A report from Fitch Ratings Inc states that it has assigned a 'BBB-' to The Mosaic Company's $1.25 billion, five-year and 10-year senior unsecured notes.
Proceeds will be used to fund the cash portion of the Vale Fertilizantes (VF) acquisition expected to close this year.
The ratings and outlook incorporate Fitch's expectation that leverage will remain above Mosaic's adjusted net debt to EBITDA target of between 2.0x and 2.5x through 2019.
The ratings consider Mosaic's position as one of the world's largest fertilizer producers with good cost control, advantaged geography, and long mine lives taken together with overcapacity in key markets and soft agricultural commodities prices.
Key rating drivers
FCF after 2017: Fitch expects marginal free cash flow (FCF) generation in 2018 after the substantial dividend cut to $39 million (including dividends on shares issued to Vale SA in connection with the acquisition of VF) from $254 million as operations are rationalized. Fitch expects FCF of at least $200 million in 2019 and $300 million in 2020 on capital and cost control as well as improving phosphate fertilizer markets. Fitch believes debt repayment will be a priority while leverage is above target levels.
New phosphate capacity: New low-cost capacity in Morocco and Saudi Arabia in the near term into a well-supplied market as well as low feedstock costs are pressuring phosphate fertilizer prices. Fitch expects supply rationalization in China as well as rising ammonia prices to result in price increases after 2018. Some of the new low-cost production is from the Waad Al Shamal Phosphate Company joint venture between Ma'aden, Mosaic (25 percent stake) and SABIC.
Excess potash capacity: New low-cost capacity at K&S Legacy and EuroChem's Volgakaliy ramping up over the short term will pressure higher costs producers to curtail production and limit price upside. The lower price environment, however, should restrain new capacity additions allowing for more balanced markets longer term. Fitch expects potash prices to drop about $10/tonne from 2017 average prices over the next five years.
Market position: Mosaic is the largest integrated phosphate producer in the world, accounting for about 14 percent of world production and 75 percent of North American production of concentrated phosphate crop nutrients. The company is the fourth-largest potash producer, accounting for about 12 percent of world production and 39 percent of North American production. Mosaic has extensive distribution facilities in North America, Brazil, India and China. The acquisition of VF would increase Mosaic's position in phosphates and enhance market access in the key market of Brazil.
Cost position: Potash costs, on a delivered basis, are modestly above the global average given the need to manage brine inflow at the Esterhazy mine and freight to Asia. The company expects to substantially complete the K3 shaft in 2017 and eliminate the risk from current and future brine inflows by 2024. Phosphate costs are about average on the global cost curve.
Substantial reserves: Mosaic had 554.5 million tonnes of phosphate reserves at Dec. 31, 2016. At current annual capacity of 17 million tonnes, this equates to over 30 years of mine life. The company had 2 billion tonnes of potash reserves. At current annual operational capacity 9.9 million tonnes of production, this equates to over 190 years of mine life.
Read more: Mosaic rating outlook at stable: Fitch
A report from Fitch Ratings Inc states that it has assigned a 'BBB-' to The Mosaic Company's $1.25 billion, five-year and 10-year senior unsecured notes.
Proceeds will be used to fund the cash portion of the Vale Fertilizantes (VF) acquisition expected to close this year.
The ratings and outlook incorporate Fitch's expectation that leverage will remain above Mosaic's adjusted net debt to EBITDA target of between 2.0x and 2.5x through 2019.
The ratings consider Mosaic's position as one of the world's largest fertilizer producers with good cost control, advantaged geography, and long mine lives taken together with overcapacity in key markets and soft agricultural commodities prices.
Key rating drivers
FCF after 2017: Fitch expects marginal free cash flow (FCF) generation in 2018 after the substantial dividend cut to $39 million (including dividends on shares issued to Vale SA in connection with the acquisition of VF) from $254 million as operations are rationalized. Fitch expects FCF of at least $200 million in 2019 and $300 million in 2020 on capital and cost control as well as improving phosphate fertilizer markets. Fitch believes debt repayment will be a priority while leverage is above target levels.
New phosphate capacity: New low-cost capacity in Morocco and Saudi Arabia in the near term into a well-supplied market as well as low feedstock costs are pressuring phosphate fertilizer prices. Fitch expects supply rationalization in China as well as rising ammonia prices to result in price increases after 2018. Some of the new low-cost production is from the Waad Al Shamal Phosphate Company joint venture between Ma'aden, Mosaic (25 percent stake) and SABIC.
Excess potash capacity: New low-cost capacity at K&S Legacy and EuroChem's Volgakaliy ramping up over the short term will pressure higher costs producers to curtail production and limit price upside. The lower price environment, however, should restrain new capacity additions allowing for more balanced markets longer term. Fitch expects potash prices to drop about $10/tonne from 2017 average prices over the next five years.
Market position: Mosaic is the largest integrated phosphate producer in the world, accounting for about 14 percent of world production and 75 percent of North American production of concentrated phosphate crop nutrients. The company is the fourth-largest potash producer, accounting for about 12 percent of world production and 39 percent of North American production. Mosaic has extensive distribution facilities in North America, Brazil, India and China. The acquisition of VF would increase Mosaic's position in phosphates and enhance market access in the key market of Brazil.
Cost position: Potash costs, on a delivered basis, are modestly above the global average given the need to manage brine inflow at the Esterhazy mine and freight to Asia. The company expects to substantially complete the K3 shaft in 2017 and eliminate the risk from current and future brine inflows by 2024. Phosphate costs are about average on the global cost curve.
Substantial reserves: Mosaic had 554.5 million tonnes of phosphate reserves at Dec. 31, 2016. At current annual capacity of 17 million tonnes, this equates to over 30 years of mine life. The company had 2 billion tonnes of potash reserves. At current annual operational capacity 9.9 million tonnes of production, this equates to over 190 years of mine life.
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