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Mosaic signals appetite for deals in 'growth engine' Brazil

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Mosaic signalled an appetite for further acquisitions in Brazil, which it termed a “very good agricultural market”, in contrast to the country’s broader economic woes exacerbated by the pandemic.

 

James O’Rourke, the Mosaic chief executive, said that there was “a lot of uncertainty around the macro situation in Brazil”, where the economy contracted by 4.1% last year despite a $50bn stimulus package aimed at tackling the Covid-19 pandemic.

 

“I think Brazil just dropped off as one of the top 10 economies of the world,” Mr O’Rourke said, adding that the Covid outbreak in Brazil “is really quite serious”, with more than 270,000 deaths to the disease.

 

Indeed, Brazil, which overnight approved a further $8bn emergency aid package, on Wednesday recorded Covid 2,286 deaths, a record daily toll.

 

‘Extremely good farmer economics’

However, for Mosaic – which had been “very successful in maintaining our operations, keeping our people safe” in Brazil – the growth of the country’s agriculture sector in contrast to other parts of the economy offered an appealing target for investment.

 

“The agriculture sector continues to be a strong sector within Brazil,” supported indeed by the decline of the real, which came close to record lows against the dollar earlier this week, before staging a recovery on expectations of an interest rate rise.

 

“With the real continuing to devalue, we see extremely good farmer economics, which… bodes well for” sales at Mosaic, the world’s top combined phosphate and potash group.

 

‘Opportunities to increase our footprint’

Mr O’Rourke added that executive at Mosaic - which three years ago paid $2.5bn for mining group Vale’s fertilizer assets, to form Mosaic Fertilizantes – “still talk about the South American growth engine, and that’s mostly about Brazil.

 

“Brazil remains one of the largest, fastest-growing agricultural markets in the world, providing the economic basis for our growth strategy.”

 

And when asked about Mosaic’s “opportunities” for merger and acquisition, he said that “we see opportunities in both production and in distribution where we can increase our footprint.

 

“I don’t have any that we’re going to talk about today, obviously, but we’re constantly looking at how we can economically, with a great return, take advantage of what is a very good market in Brazil, a very good agricultural market.”

 

‘Great opportunities’

The group’s Brazil-based Mosaic Fertilizantes arm currently boasts six mining facilities and eight production sites, which last year sold 10.6m tonnes of product by volume, achieving underlying ebitda of $473m.

 

The division is centred on the phosphate market, but does have capacity for 500,000 tonnes of potash too.

 

Mr O’Rourke said that the north west of Brazil, where agriculture “is growing quite rapidly”, offered “great opportunities” for Mosaic to extend its distribution operations.

 

He also noted “opportunities” in fertilizer production, in which the government “has talked about making Brazil more self-sufficient.

 

“I think they’re going to probably look at ways to lower the impact of some of these interstate taxes that have been a bit of a restriction.”

 

Sector upswing

The comments come amid an upturn in earnings for many agriculture supply groups, such as fertilizer and machinery companies, as elevated agricultural commodity prices, in raising grower profitability, encourage farm investment.

 

Shares in Mosaic, which on Thursday raised its annual dividend target by 50% to $0.30, stand at two-year highs, as do those in rival Nutrien, while shares in equipment makers Agco and Deere have set a series of record highs.

 

Phosphate prices have risen by more than 30% so far this year in benchmark New Orleans and Moroccan markets, while jumping by 50% in Tampa, Florida, according to market data released by Mosaic.

 

Potash prices are up 20% in the US Corn Belt, 22% in Brazil and by 33% in New Orleans, although jup a more modest 7.7% in South East Asia.

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