Mining vs AI: What’s wrong with this picture?
As the saying from mid-19th century California goes, during a gold rush the easiest way to get rich is selling shovels and picks.
Shares in Mosaic Co (NYSE:MOS) gave up close to 2% in Tuesday, after the fertilizer company announced a 70% drop in profits in the third quarter on the back of lower sales and a sharp decline in realized prices.
Phosphate sales fell 18% to $1.4 billion driven by lower finished product prices and a decline in volumes to 2.7 million tonnes, down from 2.9 million.
The slump in potash was even more pronounced with net sales of $523 million for the third quarter, down from $927 million during the same period last year as a result of shipments declining to 1.4 million tonnes versus 1.8 million tonnes a year ago and lower realized prices.
The fall in the price of the soil nutrient to $342 per tonne, down 24% from $453 a tonne a year ago shrunk gross margins at the company to 35% compared to a much fatter 48% a year ago.
Mosaic, worth $19.5 billion on the NYSE, was able to make up for the fall in the price of potash to some degree by upping production to 2 million tonnes, or 73% of operational capacity, up from 1.5 million tonnes, or 67% of operational capacity last year.
Jim Prokopanko, President and CEO of the Minnesota-based company commented that “potash buyers are acting with a high degree of caution” at the moment although longer term “market economics will ultimately win: Supply and demand fundamentals will bring profitable growth to the industry, as very profitable farm economics and excellent crop nutrient affordability bode well for potash demand.”
The potash price has been under pressure since Russian giant Uralkali (MCX:URKA) announced at the end of July it’s ending the decades-old distribution arrangement with neighbouring Belarus’s state owned potash miner.
The two companies controlled roughly 43% of global exports and combined with the Canpotex selling organization which represents North American giants Agrium (TSE:AGU), Potashcorp (TSE:POT) and Mosaic were able to heavily influence the price of the crop nutrient through supply management.
Subsequent to the third quarter, Mosaic entered into an agreement to purchase phosphate assets from Florida’s CF Industries for $1.4 billion.
Image by Charles Knowles
