Mosaic Company (MOS) — Q3 2020 Earnings Call Transcript

Thank you and welcome to our third quarter 2020 earnings call. Presenting today will be Joc O’Rourke, President and Chief Executive Officer; Clint Freeland, Senior Vice President and Chief Financial Officer; and Rick McLellan, Senior Vice President, Commercial. We will host a prepared question-and-answer session addressing the questions received last night, followed by a short live Q&A session, time permitting. All of our earnings materials released yesterday after market closed are available on our website at mosaicco.com. We will be making forward-looking statements during this conference call. The statements include, but are not limited to statements about future financial and operating results. They are based on management’s beliefs and expectations as of today’s date and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release issued yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our third quarter press release and performance data attached as exhibits to yesterday’s Form 8-K filing, as well as our commentary on the quarter posted to our website also contain information important on these non-GAAP measures. Now, I’d like to turn the call over to Joc.

Thanks for joining us today for our quarter three 2020 question-and-answer session. Before we get started, I would like to emphasize our key points from our quarterly earnings report. First, we’re realizing the benefits of our extensive cost transformation work. Gross margin for the quarter was 27% compared with a year ago, despite essentially flat fertilizer prices. Secondly, agriculture and fertilizer markets around the globe are strong and improving. Phosphate prices are up substantially, while potash prices are stable. We expect global supply and demand to remain tight in all of 2021. And third, our balance sheet continues to strengthen. We have repaid all the short-term debt we borrowed to be prepared for COVID impacts, and the business is generating substantial cash. Now, we’ll get to your questions.

Joc, I’m going to try to go through the most frequently asked questions fairly rapidly to allow time for follow-up questions after. The largest number of questions we received last night related to phosphates markets and the countervailing duty petition. PJ Juvekar from Citi, Joel Jackson from BMO, and Adam Samuelson from Goldman Sachs are all asking about the impact of trade flow shift. How much premium has been built into the U.S. phosphate prices from the absence of Moroccan and Russian imports? And how will a reduction in the NOLA global parity premium affect your margins? In other words, what would the $50 price increase you expect to realize in the fourth quarter be if the U.S. was at parity today?

Thank you, gentlemen. Prices are up globally. Our realizations reflect India prices up over 20% and Brazil prices up 30%, despite increasing imports in both those jurisdictions from Morocco and Russia. While global parity may be less than where NOLA is trading today, it would be significantly higher than where it was trading in June. There seems to be an increasing common misconception somehow that the countervailing duty petition is impacting global supply. Market prices are driven by strong supply and demand, not the countervailing duty, which is expected to change trade flows, not overall market. Our petition was aimed at leveling the playing field for all producers selling in the U.S., not to eliminate competition. Moroccan and Russian producers chose to pull back completely from the U.S. market, likely leaving their customers short of product. And they did it to make a political point and express their dissatisfaction over this being considered at all. We are doing all we can to best serve our customers. We have even begun importing tons from Ma’aden, simply to meet our customers’ needs. Longer term, it is not our intention to replace Moroccan and Russian tons with products from Saudi for several reasons, not least of which is from a global logistics perspective. It makes more sense for us to send that product into Asia rather than bring it here, but we’re doing that to help our customers. Longer term, we would expect NOLA to trade at global parity. Recognize that global parity prices today are significantly above where they were in June.

Another trade flow question comes from PJ. If exports from Morocco and Russia are ending up in India and Brazil, why are prices up there?

Thank you. The global supply and demand is stronger than many realized a few months ago. Economic tightness in the market is driving global prices up. Supply has tightened. China exports are down, and we started 2020 with curtailments, including COVID-driven outages. On the demand side, the agricultural economy globally is strong. Food security has become a great priority around the world, and fertilizers are very affordable.

We have a question from Ben Isaacson from Scotia; and John Roberts from UBS. They’re both asking about phosphate pricing momentum. September realized prices improved 11% from August. Did that momentum continue? And how much more upside do you see for the phosphate market?

Thank you. We’ve continued to see prices increase into October and November, and seeing good demand as we move into 2021. We expect to end this fall with very low inventories, which bodes well for the spring season and winter. So, we are seeing a normal seasonal slowdown, but we expect strong markets to continue into 2021. As we mentioned in our written remarks, we expect prices in the fourth quarter to be up $50 per ton over the third quarter.

Joc, both Chris Parkinson of Credit Suisse, and Joel Jackson of BMO, and others are asking for potential impacts following the ITC DOC determinations. In particular, how will no, low and high duties impact our strategy, and who will fill the void if U.S. imports?

Thank you, gentlemen. Remember, the November determination is simply if there are subsidies. In the first quarter, the decision is the determination of harm and the identification of duty, if anything. If it is determined that there is going to be a high duty, we would expect the trade flows to change to account for that. As such, we would expect the Russians and the Moroccans to continue to ship to other markets, like India and Brazil. If there is no subsidy, we would expect the trade flows to return to what they were pre-CVD filing. Remember, the Russians and the Moroccans made the decision to pull out of these markets altogether when the petition was filed. So, we will continue to serve our customers. If there is more product required for Brazil and India, we will redirect tons to those markets. If we continue to see a deficiency in the North American market, we will divert tons to that market.

Joc, we’ve received a number of questions related to the broader phosphate market supply and demand, in particular with respect to the Chinese phosphate industry. PJ Juvekar from Citi asks, what are your estimates of phosphate exports out of China in 2020?

Thank you, PJ. We’ve said and we continue to believe that Chinese exports will be down by more than 500,000 tons this year. Our latest estimate is that they will actually be down by more like 700,000 tons. From January to September, exports were down by nearly 1 million tons. Now, it’s important to remember that DAP MAP production in China continues to trend lower. From quarter one to quarter three, it was down by approximately 1.4 million tons, while domestic demand now appears to be stabilizing. That means Chinese exports are going to be constrained in the future.

Jonas Oxgaard asks, how confident are you that the three facilities closed in China are permanently closed?

Thank you, Jonas. For the three facilities closed in 2019, we are confident they are not coming back to DAP MAP production. One was permanently closed; one was in the process of relocation to a different place and is planned to be built as a water-soluble fertilizer production facility; and the third shifted its production to industrial-grade purified phosphoric acid. Purified phosphoric acid from the wet process is replacing the highly-polluting thermal process, which is also the outcome of the stringent environmental protection measures that are ongoing. According to the China phosphate industry association, 5 million tons of DAP MAP production capacity has been lost since the environmental protection measures have been implemented. This includes permanent closure, relocation for different production, and strategic production shifts to higher-value products, like purified phosphoric acid.

Joc, in a related question, Chris Parkinson would also like an update on the projections for Chinese production costs.

Thank you, Chris. The estimation to a typical southwestern phosphate producer's production cost is still around $300 per metric ton, ex plant, and probably an FOB equivalent of $335 per metric ton at a Chinese export port.

Joc, the second most popular area of questions was Mosaic Fertilizantes. Mark Connelly specifically addressed this question to you. After you acquired Fertilizantes, you told us that there were no really big cost reduction projects, but rather a large number of small to midsized projects, many of which were suggested by local employees. Are the sorts of projects you are doing today materially different in expected returns? And among these, has the transfer of best practices between and among your Brazil plants proceeded as well as the early projects did?

Thank you, Mark. Let me say, we continue to see a number of small to medium-sized, high-benefit projects, and transformation continues to drive benefits with very little capital and very high returns for Mosaic Fertilizantes. Now, as we go forward, some of these will require incremental growth capital, mostly technology-related, and much of that is like our next-gen mining investment in Florida. Now, what I would ask is, we’re going to go into depth of this and our transformation growth objectives for Mosaic Fertilizantes next Monday, November 9th. So please, stay tuned then, and we’ll give you a lot more detail on where we believe this business is going and the potential for our growth in South America.

Adam Samuelson from Goldman Sachs; and Andrew Wong from RBC both asked about the demand outlook. How does the interplay of current farmer economics and La Niña weather forecasts impact the Brazilian demand outlook? And did the very high Q3 phosphates demand pull volumes from Q4?

Thank you, both. Look, current farmer economics are very strong, particularly in Brazil, and are expected to push Brazilian demand to grow higher again in 2021, probably in the 2% to 3% year-over-year range. This is the fundamental driver. As for La Niña, it’s not something that we’re overly concerned with unless it were persistent through mid-2021. The reason for this is that the strong growth signals from La Niña for Argentina and Southern Brazil is typical from June to August. What we saw in recent months could have been a signal persisting a bit longer than is typical, or it may have been simply dry weather patterns in South America at large. Importantly for Brazil though, rains have improved and planting is progressing. The delays were a couple of weeks. So, we do expect to see no impact on total demand. Demand is expected to remain very strong, aligned with good farmer profitability. In terms of your question of moving Q3 phosphates from Q4, we do expect to see continued strong demand in Q4 as the season has been extended by the dry weather that we’ve already seen.

Joc, Steve Byrne of Bank of America asks, there has been significant productivity extracted from the legacy Vale assets. Are the earnings growth drivers longer-term going to be from geographic expansion, from production capacity expansions in phosphate and potash or from new products and services, such as selling other crop inputs?

Thank you, Steve. Yes. The quick answer is yes. We see great potential in all three of those areas. We have a very strong first-mover advantage. We have a great platform in Brazil. And we hope over time to take greater advantage of that. Now today, our primary focus for growth in Mosaic Fertilizantes is organic. We continue to see transformation opportunities. We see increases in co-product sales and benefits from the deployment of technology. There are geographic areas where we feel we have a smaller distribution footprint than we would like, but we also have room to grow with our current distribution assets that we have. So, in summary, we see all areas having potential. We do think that both distribution and production will grow, and we’ll continue to utilize our first-mover advantage in that great growing region.

Joel Jackson from BMO is asking about Fertilizantes’ per ton margins. Should we expect these margins to hold, expand or contract in 2021? And what are the main drivers of these?

Thank you, Joel. When we’re thinking about our per ton margins, we really have to consider two components. First, production, where the price of finished goods, raw materials and cost to produce drive gross margins. Here, we are continuing to drive production costs down, and through transformation, continuing to improve that business. In distribution, where we earn a margin that is impacted by volume, economy of scale and pricing trends, we continue, as well as transformation and continuous improvements in our performance product sales. That’s really how we’re going to drive long-term value. So, in distribution, we do see that holding up well as well as in production. So, on both sides, we expect we can not only hold those margins but expand them as time goes by.

Joc, we also got a large number of questions on our phosphate segment. Steve Byrne and PJ Juvekar are both asking about the near-term performance and the expected profitability improvement into the fourth quarter. What portion of the phosphate fourth quarter volumes are already locked in? And will this impact your ability to realize the $50 per ton price increase? So, are we looking at much better fourth quarter in phosphates?

Thank you, gentlemen. As expected, a good portion of the tons we expect to recognize in the fourth quarter have already been sold and priced. We don’t expect our price realization increase to be below the $50 per ton in any scenario. We have assessed the impact on a potential announcement in countervailing duties in November, and our expectation is the impact will only be a minor change to late December shipments, if that goes against us.

PJ Juvekar of Citi; and Adam Samuelson of Goldman Sachs, both asked about the ARO reserve increase. Can you elaborate on the drivers of the ARO increase and the remediation liability? What is the timing of the increased cash outlays?

Thank you, gentlemen. I’m going to hand this one straight over to Clint to answer. I think he has the details of our ARO that we just booked.

Thanks, Joc. As many of you may recall, the third quarter of each year is typically when we update and refresh the estimate to see to work related to ARO activity. And I would say that quite a bit of the amount that we booked this quarter is related to Plant City as we’ve learned more about that site over the last year. Our ARO spend is typically spread out over an extended period of time, 40 to 50 years during the life of facilities and gypstack and so forth, so a very extended type of spending profile. But also, recall that against our existing AROs, we also have about a $700 million escrow account that will offset at least a portion of that spend in future years. Now, related to the environmental reserve that we booked this quarter, that’s really related to some subsurface work that we need to do at some of our facilities around some of our gypstacks. And I would say, specific to that, that the spend is probably going to be made over the next two to four years.

Adam Samuelson from Goldman Sachs; and Seth Goldstein from Morningstar are both asking about fourth quarter phosphate volumes. Is it reasonable to expect a notable uptick in volumes? As we move into 2021, should we expect higher year-over-year volumes or will you keep production lower to support higher prices?

Thank you, gentlemen. As we look at the fourth quarter, we see great demand in all our markets right now. And so, with that, we do expect to have relatively good sales through the quarter and then low inventories as we enter next year. As we look to 2021, we do expect to see a good demand scenario, and we would expect to see good utilization of our assets, particularly, if you remember, in the first quarter of 2020, we had a bar go down for almost three months. So, now we expect that to come back and our facilities to run very much closer to full production in 2021.

Joc, lastly, I’d like to end with a couple of questions on our potash segment. Ben Isaacson from Scotia asked, how we think about Colonsay? And do we believe there may be a need for those tons in the market in the future?

Thank you, Ben. Yes, we definitely look at Colonsay as something we would bring back if our customers needed the tons and if the price justified restarting it. This industry is rife with examples of sudden but permanent supply disruptions. And in that case, this tonnage could be very valuable to us. As our customers' demands grow, Colonsay will be significantly cheaper to bring back than any greenfield operation.

The last question comes from Seth Goldstein at Morningstar. How much potash is coming out of K3 now? And how does that change as we move to 2022? Is the long-term plan to grow K3 production in line with potash demand growth, or will you try to increase market share?

Thank you, Seth. In 2020, K3 is forecasted to produce about 4.4 million tons or the equivalent of about 1.5 million tons of finished product, which amounts to about 15% to 20% of our total production of potash in Canada. In June 2022, K3 or Esterhazy will be providing the ore for approximately 6 million tons of finished goods production, and this will completely replace K1 and K2 mines. So our expectation is, we will not necessarily grow production, but rather replace K1 and K2. Longer term, our goal is to match production with demand while also lowering our cost profile. K3 has already proven to lower our overall costs. Now, with our remaining time, I’d like to open it up for follow-up questions from our audience.

Hi. I’d like to drill a little more on this phosphate supply and demand outlook that seems to be highly contested today. So, you have a fair amount of information in your deck on the demand outlook for ‘21, somewhere between flat with 2020 or maybe up 2 million tons. But, if we look at your supply outlook and you have a breakdown of what we see as potentially the delta in supply from ‘21 to ‘20, there are a few fairly large items in there, and just we’d like to hear your view as to the up and downside risk to some of those, the big ones being an inventory build is expected by the producers, the ramp-up at OCP, and then the recovery in supply, given the 2020 outages. Those three are the fairly large line items. Is there a potential risk that those are much bigger than that?

Thank you, Steve. Well, let me start by saying, as we look into 2021, we do believe that the phosphate supply and demand is quite tight. So, first of all, we’ll end this year with relatively low inventories, and that’s relatively low inventories throughout the channel. Our proxy indicates U.S. inventory will be down about 35%, which represents somewhere in that 600,000-ton mark. India will be down as much as 1.3 million tons and China down as much as 700,000 tons. So, as we look at how we enter this year, we do believe that some of the production will have to go into rebuilding distribution stocks to fully service this market. And then, if we look at the increases, there are a couple of things that are important. First of all, with that level of inventory at the end of the year, we do expect that there will be a higher utilization of assets, which is where we have the million tons of recovered production, if you will. So, if we look at those two, they relatively offset themselves that we need to increase inventory just to supply basic needs and have a normally balanced market, but we also will have the opportunity to run assets harder. In terms of the go-forward, we’ve heard from OCP publicly that they will be relatively slower in bringing on new production. They’ve announced that publicly. So, we see modest increases to new productions coming from improvements in Ma’aden, as they continue to move their Wa’ad Al Shamal operation up to full production over the next year or two, and then modest increases from OCP. I think the rest are fairly minor in nature. So, I wouldn’t really worry too much about those, one way or another. But overall, we do see a tightening market for next year.

Hi. Thank you. I was wondering if you could touch a little bit on the phosphate rock supply-demand as well. Basically, the same analysis you did for phosphate supply-demand, what does it look like on the rock side?

Yes, thank you, Jonas. We don’t really analyze phosphate supply and demand or rock supply and demand because we're not directly involved in that market. Our focus is primarily on domestic production in non-integrated markets like India. Regarding our Miski Mayo operation, which does have external rock production, it's mainly for our own use. We don't approach it from that angle; instead, we concentrate on the overall phosphoric acid usage in the global market, which is what really affects us. When we discuss our DAP and MAP, it comes down to what is produced from that rock and what we generate from our own rock. So, we don't view it as a separate market.

Quickly on the potash front. It appears, certain markets, ex-China are really beginning to churn throughout Asia, and you and some of your peers seem confident in the rebound in the Chinese market as well. So, just overall on your analysis heading into the next two years, and of course, hitting on course grain, oil seed and even supply and demand. What are your thoughts on potential upside coming from the Asian market? And then, also if you could hit on the potential optionality from biodiesel, that would be incredibly helpful as well. Thank you very much.

Okay. Thanks, Chris. Look, what we see today, and I think what we saw through the year, is not unlike what we’ve talked about previously, which is when the price in 2016 went low, we quickly saw a rebound in demand, and we’re seeing that this year as we predicted earlier in the year. So first of all, I would say, there’s been a relative rebound in demand as was expected. Some of the highlights, though, I would like to put out is, as you mentioned, China has been a really good highlight, as has India in both of those markets for reasons of food security and probably trying to make sure that they produce as much in-country as they can. Demand for potash has been strong in both of those jurisdictions. And then, in the rest of Asia, the big thing there, of course, is Indonesia, Malaysia and the demand for palm oil, which has really bumped up. And just to touch on your piece there, biodiesel has been a part of that because where biodiesel is going to play a role in fuel as we go forward. And I would like to highlight that in markets like India and China, basic ethanol will also play a role in demand for commodities in those jurisdictions as well. So, yes, we do look at these playing a role in demand increase over time, and we are expecting good demand from Asia, India, China in the next year.

Good morning, Joc. Thank you for your comments. Year-to-date potash volumes are up 6%, while phosphates have only increased by 1%. What accounts for this difference? Additionally, if the agricultural markets in China are strong and expected to remain so into 2021, what are your projections for potash imports and phosphate exports from that country?

Thank you for your question, PJ. The main reason for the difference in potash and phosphate volumes regarding deliveries has mostly been about inventory movements. As you may recall, we had a significant inventory buildup in phosphates as we entered this year. Because of this, it needed to be consumed first, which happened in the first quarter, before we started to see actual demand or production pulls. That’s likely the explanation for the difference. Now, regarding your second question, can we ask PJ to repeat it? Thank you, operator.

Oh, I’m sorry. Yes. Sorry. The question I think from PJ was Chinese imports of potash and Chinese exports of phosphates next year. So, look, our expectation in China in potash, PJ, is that there is going to be continued focus, and we see this in their five-year plan in China. But, there’s continued focus on food security and ensuring that they have a robust agricultural industry to ensure less reliance on outside places. So, for doing that, we expect that actually potash demand will increase internally because the corn demand is so strong. But also, the other aspect is, their own internal production at Shanghai Lake is reaching its capacity and possibly even going down. So, we do expect China to be a, let’s call it, a growth engine for next year. In terms of phosphate exports, I think, as I said, there’s a couple of closures. So, there has been some structural changes in the phosphate market in China. And that coupled with what we believe is flat to increasing Chinese consumption of phosphates means that our expectation is Chinese exports will be down, maybe not year-over-year because COVID had a big impact to the start of this year, but certainly down from the 2019 levels.

Yes. Hi. It’s Adam Samuelson. Good morning. I guess there’s been a lot of detail today on the phosphate kind of market outlook and your own kind of expectations of your own performance in the market, yet, Joc, your stock is down 15%. And so, clearly, the market is taking a different view. What do you think the market is getting along today as it relates to your own kind of market outlook or the strategy or the operating performance that where you think the gap in understanding is?

I'm going to be quite straightforward with my response, Adam. Firstly, I believe the market has been influenced by comments from a competitor regarding their phosphate business impairment. To clarify, an impairment has to arise from a triggering event, based on my understanding of general accounting practices or IFRS. When considering potential triggering events, it’s clear that phosphate prices have risen significantly from one quarter to the next. Additionally, external consultants we consult, such as CRU, have also raised their long-term forecasts. Therefore, it’s challenging for me to understand how the long-term outlook for phosphate could be the basis for such a write-down. You inquired about where we might be mistaken. I think there’s a misconception that the phosphate market was the triggering factor, when in reality it must have been something else, leading to an assumption that we have a negative outlook. In comparing our business to theirs, it’s important to note that direct comparisons are quite challenging. We operate on a different scale and offer distinct products. They focus on purified phosphoric acid, which is currently facing challenges in the industrial sector due to a slowing economy and heightened external competition. On the other hand, the fertilizer sector is experiencing the contrary, with rising demand and prices along with a strong outlook. Thus, I don't believe the dynamics of phosphate demand and supply for fertilizers play a role in this situation.

There has been significant discussion regarding the impact of the countervailing duty, and we have addressed that extensively. However, I would like to raise another point. As you mentioned, the trade flows are not the main driver of supply and demand. Regarding Mosaic, the company sells a substantial amount of phosphate in both Brazil and the U.S. It appears that Brazil's volume is increasing. I understand that if the trade flows were to reverse, it might lower the U.S. premium, but I am interested in knowing the actual impact on the company if there were to be a decrease in flows to Brazil. I'd like to hear your thoughts on that.

Yes. Thank you, Andrew. Look, you’re absolutely right. This is about trade flows, not overall supply and demand. So today, what the Russians and the Moroccans have done is they have redirected tons that would have otherwise come to the U.S. to either Brazil, India or in some cases, Eastern Canada. So, they have moved a number of tons to different markets. They have not sold a significantly different number of tons globally than they have in any other year. So, we know that their overall supply and demand balance in the world has been very similar. So, where they pull tons out of the U.S., we’ve had to bring more tons into the U.S. to serve it, but you’re also seeing tons come from places that haven’t traditionally sent tons to the U.S., like Australia and Mexico or significant tonnage in terms of that. So, you do see a difference in trade flows. So, what would happen if that reversed, my expectation is the reversal would create exactly the opposite. We would see more tons going from Mosaic to our Brazil business. We would see more tons going to India from our Saudi tonnage, et cetera, and there would be other imports coming into the U.S. So overall, we don’t think that this is going to make a huge difference. The big difference today is demand is up, Chinese exports are down, and we’re seeing a growing market and a good demand scenario around the world.

I wanted to understand how much the movement in the real has positively impacted Fertilizantes this year. If the real were to stabilize from now on, while keeping your forecasts for Brazilian market growth unchanged, what effect would that have on your margins? I'm trying to grasp how we should consider this, and if the real were to strengthen a bit next year, what implications that might have for margins.

Thank you, Michael. I'll break this down into two parts: our production business and our distribution business. First, the weakening real has primarily impacted the profitability of Brazilian farmers, driving strong demand in Brazil. The Brazilian farmers are performing well. For our distribution business, it's mostly unaffected by the real's fluctuations. We purchase in U.S. dollars, hedge, and then convert to Brazilian real, which means it doesn't significantly impact our overall margins. However, it does influence actual demand. Regarding our production business, in the short term, costs tied to the Brazilian real decrease relatively quickly, leading to improved costs and margins. Over the last couple of quarters, the Brazilian real has been mostly stable—5.37% in the previous quarter and 5.38% in this quarter—indicating that the positive changes we see are due to our operational improvements rather than currency exchange benefits.

Our next question comes from the line of Joel Jackson from BMO Capital Markets. Your line is open. Please go ahead.

Hi. Good morning, Joc. A large U.S. phosphate buyer publicly stated that OCP offers different specifications compared to what Mosaic can provide. They mentioned aspects such as solubility. Is this accurate, inaccurate, or something in between? And what actions can be taken if it is accurate?

This is the second time I’ve had to be relatively direct. No, quality is absolutely not an issue between the two commodity products. We do have very small differences in terms of some of the things that are in our product because of what’s in the ore. But recognize, this is a manufactured product that takes phosphoric acid, adds ammonia to it to form diammonium phosphate and monoammonium phosphate. These are chemically produced. We have been selling this commodity in the United States for over 50 years. In that whole time, we have seen great response on the field. And frankly, solubility isn’t even one of the specs that is measured for quality. So, it is simply a distraction; it is simply a way of taking the focus away from the real issue here and trying to turn a commodity into a specialty product. It just doesn’t work unless you’re doing with something like MicroEssentials, in which case, the actual agronomic aspects of it are significantly better than the agronomic aspects of commodity products. So, with that, I’ll leave it there.

I just wanted to follow-up on the ARO and the environmental charge. I don’t think I caught it earlier. I’m not sure if you mentioned it, but I know it was non-cash in the quarter. And you talked about it. There would be some cash liability in the future. I think you gave some dates. But could you actually quantify the amount of cash liability that you’ll actually have to pay out in the future? Thanks.

Thank you, Vincent. I’m going to pass it to Clint, but first, let me provide a brief summary. Once a year, we assess our asset retirement obligations over a 50-year period. The primary focus for these obligations is long-term water treatment, especially at Plant City. Additionally, there is work related to our other gypstacks that Clint will discuss in more detail.

As we examine the ARO number specifically, it's important to remember that this is a standard process we follow in the third quarter each year, adjusting based on our observed levels of work. Part of this figure involves updating assumptions about inflation rates and interest rates to reflect current dollars on the balance sheet. A significant component within that figure is a necessary future investment in reverse osmosis at one of our facilities. While this isn’t urgent, it's been included as we've conducted additional work on what needs to be accomplished. This future investment is estimated to be around $40 million. Most of the adjustments are related to the assumptions I mentioned earlier. Regarding environmental remediation, the anticipated cash costs will be approximately $35 million, spread out over several years based on current assessments.

Thanks very much. Your quarterly CapEx in potash is about $110 million and your depreciation is about $70 million. So, it’s about $40 million per quarter above D&A, $160 million per year. Does that incremental $160 million go away and your CapEx go to depreciation when your K3 project is done?

Thanks, Jeff. Let me hand that straight to Clint. I’m not sure exactly.

Yes. Hi. Good morning, Jeff. So typically, outside of our K3 spend, the typical sustaining CapEx level can vary each year, but it’s in kind of $100 million to $200 million per year, midpoint of about $150 million. And that’s generally, as an example, what we’re seeing this year from a sustaining level, it’s about $150 million. So, I think, that’s what we would expect as we go forward. And obviously, we’ll be migrating from K2 and K1 over to K3. We would expect that sustaining spend to migrate with it. And so, I think, longer term, you will see more alignment between sustaining CapEx spend and depreciation in potash.

Thank you very much. Good morning. Just want to make sure that I’m understanding the big picture here with all the variables we’re talking about. When you talk about the $50 a ton in the fourth quarter off of the base that we just reported, it looks like we’re talking about a run rate of $0.5 billion of EBITDA, a lot of puts and takes. But, am I understanding this dynamic correct? And if so, they really have growth from that next year, that run rate of $2 billion, just to make sure I’m understanding these variables we’re describing here.

Thanks, Jeff. Let me quickly summarize. If I understand your question correctly, you're asking if the $50 increase in Q4 will result in approximately $500 million for EBITDA. We typically sell around 2 million to 2.2 million tons each quarter, and if you multiply that by $50, it would add about $100 million to our EBITDA for the quarter. So, if you take today's number and add $100 million, that should be a reasonable estimate, although we also need to consider the seasonality of Mosaic Fertilizantes and other factors from quarter to quarter. But yes, I believe that's a reasonable starting point. The sensitivity would be around $100 million.

Perfect. I mean, there seems to be a lot of skepticism on the sustainability of this. But $2 billion run rate, it sounds like, given the end market drivers and demand is a very conservative approach to next year. I want to make sure I’m understanding the message being portrayed.

Again, if the price holds for 2021, you would again be saying much the same thing. You’re looking at about 9 million tons at $50 over today. Again, the calculation is much the same. You would add $0.5 billion.

Thank you. Maybe back to the capital spending question you got earlier. But, are we late enough in the year to have an outlook on 2021, at this point? And how many years do you think you can keep your overall CapEx relatively near the current level?

Thanks, John. I’m going to hand it over to Clint for some clarification on this. But, I guess, overall, look, here is our big picture is our longer term and 2021 being no exception. Our longer-term spending would have $600 million to $700 million of sustaining capital. And then, today, what we’re seeing is other improvement capitals and whatnot, but the big one that starts dropping off after 2022 is of course the $300 million or so we’re spending on Esterhazy K3. So, that capital spending comes down, but there are other areas of improvement and high-return projects that we may want to put in there. So, how long can we maintain it flat? I think, certainly, it will go down over time. How much goes down depends on opportunity.

I think we’ve come to a close now. And before I close, I’d like to invite you all to join us on November 9th at 9 am for our in-depth presentation on Mosaic Fertilizantes and our South American strategy. So with that, I want to wrap up today’s call. Mosaic continues to execute extremely well. We are increasing our global competitiveness by driving costs down. And we’re managing well through the challenges of COVID-19. With the tailwinds we’re seeing today from improving fertilizer and agricultural markets, we expect strong results to continue through the end of the year and well into 2021. So, thank you for joining us. And again, come back next week for our South American detail.