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Mosaic shares recover from record low, as it rebuffs finance concerns

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Mosaic’s battered shares staged a recovery after the fertilizer giant batted off concerns about its finances stoked by a ratings agency caution, and said that its key markets were “performing well”.

 

Shares in the US-based group - the world’s second ranked phosphate producer, and fourth biggest potash producer – bounced 18.4% to $8.30 in lunchtime deals in New York, far outpacing 1.7% gains in the S&P 500 index.

 

The recovery in the shares from a record low set in the last session followed a group statement - released “in response to equity market volatility and investor questions” - that it had “significant flexibility to manage its business through coronavirus challenges, and expects to remain in compliance with its debt covenants”.

 

Mosaic said that it had, on top of $1bn in cash on hand, a further $1.5bn available under an agreed borrowing facility.

 

And while acknowledging that the Covid-19 pandemic “has created unprecedented volatility and uncertainty”, the group said that its key potash and phosphates markets were “continuing to perform well".

 

“Results to date are in line with our 2020 expectations,” said Joc O’Rourke, the Mosaic chief executive.

 

‘Vulnerable to coronavirus’

The comments followed a plunge in the company shares to a low of $6.50 in the last session – their weakest since it was formed in 2004 through a merger of Cargill Crop Nutrition and IMC Global, and taking 2020 losses to 70%.

 

The S&P 500 share index stood down 26% for this year as of last night’s close.

 

Moody’s late on Wednesday signalled a potential downgrade on its credit rating for Mosaic, changing to “negative” from “stable” its outlook, citing a “weak operating environment”.

 

The group’s “higher cost position in phosphate business relative to other global producers”, and a lack of price discipline among producers, left Mosaic “vulnerable to weak phosphate prices”, the ratings agency said.

 

The “high” capital requirements needed to expand output at the groups K3 mine left Mosaic “little flexibility to reduce leverage if there is another weather-related demand disruption in its key markets or further deterioration in pricing”.

 

As regards Covid-19, Moody’s said that “Mosaic’s elevated financial leverage and cost position leave it vulnerable to market disruptions in these unprecedented operating conditions and vulnerable to the outbreak continuing to spread”.

 

Virus impacts

Also in the ag sector, shares in Canada-based SunOpta also rose strongly, by 29% to $2.13 in Toronto, after the animal feed-to-almond milk group revealed better-than-expected guidance for the January-to-March quarter, despite some setback to ebitda hopes from the coronavirus outbreak.

 

The group - which had previously forecast merely “continued improvement” in adjusted ebitda from the $11.1m, excluding disposals, reported for the first three months of 2019 - now said that the result for the first quarter of 2020 would “double” year on year, to $21m-25m.

 

The group reported a “strong performance” across its operations so far this year, meaning revenues would climb to $320m-340m, from $305.3m in the January-to-March period of 2019.

 

This included a boost of some $5m-10m attributed “to the impact of Covid-19”, which some commentators say has boosted demand for plant-based foods, as SunOpta sells, which are deemed a healthy option.

 

However, at an ebitda level, the virus would likely trim the first-quarter result by a net $0.5m-1.5m, thanks to a $2.5m hit to the value of Mexican inventory “as a result of the peso devaluation”.

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