The Mosaic Co (NYSE:MOS) This fall 2022 Earnings Name dated Feb. 23, 2023.
Company Contributors:
Paul Massoud — Vice President, Investor Relations and Monetary Planning and Evaluation
Joc O’ Rourke — President and Chief Govt Officer
Jenny Wang — Senior Vice President, World Strategic Advertising
Analysts:
Steve Byrne — Financial institution of America — Analyst
P.J. Juvekar — Citi — Analyst
Christopher Parkinson — Mizuho — Analyst
Adam Samuelson — Goldman Sachs — Analyst
Richard Garchitorena — Wells Fargo — Analyst
Vincent Andrews — Morgan Stanley — Analyst
Edlain Rodriguez — Credit score Suisse — Analyst
Josh Spector — UBS — Analyst
Jacob Bout — CIBC — Analyst
Andrew Wong — RBC Capital Markets — Analyst
Jeff Zekauskas — JPMorgan — Analyst
Joel Jackson — BMO Capital Markets — Analyst
Presentation:
Operator
Good morning. And welcome to The Mosaic Firm’s Fourth Quarter and Full Yr 2022 Earnings Convention Name. At the moment, all individuals have been in a listen-only mode. After the corporate completes their ready remarks, the strains might be open to take your questions.
Your host for right now’s name is Paul Massoud, Vice President of Investor Relations and Monetary Planning and Evaluation of The Mosaic Firm. Mr. Massoud, it’s possible you’ll start.
Paul Massoud — Vice President, Investor Relations and Monetary Planning and Evaluation
Thanks and welcome to our fourth quarter and full-year 2022 earnings name. Opening feedback might be offered by Joc O’Rourke, President and Chief Govt Officer; adopted by a fireplace chat after which open Q&A. Clint Freeland, Senior Vice President and Chief Monetary Officer; and Jenny Wang, Senior Vice President, World Strategic Advertising will even be obtainable to reply your questions.
We might be making forward-looking statements throughout this convention name. The statements embrace, however will not be restricted to, statements about future monetary and working outcomes. They’re based mostly on administration’s beliefs and expectations as of right now’s date and are topic to important dangers and uncertainties.
Precise outcomes could differ materially from projected outcomes. Components that might trigger precise outcomes to vary materially from these within the forward-looking statements are included in our press launch printed yesterday and in our experiences filed with the Securities and Change Fee.
We will even be presenting sure non-GAAP monetary measures. Our press launch and efficiency information additionally comprise vital info on these non-GAAP measures.
Now I’d like to show the decision over to Joc.
Joc O’ Rourke — President and Chief Govt Officer
Good morning. Thanks for becoming a member of our full-year 2022 earnings name. Mosaic had a document yr in 2022, delivering revenues of $19 billion, adjusted EBITDA of $6.2 billion and adjusted earnings per share of $11.01.
In 2022, we reached a number of operational milestones that allowed us to learn from sturdy costs. K3 reached its preliminary capability of 5.5 million tons. In Brazil, we grew our distribution market share from 16% to 18%.
In North America in phosphates, efficiency merchandise represented 43% of whole gross sales volumes and now we now have begun to have a look at increasing our MicroEssentials capability additional, which we are going to focus on later. These efforts are driving sturdy free money move era, which allowed us to return important capital to shareholders in 2022, whereas additionally strengthening our steadiness sheet.
During the last 12 months, we now have repurchased $1.7 billion value of shares excellent, if we embrace the fourth quarter of 2021, we now have purchased again greater than 10% of the shares excellent or roughly 40 million shares.
Along with share repurchases, we now have additionally paid buyers practically $200 million in dividends. Our common dividend now stands at $0.80 per share, up from $0.60 per share the prior yr. And on the steadiness sheet, we met our long-term debt discount goal of $1 billion with the retirement of $550 million of long-term debt in November.
Earlier than diving into our enterprise additional, I’d prefer to briefly focus on broader agriculture and fertilizer markets. Ag market fundamentals stay very constructive, with December corn close to $6 per bushel and November beans close to $14 a bushel. This displays ongoing international meals safety issues at a time of disappointing manufacturing. World stocks-to-use ratios are at 25-year lows and stay beneath strain due to elevated dangers that threaten output in 2023.
The world continues to observe the warfare in Ukraine. We now have consulted with high army and overseas coverage leaders who share our concern that the battle appears unlikely to be resolved within the near-term and could have lengthy lasting impacts, significantly within the manufacturing of key crops like wheat and sunflowers, which is a supply of great quantity of the world’s edible oils.
Exterior of Europe, we consider the USDA’s newest estimate for Argentinian manufacturing seems optimistic, as drought situations throughout the rising season recommend yields will disappoint. In Brazil, climate has delayed the planting of safrinha corn, which may strain the document crop that many are forecasting.
Around the globe, we nonetheless see fertilizer shortages in lots of key agricultural markets, regardless of some main markets being effectively equipped. Nonetheless, the general scarcity nonetheless threatens whole manufacturing and this may underpin international crop costs for a while.
Now let’s concentrate on the fertilizer markets. The sharp spike in nutrient costs within the first half of final yr resulted in growers aggressively mining their soils. As we enter 2023, phosphate and potash costs at the moment are half of what they had been on the peak.
With crop costs nonetheless very sturdy, farmer affordability for vitamins has improved considerably and is now again to the degrees seen in 2020 and 2021. This implies a powerful rebound in demand as growers search to maximise yields with adequate fertilization.
The world continues to be wanting potash. Sure markets are seeing extra available provide, however this implies different markets will not be in a position to get what they want. Belarusian provide stays constrained due to the continued sanctions. We consider Belarus, Calais exports had been down about 8 million tons in 2022, and we count on solely modest restoration in 2023 with whole exports of round 6 million tons to 7 million tons or half of their pre-sanctioned export volumes.
The restricted product Belarus has been in a position to get overseas has been aggressively marketed over the seasonally gradual winter and we now have seen related actions from some Russian producers. That is driving current weak spot in costs, however we consider the phenomena is short-term and can reverse as spring demand ramps up.
In phosphates, China stays dedicated to the structural shift impacting the place it sends its phosphoric acid. Along with shutting down manufacturing for environmental causes, a good portion of phosphoric acid is now being directed to industrial makes use of, together with the battery market.
Roughly 1 million tons of completed fertilizer equal was diverted to the battery market in 2022 and we expect that may proceed to develop quickly over the following few years as the extra battery capability is added. This implies China’s exports of phosphate fertilizers will proceed to be down considerably as restrictions prolong into 2023. Stock ranges in our key markets for each phosphates and potash have declined significantly from the elevated ranges noticed within the second half of final yr.
Grower demand throughout the Americas has been very sturdy due to favorable affordability, however retailers have been hesitant to replenish inventories, due to the volatility in international costs, particularly in potash with the aggressive low season advertising from the Russians and the Belarusians. U.S. spring demand is ramping up over the following coming weeks and we consider we now have reached a backside in potash costs.
In Brazil, sentiment has improved. Inventories have labored their method right down to way more normalized ranges for each potash and phosphates, as growers benefit from way more enticing barter ratios. We estimate fertilizer shipments will whole 46 million tons in 2023, up greater than 10% from final yr and roughly 35% of these anticipated shipments have already been contracted.
In India, phosphate inventories stay very low even after a yr of elevated imports as many of the product went straight to the bottom. Authorities subsidies for the approaching fertilizer yr will decide whether or not India will have the ability to appeal to the vitamins it wants to fulfill its meals safety issues.
In Southeast Asia, potash has turn into way more reasonably priced for palm oil producers as effectively, which ought to drive demand restoration.
Globally, we’re seeing superb farmer economics and depleted inventories that recommend sturdy demand for phosphates and potash in 2023.
Given this panorama, we consider our enterprise is well-positioned to learn from the market’s restoration. In phosphates, lingering points from Hurricane Ian impacted our operations throughout the fourth quarter for longer than initially anticipated, however Florida operations returned to regular working ranges earlier this month. We now consider we now have moved previous the operational points that impacted output and are dedicating sources to fixing key elements in our manufacturing.
At Bartow, we’re upgrading our sulfuric acid manufacturing services following the current manufacturing stops we noticed after Hurricane Ian. And at Faustina, we now have improved operations at our ammonia plant and noticed a big enhance within the quantity of ammonia produced from our plant throughout the fourth quarter.
Florida manufacturing has returned to regular working charges. In the course of the first quarter, we count on whole shipments of 1.7 million tons to 1.9 million tons with realized pricing of $625 per ton to $675 per ton. We count on stripping margins will stay comparatively secure quarter-over-quarter as decrease uncooked materials costs offset decrease completed product costs.
In our potash enterprise, slower demand led us to briefly cease manufacturing at our Colonsay mine, however we expect the present market scenario is short-term and count on to restart operations at Colonsay throughout the first half of 2023.
At Esterhazy, the twelfth miner is being commissioned and the thirteenth miner is predicted to be in service earlier than the top of the yr. When that’s carried out, it’ll add not less than 1 million tons of further annual capability at one of the environment friendly mines on the earth. Within the first quarter, we count on gross sales of 1.8 million tons to 2 million tons with realized MOP costs on the mine of $425 per ton to $475 per ton.
Mosaic Fertilizantes had its greatest yr since we bought the enterprise in 2018, with adjusted EBITDA of $1 billion in 2022, regardless of volatility within the second half of the yr. Fourth quarter outcomes mirror the sharp reversal of commodity costs from the highs of the primary half of the yr, which negatively impacted each the manufacturing and the distribution margins.
However for the complete yr, our distribution margins averaged $36 per ton, which is true within the vary of $30 per ton to $40 per ton that we’d count on. First-quarter distribution margins might be much like fourth quarter as increased stock is labored by way of. However for the complete yr, we do count on distribution margins to be again inside our regular vary.
As we take into consideration the evolution of our enterprise, we proceed to execute our high-returning investments whereas returning capital to shareholders. In phosphates, we now have begun the enlargement of our MicroEssentials providing by including capability at our Riverview facility.
The challenge is predicted to be accomplished by the top of the yr. Upon completion, about 50% of our North American phosphate enterprise might be gross sales of value-added efficiency merchandise. This isn’t an costly challenge. The whole price range is lower than $40 million with a payback interval of lower than two years.
We’re additionally constructing a take a look at plan for purified phosphoric acid manufacturing in North America to confirm remaining design plans for business operation. That is the following step in our shift away from commodity fertilizers and opens up new markets like meals manufacturing and batteries. We’re additionally exploring utilizing the plant’s byproducts to provide NPKs.
In Brazil, we proceed to develop our distribution enterprise. Whereas our footprint is already giant, there are nonetheless areas the place we see alternatives to increase. We now have begun building of a 1 million ton mixing and distribution facility at Palmeirante within the fast-growing North with entry to very enticing rail infrastructure. Returns of about 20% on an anticipated $80 million price range, make this one other instance of extremely enticing modest investments.
We’re additionally monetizing previous investments. In January, we offered our Streamsong Resort for $160 million, as a result of we may understand interesting worth for a noncore asset.
Our three way partnership in Saudi Arabia can also be performing effectively. In 2022, Mosaic’s fairness earnings from the three way partnership totaled $195 million, which is a couple of quarter of our preliminary funding. This yr, they plan to cut back debt by $800 million. They’ve additionally distributed $100 million in dividends to buyers. Our proportional share of $25 million was acquired this month.
Lastly, I wish to reiterate that we stay dedicated to our strategy to steadiness sheet administration and shareholder capital returns. In November, we retired $550 million in long-term debt and this allowed us to fulfill our dedication of decreasing long-term debt by $1 billion. As we have a look at our steadiness sheet right now, we consider we’re well-positioned for the long run. Just like final yr, we plan to return considerably all of our free money move to shareholders in 2023 by way of a mix of share repurchases and dividends. Since September of 2021, we purchased again $2.2 billion in shares and we proceed to see nice worth in our shares. To emphasise that time, we plan to proceed with a $300 million accelerated share repurchase program within the first quarter.
We now have additionally grown our common dividend to $0.80 per share and we’re well-positioned to think about additional development, particularly with our decreased share rely. Along with the common widespread dividend, our Board of Administrators has permitted a particular dividend of $0.25 per share to be paid out on March thirtieth to shareholders of document on March fifteenth. Given our sturdy money move, mixed with the proceeds of asset gross sales, our Board permitted this payout as a complement to our ongoing share repurchases.
Earlier than we go on to Q&A, permit me to summarize. Mosaic delivered document ends in 2022 and we count on favorable dynamics to proceed in 2023. The world is brief international grains and oilseeds. So farmers are incented to maximise yields. We count on this to drive sturdy fertilizer demand and our enterprise is well-positioned to fulfill that demand by way of our present belongings and thrilling new development alternatives. With the sturdy money flows that these present, we’re returning important capital to shareholders by way of dividends and share repurchases.
With that, I’d prefer to now transfer on to the Q&A portion of the decision.
Questions and Solutions:
Paul Massoud — Vice President, Investor Relations and Monetary Planning and Evaluation
Thanks, Joc. Earlier than we transfer on to the reside portion of this name, as we now have carried out in previous quarters, we want to handle a number of the most typical questions we acquired after we printed our earnings supplies final evening. Joc, may you present a bit extra colour on the potash market and why we count on Colonsay will must be restarted within the first half of 2023?
Joc O’ Rourke — President and Chief Govt Officer
Thanks, Paul. Let me begin by saying, we now have had a yr of low potash utilization, which suggests soil ranges are depleted and farmers might want to add potash to the soil to make sure affordable yields this yr.
So growers are seeing very enticing economics and they’re appearing on it. We’re seeing issues like our largest channel buyer in North America has already received 60% of their farmer’s demand is dedicated for spring, which is increased than most conventional years.
In order we transfer into spring, our expectation is farmer demand goes to be good, however all people is ready for the final second. They don’t wish to reside with the worth threat. So why we count on an excellent season in North America and we’re already seeing an excellent season in Brazil, we do count on individuals to attend so long as they really feel they will, however as soon as it strikes, we count on it to maneuver pretty effectively.
Total, we do see the potash market as being restricted by manufacturing. So whereas demand might be regular, we count on Russia might be exporting lower than what they’ve up to now, in all probability, 1.5 million to plus 1 million tons and Belarus will in all probability export 6 million tons to 7 million tons, which is half of what they did pre-sanction.
So we expect this example right now the standoff is short-term and it’ll begin shifting, and when it begins shifting, we count on we should run laborious to produce the market. Jenny, do you wish to simply give us a bit little bit of a spotlight of the place the general S&D is for potash proper now?
Jenny Wang — Senior Vice President, World Strategic Advertising
Positive, Joc. As you talked about, the potash market final yr declined by 16%. That was pushed by the availability constraint, and this yr, with a really constructive farm economics. Within the markets like North America and South America, we consider farmers have all the inducement to return to use potash on the sector to maximise their yield.
For the markets like China and India, the federal government they’re involved to the complete safety. Subsequently, there are plenty of native insurance policies to assist the farmers to maximise their manufacturing. For that, we even have seen potash demand elevated final yr in China. We consider this pattern goes to proceed.
So, total, in 2023, we count on the demand to rebound globally, however there’s no approach to have the complete restoration again to 2021, simply due to the availability is constrained. We’re seeing 5 million tons to six million tons of provide scarcity on this market.
Paul Massoud — Vice President, Investor Relations and Monetary Planning and Evaluation
Joc, Mosaic Fertilizante’s gross margin dropped considerably within the fourth quarter. What drove that margin compression and the way ought to buyers take into consideration margins for the enterprise in 2023?
Joc O’ Rourke — President and Chief Govt Officer
Thanks, Paul. Now if we have a look at the second half of 2022, it displays a reversal in costs from the primary half of the yr. This impacted each our distribution and our manufacturing enterprise. In our manufacturing enterprise, we at the moment are working our method by way of high-cost uncooked supplies corresponding to sulfur and ammonia. As these transfer by way of the system, we count on our margins to get extra normalized after the primary quarter. In distribution, high-cost stock is now working its method by way of the system. Now, none of this could have come as a lot of a shock as a result of costs had been shifting up within the first half and coming again down within the second half of the yr. So, within the first half of the yr, we made increased distribution margins, and within the second half of the yr, these reversed as we had been promoting higher-priced stock into the market.
If we have a look at it over a complete yr, each our manufacturing enterprise and our distribution enterprise did very effectively, and total, 2022 was a really profitable yr and a document yr for the Fertilizantes enterprise. As soon as we get previous the primary quarter, distribution margins must be consistent with our historic expectations of $30 per ton to $40 per ton, and our manufacturing margins will revert to regular stripping margins effectively as soon as we work by way of the high-cost uncooked supplies.
Paul Massoud — Vice President, Investor Relations and Monetary Planning and Evaluation
Joc, how ought to buyers take into consideration our manufacturing volumes over the following yr and what sorts of capital initiatives is Mosaic initiating to assist reliability?
Joc O’ Rourke — President and Chief Govt Officer
Thanks. To begin with, let me say, the final couple of years, there have been some extraordinary circumstances which have impacted our manufacturing, significantly in our phosphate enterprise and our Brazil companies. First, sulfur shortages popping out of the Gulf of Mexico has harm us in the beginning of final yr, refinery shutdowns, COVID, transportation limitations in the beginning of final yr, after which, after all, a few large hurricanes, one which hit Louisiana and the opposite one final yr, which hit instantly onto our operations right here in Florida.
Now, what we noticed from these was injury that, in all probability, lingered longer than we’d have favored, due to the situation of a few of our crops. So what are we doing to enhance that? We’re taking a look at how can we fortify our crops to make them extra resilient to this kind of incidence. And a few of meaning we now have changed a bunch of our converters in sulfuric acid, our boilers or economizers, and so forth. In Brazil, we’re constructing a brand new sulfur tank, new phosphoric acid tanks are being overhauled. So we’re doing plenty of work to essentially fortify and reinforce the resilience of those crops.
So the place can we count on these to go? What we now have seen already is, as an illustration, the place we now have carried out the restore work at Faustina, in Louisiana, greater than 40% of our ammonia final quarter was equipped from Faustina, which is the very best it’s been in over a few years. So we expect we’re getting forward of all of that. Now if I look ahead, what do I count on? I count on that we are going to be operating in that 85% to 90% of our 10-Ok worth. So that may in all probability point out someplace within the vary of seven.5 million tons to eight million tons in phosphates and three.5 million tons in our Brazilian enterprise.
Paul Massoud — Vice President, Investor Relations and Monetary Planning and Evaluation
This concludes the prerecorded portion of our name. Let’s now transfer on to the reside Q&A. Operator?
Operator
Thanks. [Operator Instructions] The primary query right now comes from Steve Byrne with Financial institution of America. Please go forward.
Steve Byrne — Financial institution of America — Analyst
Yeah, thanks. Simply sort of following up on that statistic that you just offered, Jenny, the place international consumption of potash down 16% in 2022 and your estimates for Russia and Belarus sound like down one other 10% or down 10% from 2021 on this yr. My query for you is, does the world actually not want 70 million tons of potash or may there be an influence on international crop manufacturing this yr on account of this and/or do you assume there might be perhaps a little bit of a panic to fulfill farmer demand this spring given the simply in time buying mentality?
Joc O’ Rourke — President and Chief Govt Officer
Thanks, Steve. That is Joc. I’ll begin right here and hand it over to Jenny as you requested. However let me say the world does want 70-plus million tons of potash. We consider there’s a actual want and what’s — we count on to see occur and what we now have seen occur is continents like Africa really going with out product that they really want. So we are literally shorting some areas, Africa and components of Asia, as a result of they will’t afford it and even a few of Central America. So the truth is, if there was extra potash, it will actually discover a residence, and clearly, the worth sensitivity could be completely different as it’s right now. We count on the foremost markets that may afford will bid up the potash value and that might be what drives that. So I’m going at hand it over to Jenny to simply speak a bit bit about that steadiness.
Jenny Wang — Senior Vice President, World Strategic Advertising
Yeah, certain. Thanks, Joc. Steve, to your query, what’s the influence with a big demand of cargo discount final yr, we consider that was over 11 million tons versus the earlier yr. We consider the influence to the yield in a number of the markets is likely to be mirrored on the yield for that yr and in some markets like North America and Brazil, the place the farmers in all probability have invested within the potash software. Within the earlier yr, they in all probability they had been in a position to afford for decreasing price for a yr, however in two years in a row to chop software price, it isn’t actually an excellent resolution for the farmers to maximise their yield and manufacturing. Subsequently, we consider the demand restoration of the demand for potash on this market are there. It’s simply the farmers have the inducement to maximise their manufacturing.
There are particular markets, as I discussed within the prerecorded reply, authorities are actually supporting the farmers to make use of potash with a view to safe their meals safety and we consider that authorities assist are going to proceed as we’re moving into 2023.
Lastly on the spring demand, what we heard from our clients and in addition the growers on the bottom, Steve, in North America, particularly, there’s a really clear need based mostly on the affordability and the farm economics that farmers to return to use potash, particularly for many who skipped a season final yr or reduce the speed final yr. We’re on the stage that, the farmers want to interact with their retailers after which the retailers to cowl the final a part of the shopping for from us and we see that’s taking place. The truth is, this week, we’re seeing rising inquiries within the south a part of the U.S. because the season began.
So we really feel assured that demand goes to get better for potash we nonetheless consider with a big constraint on provide and the worth will keep at a wholesome stage, though, it’s way more moderated from final yr.
Joc O’ Rourke — President and Chief Govt Officer
Yeah, okay. And simply let me add this, Steve, as effectively, since you requested the query of Colonsay. One of many causes we consider Colonsay will probably be wanted within the first half of the yr as that demand comes again, we expect there’s an excellent case for the restart of Colonsay. So it’s in scorching standby. The labor is there. All people is prepared. Now if we don’t want it, it received’t come up. But when we do want it, it’ll come and we count on is likely to be the — that’s the probably case as we see it.
Operator
The following query comes from P.J. Juvekar with Citi. Please go forward.
P.J. Juvekar — Citi — Analyst
Sure. Joc, I believe, you talked about that, 1 million ton equal of fertilizer goes into the battery market. Is that DAP equal that you’re speaking about? Is that [Technical Issues] because the LFP battery grows in China and perhaps sooner or later different components of the world. What are your expectations there and do you may have any product that goes into that market?
Joc O’ Rourke — President and Chief Govt Officer
Yeah. Thanks, P.J. Simply checking my numbers to verify I’ve this proper. However, so, sure, your equivalency is appropriate. We’re seeing or we noticed final yr about 0.5 million tons of purified phosphoric acid be redirected from fertilizers to batteries. Now that’s equal to about 1 million ton of DAP.
And what we’re seeing in that market, it was final yr not less than a development of just about doubling over one yr. So we now have gone from 500,000 equivalents to 1 million equivalents and even when that goes to 1.5 million equal to 2 million equal, we’re going to see a heck of plenty of displaced phosphates out — not getting out of China. In order that’s the explanation we really feel pretty assured that our expectation for exports is cheap. When it comes to our personal, we’re not supplying any of that market at this stage. We’re within the strategy of doing a pilot research now. We now have carried out the — this tabletop work and we at the moment are doing a pilot plant to get the design standards and the costing for our personal purified phosphoric acid and I’d count on to be saying extra about that within the subsequent six months or so and we might be speaking about making an financial resolution after that.
Operator
The following query comes from Christopher Parkinson with Mizuho. Please go forward.
Christopher Parkinson — Mizuho — Analyst
Nice. Thanks a lot. You’ve got a useful define on Slide 10, simply given the sensitivities to DAP, MOP, so on and so forth. Are you able to communicate to the potential year-on-year advantages from all three of your sources of ammonia, in addition to the common sulfur value? The way in which you see that trending within the first half. Simply any colour on that because it pertains to DAP your margins? Thanks a lot.
Joc O’ Rourke — President and Chief Govt Officer
Sorry. Thanks, Chris. I believe what you’re asking is, if I’ve received this proper is, how is the stripping margin sensitivity to enter costs, if you’ll? And what we count on for the yr is, I believe, what we’re seeing is we’re seeing a rise in refinery exercise, which is resulting in a greater provide of sulfur and doubtless making the sulfur market a bit looser. But when DAP demand goes up loads, that might tighten once more, however once more, that form of units itself out with value. After which on ammonia, what we’re seeing is a giant decline within the value of pure fuel in Europe and that value of pure fuel, after all, is driving down the worth of pure fuel right here within the U.S. and in addition driving down the worth of our nitrogen inputs.
So our expectation is that that may proceed after which flatten, so we are going to proceed to lower for some time after which it’s in all probability getting near flattening now the place you’ve got I believe urea costs are down in that $300 vary and it could actually’t actually go that a lot decrease than that or you’ll begin seeing manufacturing decelerate once more.
So we count on that to occur and we count on that — over the yr, stripping margins are literally going to be fairly flat for us. In different phrases, the any drop in value might be met, due to a drop in uncooked supplies and vice versa.
Operator
The following query comes from Adam Samuelson with Goldman Sachs. Please go forward.
Adam Samuelson — Goldman Sachs — Analyst
Sure. Thanks. Good morning, everybody. Possibly, Joc, simply to make clear that final level on phosphate stripping margins. So is the implication then that, if you’ll be able to ship, I believe, you heard 7.5 million tons to eight million tons of product in 2023 or that may be the present sort of plan as you’ll sit right here right now with flat stripping margins that the EBIT — you assume your EBITDA is rising in phosphate? After which the second query I had was simply in Fertilizantes once more, a bit extra of a clarification on in — the drivers within the fourth quarter and the primary quarter. How simply the weak spot in margins between the distribution and the upstream phosphate manufacturing, simply related — each companies will look related from a margin perspective within the first quarter earlier than normalizing thereafter, I simply wish to make sure that I heard that proper?
Joc O’ Rourke — President and Chief Govt Officer
Yeah, okay. So I’ll reply the primary one right here, which was, sorry, I simply received to learn. Oh, yeah, our quantity. Yeah. Our quantity, I believe, is — that’s not an unreasonable expectation for quantity. The query was in respect to what our manufacturing capabilities had been. So I’ll qualify that and say that our — we at all times are pushed by what’s on the bottom demand for our product and never essentially what our manufacturing capabilities are. So there might be a niche between what our manufacturing capabilities are in our gross sales, however that may rely. Doubtless, this yr, we count on for each potash and phosphate demand might be good. So we count on to promote most of what we make. In order that’s not an unreasonable assumption.
When it comes to the pricing, yeah, our expectation is that, because the season will get shifting, each phosphates and potash costs ought to transfer up not less than considerably, and I believe within the case of potash, it may transfer up loads, however actually in phosphates. However we count on that phosphates will sort of steadiness off with a comparatively flat stripping margin, if you’ll. In order that’s our fundamental prediction of the place that may go.
When it comes to Brazil, I’d say that, each the manufacturing enterprise and the distribution enterprise have been equally impacted. One, by rising uncooked materials prices and the opposite by simply the timing of gross sales versus purchases of third-party materials. So, with that in thoughts, you’ll be able to consider it as returning again to extra normalized stage after quarter one.
Operator
The following query comes from Richard Garchitorena with Wells Fargo. Please go forward.
Richard Garchitorena — Wells Fargo — Analyst
Thanks. Simply wished to the touch on the plans to restart Colonsay. I assume whenever you have a look at the outlook and the place we had been a yr in the past whenever you had been planning to increase additional, whenever you begin up, I assume, how lengthy will it take you to get again to that, I assume, 1.3 million run price initially when it was shut. After which how are you fascinated about shifting ahead by way of increasing that capability, is it in all probability going to be extra of 2024 occasion, assuming we now have demand get better or is that on maintain deliberately for the market recovers?
Joc O’ Rourke — President and Chief Govt Officer
Yeah. Thanks, Richard. Look, the way in which I’d have a look at Colonsay is, so after we anticipated the volumes would proceed on the price they had been, and let’s name it, the center of the yr to the primary half of the yr. That slowed down considerably within the third quarter and fourth quarter, which was lower than what we’d count on. So moderately we shutdown Colonsay. Now like I mentioned earlier, we shut it down. We nonetheless have the staff. We nonetheless have all the pieces able to go. So it doesn’t take a lot to restart. However what’s occurred within the meantime that needs to be thought-about is, we now have added since that point and due to the slowdown, we now have been in a position so as to add two new miners at Esterhazy. So very quickly, Esterhazy could have an incremental capability of 1 million tons.
So when you add the 1.3-ish million ton run price of Colonsay plus 1 million tons of Esterhazy, it doesn’t appear to me that we’re going to want the second mill at Colonsay. So I’d say that, usually, that may be on maintain. And as a matter of truth, I believe, the longer the demand weights, the later that Colonsay might be down, due to Esterhazy taking over the slack.
Operator
The following query comes from Vincent Andrews with Morgan Stanley. Please go forward.
Vincent Andrews — Morgan Stanley — Analyst
Thanks, and good morning, everybody. Joc, may you simply discuss the way you form of view the form of the yr volumetrically by way of seasonality and whether or not as we get after the U.S. spring season, which presumably goes to be fairly sturdy? Do you anticipate the availability chain form of coming into a restocking part or do you assume they’re going to wish to have empty bins and there’s going to should be summer time fill and all that? And I’m simply curious as a result of it looks as if all people is operating hand to mouth proper now. I simply can’t inform whether or not you’re form of assuming that that is the top of hand-to-mouth as we get into spring after which we return to perhaps form of the availability chain having regular ranges of stock by way of the yr, so what are your ideas there?
Joc O’ Rourke — President and Chief Govt Officer
Yeah. Thanks, Vincent. Look, I believe that, proper now with the volatility in entrance of individuals, individuals are very involved with ready very lengthy, if you’ll. So all the pieces is at all times simply in time. However, after all, the sellers and our clients should steadiness that with the necessity to verify they get the product they want in time for season. In order that’s at all times the steadiness. My expectation and what we — Jenny and I had been on the Fertilizer Institute assembly per week or two in the past, and nearly to each buyer, we’re nonetheless listening to we want to have our place — product in place for the beginning of the season. We’re not going to refill till we’d like it after which we wish to finish the season empty. In order that’s our expectation, that’s what they may do. However that additionally implies that the summer time fill program must be sturdy right here in North America.
In Brazil, I believe the — due to the lengthy lead time for all the pieces, will probably be a bit completely different than that and I believe the Brazil market might be extra secure all year long and we are going to see the conventional sample of third quarter being our strongest quarter and like we now have mentioned right here, even the Safrinha season we’re beginning to see some fairly sturdy demand alerts not less than.
So we expect that may proceed. We expect third quarter might be fairly regular with the U.S. fill. After which the one you’ve got to think about is, in some unspecified time in the future, we have to see and we count on to see Central America, China, India, Asia, the potash going to Indonesia and Malaysia, we count on all that has to ramp up as a result of they’ve a yr the place they only haven’t used the merchandise they want. So even when they aren’t refilling, they’re going to have to purchase.
Operator
The following query comes from Edlain Rodriguez with Credit score Suisse. Please go forward.
Edlain Rodriguez — Credit score Suisse — Analyst
Yeah. Thanks. Good morning, guys. So a fast query on farmer’s affordability. It has improved fairly a bit as fertilizer costs declined over the previous a number of months. In order that’s good for the farmers. However what’s good for you is for fertilizer costs to begin shifting increased. But when they do, doesn’t that deliver again your affordability problem once more? So my query is how do you attempt to steadiness that delicate line?
Joc O’ Rourke — President and Chief Govt Officer
Yeah. Edlain, this can be a large problem for us in that we sit in a worldwide commodity market and whereas we attempt to ensure that the spikes and the troughs are affordable and that farmer economics keep good, what you see and what we noticed final yr within the begin of the yr was panic shopping for, if you’ll. So all people was shopping for. They had been very anxious about getting their product. After which the farmer mentioned, effectively, that’s awfully costly, and acknowledge final yr, the farmer economics weren’t unhealthy. So the psychological piece took a toll. My concern this yr is definitely considerably what you mentioned, which is individuals wait to [Technical Issues] rush to get your product, and all of a sudden, there’s one other value spike that does harm product — harm farmer affordability to the purpose the place they’re resistant to purchasing fertilizer once more.
However I’ll say, one yr, you get away with the second yr we’re going to begin to see yield drops, and when you begin to see yield drops, you’re going to see only for the underlying agricultural commodities. So I believe it’s actually self-correcting this yr, which is that if they don’t use the product yield [Technical Issues] commodities will go up, which goes to drive the demand. So I believe you’ll be able to’t management it. Hopefully, individuals purchase early sufficient and we get by way of in a reasonably rational method and farmer affordability stays affordable.
Operator
The following query comes from Josh Spector with UBS. Please go forward.
Josh Spector — UBS — Analyst
Yeah. Hello. Thanks for taking my query. I simply wished to comply with up on an earlier level round, I imply, much like the prior query by way of potash affordability. However perhaps particularly with the markets that you just mentioned had been extra value delicate when you find yourself speaking about Africa, Asia, and so forth. Are we at some extent the place that’s not a problem right now and you’re going to see or count on shopping for to return and is there a spread if costs transfer up $50 a ton to $100 a ton, that’s nonetheless going to be some extent the place it’s enticing for that area to purchase or are we nonetheless on the level the place that’s nonetheless questionable?
Joc O’ Rourke — President and Chief Govt Officer
Yeah. Thanks, Josh. I believe, the place — as we glance world wide, it actually depends upon the place you’re looking. Look, in case you are shopping for fertilizers for — and the overwhelming majority of fertilizer is used for large crops and export crops. So in case you are promoting your crop into a world market the place you will get the worldwide value, then you’re high-quality and the demand might be there.
So if you concentrate on North America, most of South America, Europe, and so forth. Yeah, that’s all high-quality. If you concentrate on Africa, the issue in Africa and the explanation, I’d say, no, it’s not the case, they nonetheless can’t afford it in Africa is as a result of they’re shopping for for promoting into a world market, they’re shopping for for subsistence farming to feed themselves.
So whether or not crop costs are excessive or not is sort of irrelevant, as a result of it’s how a lot they should put into the crop [Technical Issues] and that’s the place the availability hole finally ends up being most acute. And we now have heard it from, as an illustration, the U.S. State Division, which says that components of Africa at the moment are shifting from starvation into acute, what you name it, from starvation to hunger principally.
So in Asia, sure, they may have the ability to afford it I believe, however when you get to the poorest components of the world, no. Now does that have an effect on the general market? Probably not, as a result of these will not be large customers within the first place, however that’s in all probability essentially the most tragic a part of this entire factor.
Operator
The following query is from Jacob Bout with CIBC. Please go forward.
Jacob Bout — CIBC — Analyst
Good morning. I wished to return to that dialogue on Colonsay and Esterhazy. If I’m mistaken, Esterhazy is your lowest value potash mine by far. Simply why wouldn’t the following incremental ton be coming from Esterhazy. Is there something that we must be fascinated about from a mill or hoist perspective or bringing on incremental capability?
Joc O’ Rourke — President and Chief Govt Officer
Yeah, thanks, Jacob, and good to have you ever again on the decision. Yeah, your feedback are precisely appropriate. Esterhazy is by far our most cost-effective or not less than costly to function mine. And you’ll take into consideration this as, every new miner that is available in, it offers us roughly 400,000-ish tons of recent capability and there’s no restrict.
As we see it, we count on no restrict on the hoist and we might be plant restricted at concerning the 1 million tons of incremental capability that we now have talked about bringing on. So we might be plant restricted by, let’s name it, the center to the top of this yr, and at that stage, yeah, Esterhazy, we are going to maximize tons from Esterhazy first and solely use after which Belle Plaine after which use Colonsay as required.
Operator
The following query comes from Andrew Wong with RBC Capital Markets. Please go forward.
Andrew Wong — RBC Capital Markets — Analyst
Hey, good morning. Thanks for taking the query. I simply wish to return to LFP. We now have seen a few LFP initiatives introduced lately within the U.S. I’m sort of curious what’s Mosaic view on the home LFP alternative and perhaps this can be a little bit early given you’re performing some pilot testing right here, however I respect any preliminary ideas, like, when you had been to provide a purified phos acid for batteries, like, what could be required for that to occur and can they try this with the present rock that they’ve or do you want a distinct kind of rock or what sort of upgrades would it’s essential do to your processing crops right now and how much prices would that contain? Thanks.
Joc O’ Rourke — President and Chief Govt Officer
So, thanks, Andrew. Let me say, we now have been within the testing part and I can let you know pretty definitively, that we’re able to making the grades of purified phosphoric acid required for batteries.
And as you mentioned, there’s numerous LFP lithium iron phosphate crops being talked about within the U.S. right here. And we’re in dialogue with a few of these, and clearly, there’s nondisclosures for every of these units of discussions. So I received’t discuss specifics.
However I can let you know, there’s a large need amongst these battery producers to have one, a shorter provide chain, i.e., a extra secure provide chain out of the U.S., and secondly, plenty of these subsidies and stuff require that the U.S. content material to be there.
So there’s numerous the explanation why the market not less than could be very keen on that. And what we’re doing now along with doing the pilot work on this, which goes to provide us the design standards, inform us assist us outline what the prices of each capital and working might be.
However on the identical time, we’re doing market research to grasp what the ultimate dimension of this market might be right here in North America particularly. However keep in mind, as we take into consideration purified phosphoric acid, there’s additionally the opposite industrial makes use of and meals and all the pieces else. So this might be fairly a helpful department for us to de-commoditize to some extent.
Operator
The following query is from Jeff Zekauskas with JPMorgan. Please go forward.
Jeff Zekauskas — JPMorgan — Analyst
Thanks very a lot. With fertilizer costs coming in, ought to working capital be roughly a supply of $700 million in money in 2023? And secondly, with the entire completely different ammonia services which might be being proposed for the Gulf Coast, does it make sense sooner or later to purchase extra cost-plus ammonia or are you proud of what you’ve got?
Joc O’ Rourke — President and Chief Govt Officer
Yeah. Thanks, Jeff. Let me hit the — these two by way of — I missed your first query. Sorry, I received…
Jenny Wang — Senior Vice President, World Strategic Advertising
Working capital.
Joc O’ Rourke — President and Chief Govt Officer
Oh, working capital, yeah. You — relying in your assumptions, clearly, we’re going to work our method by way of some product that’s fairly excessive priced proper now. And relying on what you assume for the ultimate pricing, there’s undoubtedly going to be some money coming into the system from working capital. So in different phrases, our working capital wants ought to go down with value clearly.
If I have a look at this yr, I believe, our working capital has been nearly all as a result of value of the third-party merchandise. So the volumes of our stock haven’t modified, however the worth of that stock has modified considerably and that’s not for produced product, that’s for third-party buy merchandise.
When it comes to the ammonia, I believe, you may have — I hit that precisely on the pinnacle by way of the place we’re going with our CF contract, which is we now have mentioned that, this was an eight-year contract with CF. CF has given us discover they wish to renegotiate it. But when they’d not carried out that, we in all probability would have as effectively. Now I believe it’s value hedging a part of our wants for ammonia with a value plus kind contract, however perhaps it received’t be as excessive a quantity as we now have carried out up to now or it is likely to be a distinct method. However I believe there’s methods that’s in each ours and CF’s curiosity to relook at that contract and have a look at how we value our ammonia going ahead. So and there’s others like OCI and whatnot which have, clearly, come into that market. So we see ourselves in a fairly good bargaining place for what we do going ahead.
Operator
The final query comes from Joel Jackson with BMO Capital Markets. Please go forward.
Joel Jackson — BMO Capital Markets — Analyst
Hello, Joc. Good morning. We are going to see you subsequent week. I wished to ask a bit extra about Brazil to grasp a few of your colour round margins, clearly, a giant margin discount in This fall. I believe you mentioned, you count on margins in Fertilizante to enhance by the top of the yr. Are you able to give a bit extra colour, ought to we count on related margins in Q1 and bettering throughout the yr and whenever you say again to you, I believe, historic or common margin? However I don’t actually know what that’s anymore as a result of, clearly, you got the Belle asset, the combo modified, margins went up with the upper commodity costs, and you probably did plenty of work to enhance the belongings you may have there some optimization and synergies. What’s the historic margins in Fertilizante?
Joc O’ Rourke — President and Chief Govt Officer
Yeah. Thanks, Joel. So, let me say, traditionally, we had been speaking particularly concerning the distribution margins, and if we have a look at the distribution margins over time, they’ve actually ended up someplace in that $30 per ton to $40 per ton. Now the manufacturing enterprise, clearly, way more value of phosphate and potash dependent. But when I have a look at the distribution enterprise, that’s not a foul place to begin.
When it comes to how we count on this to play out, we at the moment are shopping for product at right now’s value, however that product received’t be offered till the top of quarter one and into quarter two. So the product we’re working our method by way of is the higher-priced product from quarter 4 that we had been buying at that stage, as a result of there’s that large lag in Brazil of, let’s name it, three months.
So we do count on margins, significantly distribution margins to be much like what they had been in quarter 4, however I could have been misunderstood after I mentioned they had been going to construct over the yr, over the common of the yr, we nonetheless count on them to be in that very same vary of $30 to $40. So meaning they should rebound pretty shortly and we totally count on they may.
Operator
This concludes our question-and-answer session. I want to flip the convention again over to Joc O’Rourke for any closing remarks.
Joc O’ Rourke — President and Chief Govt Officer
So, thanks everybody for all of your questions and your curiosity in us. To conclude our name, I’d identical to to reiterate our key messages.
Mosaic delivered document ends in 2022 and we count on sturdy enterprise situations all through 2023, farmers across the globe have sturdy incentives to maximise their yield and fertilizer is in brief provide in lots of components of the world. So we count on sturdy demand and Mosaic is effectively positioned to ship this for our clients. We’re additionally delivering for our shareholders by returning primarily all of our free money move by way of dividends and share repurchases.
So, with that, thanks for becoming a member of our name and please have a protected and blissful day.
Operator
[Operator Closing Remarks]