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Mosaic unveils first loss in years - but upbeat on potash prices

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Mosaic forecast a potash market revival even as it unveiled an unexpected drop into the red for the first time in at least six years, hurt by a "challenging environment" which has forced it to mothball mining capacity.

The US-based group unveiled a net loss of $10.2m for the April-to-June quarter, compared with earnings of $391.0m a year before, and equivalent to $0.03 per share.

The loss reflected the impact of charges including $24m relating to the abandonment in June of the Prince Rupert potash export terminal joint venture in British Columbia, Canada and a further $47m in asset write-offs in phosphates, of which Mosaic is the world's top producer.

However, even without those one-time effects, equivalent to a net $0.09 per share, Mosaic's earnings would have come in below the positive $0.12 per share that Wall Street expected.

'Weak pricing environment'

The group also flagged a dent to its profitability from "lower net sales", which tumbled by 34% to $1.67bn for the quarter, with the hits to profits only "partially offset by lower phosphate raw material costs and effective expense management".

In phosphates, Mosaic reported a drop of some 30% to $976m in sales, hurt by lower volumes besides a "weak pricing environment" which saw the group sell the nutrient at an average of $343 a tonne, down 24% year on year, although a figure within the range that the company had guided too.

In potash, the average sales price tumbled by 36% year on year to $178 a tonne, below the guidance range of $180-200 a tonne, with volumes down some 13% to 2.0m tonnes too.

The group, like rival PotashCorp last week, blamed the downturn in potash markets in part on delays by China the India, the top importing countries, to signing new purchasing contracts with exporters including Canpotex, the North American cartel of which Mosaic is a member.

"Delays in signing India and China contracts impacted both buying activity and realised prices," said Joc O'Rourke, the Mosaic chief executive.

"As a result, sales volumes were below last year's levels and we operated our facilities at reduced rates," he said, speaking three weeks after the group revealed it was to temporarily close its Colonsay mine in Saskatchewan,

"Our decision to idle the Colonsay mine is expected to result in lower unit costs and to preserve cash in the second half of 2016, while still allowing Mosaic to serve our customers," Mr O'Rourke added.

'Prices have bottomed'

However, also echoing comments from PotashCorp chief executive Jochem Tilk last week, Mr O'Rourke too forecast better times for the potash market ahead.

"With clarity on China and India potash needs, along with strong global demand and supply adjustments, we believe potash prices have bottomed and we see potential for modest price increases in the second half of the year," Mr O'Rourke said.

On volumes, Mosaic forecast world potash shipments in 2017 rising for the first time in three years, to 61m-63m tonnes, after easing to 59m-60m tonnes in 2016.

PotashCorp pegged world volumes net year at 61m-64m tonnes.

Mosaic forecast world phosphate shipments in 2017 hitting a record high of 66m-68m tonnes, up from 64m-66m tonnes expected this year.

Group forecasts

The group forecast its own potash sales reaching 1.8m-2.1m tonnes in the July-to-September period, in line with volumes in the latest quarter, but up from the 1.6m tonnes sold a year before.

However, it forecast a further drop in the July-to-September period in the prices it obtains for its potash, to $160-175 a tonne.

Realised phosphate prices will ease further too, to $310-340 a tonne, with volumes of 2.4m-2.7m tonnes, up from 2.0m tonnes in the July-to-September period last year.

Mosaic shares gained 4.7% to $27.88 in early deals in New York.

By Mike Verdin

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