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Brazil dams curtailments hurt Mosaic

Fertilizer producer Mosaic has lowered its 2019 earnings guidance to factor in higher costs related to new tailings dam regulations in Brazil, production curtailments, higher Canadian resource taxes and delayed recovery in phosphate margins.
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A Mosaic phosphate operation in Brazil

The company now expects adjusted EBITDA for 2019 to be in the band of US$2-2.3 billion, compared with its earlier view of $2.2-2.4 billion.

In Brazil, the company's Mosaic Fertilizantes operations include 11 tailings dams, mainly at phosphate mines and production facilities. Two of these are centerline dams with partial upstream lifts. Brazil has banned the use of upstream dams following the failure of Vale's Brumadinho iron ore dam in January with the loss of hundreds of lives, with existing dams forced to be decommissioned.

In April, Mosaic suspended production at its Tapira, Catalão and Araxá phosphate mines after failing to obtain an extension to a deadline to provide stability certification for three tailings dams.

The dam at Catalão has all of its permits to operate and the company will need to determine corrective actions in line with the new dam regulations. The B5 dam at Araxá is expected to be decommissioned as soon as the new downstream dam B6 is complete. Catalão is expected to be at full operating rates by the end of the second quarter, with Tapira and Araxá at full operating rates by the end of the third quarter.

Mosaic expects to ship up to 600,000 tonnes of rock from the Bayovar mine in Peru to replace about 40% of the Brazilian mines' normal output. It may also ship up to 300,000t of finished phosphates from its Florida production facilities to Brazilian customers.

The company reported profits of $130.8 million in the first quarter, a roughly threefold jump from the $42.3 million reported in the same period of 2018 due to positive currency transaction gains. Net sales fell 2% year-over-year to $1.9 billion as lower sales in phosphates due to reduced volumes were offset by higher sales across potash and Mosaic Fertilizantes.

At the end of the first quarter its cash and cash equivalents were $384.6 million, down around 42% year-over-year, while its long-term debt fell roughly 6% to around $4.5 billion.

For the second quarter, Mosaic expects phosphates sales in the band of 2.3-2.6 million tonnes while potash sales are forecast in the range of 2.3-2.6Mt. Mosaic Fertilizantes sales volumes in the second quarter are forecast at 2.0-2.3Mt.

Shares of Mosaic (NYSE:MOS) are trading at US$25.27, valuing the company at $9.7 billion. Its share price is down 13% so far this year.