UPDATE 3-Mosaic profit plunges 70 pct on weaker prices, sales

Tue Nov 5, 2013 11:26am EST

By Rod Nickel

Nov 5 (Reuters) - Mosaic Co reported sharply lower third-quarter earnings on Tuesday as prices of its potash and phosphate fell with buyers taking a cautious stance, and the U.S. fertilizer company said prices may remain weak into 2014.

Shares of Mosaic, the world's largest producer of finished phosphate products and North America's second-biggest potash producer, dropped 1 percent to $46.24 in late-morning trading in New York.

Mosaic in September cut its third-quarter sales and price outlook for potash and phosphate because crop nutrient markets softened after the July 30 breakup of Belarusian Potash Co (BPC), which triggered a price slide.

A delayed U.S. crop harvest also pushed back autumn fertilizer use, said Mosaic Chief Executive Jim Prokopanko.

He said North American demand looked strong for the rest of 2013, but pricing might be challenging in 2014.

With potash prices weak, Mosaic might curtail production at its high-cost Carlsbad, New Mexico, mine, depending on where prices move, but is also potentially interested in buying other North American potash assets, Prokopanko said in an interview.

"We're always interested in expanding top-line growth. At the right valuations, those kind of combinations might prove of interest," he said when asked about Mosaic's potential interest in U.S. producer Intrepid Potash Inc or a Canadian potash mine under construction by Germany's K+S AG.

Intrepid shares jumped on Monday after privately held Koch Industries Inc disclosed it had increased its stake in the company.

K+S is building the Legacy potash mine in the Canadian province of Saskatchewan, but may need to borrow to finance it due to uncertainty over potash prices.

Existing producers of Canadian potash, such as Mosaic, Potash Corp of Saskatchewan Inc and Agrium Inc , are likely too big to combine, but consolidation holds more potential between Russia's Uralkali OAO and Belarus's Belaruskali, Prokopanko said.

The two companies have feuded since Uralkali quit the BPC export partnership with Belaruskali.

Mosaic, based in Plymouth, Minnesota, forecast fourth-quarter potash sales of 1.5 million to 1.9 million tonnes, compared with 1.4 million tonnes a year earlier. It said it expects phosphate sales of 2.5 million to 2.9 million tonnes, compared with 2.8 million tonnes a year earlier.

The implications of Mosaic's fourth-quarter guidance suggest lower-than-expected earnings and potential stock weakness, Scotiabank analyst Ben Isaacson said in a note.

The company plans to run its potash mines below 65 percent of capacity overall in the fourth quarter, allowing for maintenance at its Esterhazy, Saskatchewan, mine, and will run its phosphate operations at about 80 percent of capacity.

Net earnings for the third quarter fell 70 percent to $124 million, or 29 cents per share, from $417 million, or 98 cents per share, a year earlier.

Net sales were down 27 percent to $1.9 billion. Analysts' average forecast was $1.970 billion.

The results included a charge of 22 cents per share from Mosaic's decision to sell certain assets and operations. It plans to sell its salt operation, which has a long-term sales contract with Compass Minerals International Inc, close its small potash mine at Hersey, Michigan, and exit distribution businesses in Argentina and Chile.

Mosaic's adjusted earnings per share were 51 cents, below analysts' average forecast of 55 cents, according to Thomson Reuters I/B/E/S.

Mosaic sold 1.38 million tonnes of potash in the third quarter, below its guidance of 1.45 million to 1.65 million tonnes and down from 1.8 million tonnes a year earlier. Its average selling price for muriate of potash was $342 per tonne, topping guidance of $330 to $340 but down 24.5 percent year over year.

The company sold 2.7 million tonnes of phosphate, hitting the top end of its guidance range of 2.6 million to 2.7 million tonnes, but down from the year-ago level of 2.9 million tonnes. Mosaic's average selling price for diammonium phosphate was $436 per tonne, within the guidance range of $430 to $440 but down sharply from $533 per tonne a year ago.

Mosaic said it plans to buy back stock as early as next month and possibly make other moves, using about $2 billion in available cash and a roughly $2 billion debt offering.

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