts to address your question.

Rich Mack

Hi Mike. I think your question comprises a couple of facets. First, at any given time, obviously, we have a number of permits that are in process and then we have those that are yet to be worked on. Of course, we have about 30 plus or – say 30 to 35 years of kind of anticipated rock left in the State of Florida. And the South Ford Meade permit, that is an important permit for us, and of course that’s been in process for seven years.

We do not have a major permits that is forthcoming here until what we currently estimate in the 2013 timeframe. And then, after that, it stretches out even further than that. You can anticipate there could be anywhere from the 2017 to the 2020 time horizon. Of course, this is a business where things change, mining plans change. And so, these dates can move around a little bit, but I think that’s a pretty good estimation as to where we’re currently at.

Michael Picken – Cleveland Research

Okay, great. And then, as a follow-up, in terms of your first quarter phosphate volume guidance, is that assuming a favorable ruling or should we read into that that maybe either through imported rock or through whatever inventories you might have leftover that you can meet that phosphate volume numbers sort of regardless of what the ruling is?

Jim Prokopanko

Michael, that’s not going to touch – it’s not going to have any impact whatsoever in our first quarter.

Michael Picken – Cleveland Research

Great, thank you.

Jim Prokopanko

With that, we’ll conclude our Q&A session. The demand for nutrients to produce more food will continue to expand. The world is not getting less hungry. With our balanced portfolio and strong competitive position, Mosaic is ideally situated to create value for our shareholders and customers for years to come. Thank you very much and have a safe and wonderful weekend.

Operator

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.

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