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Mosaic cuts dividend, despite smaller-than-expected profits drop

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Mosaic, forecasting a "gradual" pace in fertilizer market recovery, realised long-standing investor speculation of a dividend despite, unveiling a smaller-than-expected drop in profits.

The fertilizer group - the world's top producer of finished phosphate nutrients, and a major potash producer – said that "as a reflection of our commitment to investors to maintain a strong financial position" it was cutting its annual dividend payout to $0.60 a share, from $1.10 a share last time.

The reduction - the prospect of which had been a topic of notable market debate, particularly after cuts by rival PotashCorp last year - came as Mosaic unveiled a plunge of 92% to $12.0m in earnings for the October-to-December quarter.

However, while the headline result equated to earnings of a modest $0.03 a share, this included one-off costs, such as those on foreign currency hedging and on a pensions revamp.

Without those, the result came in at $0.26 a share, ahead of the underlying $0.13 a share that Wall Street had expected.

'Aggressively managing costs'

Mosaic highlighted the "lower phosphate and potash prices", which have forced the group, like many peers, into cutbacks, notably in potash capacity.

However, the group flagged a "focus on cost and capital controls" which had, in potash seen it "closing high-cost facilities and aggressively managing costs" – a factor which Jo O'Rourke, the Mosaic chief executive, said "bode well for our [potash] business in 2017 and beyond".

Indeed, with cash costs at its potash mines in Canada at $74 per tonne, the lowest since 2007, Mosaic said it was poised to become the lowest cost producer in the country, which is with Russia a key origin for world supplies.

In phosphates, it highlighted that an industry restructuring - "especially in China", where industry woes were underlined separately by PotashCorp - had "helped stabilise producer margins".

'Gradual pace of improvement'

Still, while flagging "strong market demand" for both potash and phosphates, and saying it was "optimistic heading into 2017", Mosaic capped expectations over market recovery.

"While we are confident the market bottom is behind us, the pace of improvement is expected to be gradual," Mr O'Rourke said.

In potash, the group achieved an average sale price of $169 a tonne in the October-to-December period – a recovery of 3.4% on the value the previous quarter, but still down 33% year on year.

For diammonium phosphate (Dap), the average sales price of $317 a tonne in the October-to-December period was down by 2.8% quarter on quarter and by 23% year on year.

Sales forecasts

The group foresaw scope for recovery in its sales prices in the first three months of 2017, forecasting an average value of $165-180 a tonne for potash sales, and $315-335 a tonne for phosphates.

Potash sales volumes were seen recovering sharply too, to 2.15m-1.3m tonnes too, from the 1.5m tonnes reported for the January-to-March period of 2016.

Potash sales volumes for the full 2017 were forecast at 8.0m-8.75m tonnes, up from 7.78m tonnes achieved in 2016.

For phosphates, 2017 sales volumes were seen coming in at 9.5m-10.25m tonnes, compared with 9.52m tonnes reported for last year.

By Mike Verdin

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