Good morning, and welcome to the Mosaic Company's Second Quarter 2024 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. After the company completes their prepared remarks, the lines will be open to take your questions. Your host for today's call is Jason Tremblay. Jason, you may begin.

Thank you, and welcome to our second quarter 2024 earnings call. Opening comments will be provided by Bruce Bodine, President and Chief Executive Officer, followed by a fireside chat, then open Q&A. Clint Freeland, Executive Vice President and Chief Financial Officer, and Jenny Wang, Executive Vice President of Commercial, will also be available to answer your questions. We will be making forward-looking statements during this conference call. The statements include, but are not limited to, statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date, and are subject to significant risks and uncertainties. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward-looking statements are included in our press release published yesterday, and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures. Our press release and performance data also contain important information on these non-GAAP measures. Now I'd like to turn the call over to Bruce.

Good morning. Thank you for joining our second quarter earnings discussion. Before we begin, I want to acknowledge that we have recently experienced some serious safety incidents. We take safety extremely seriously, and we are working to further improve our culture to ensure our people go home safe after every shift. Moving on to our earnings discussion. This morning, I will add some color to the information we published, and then we'll get to your questions. This was another solid quarter for Mosaic, both in terms of our results and our operational progress. For the quarter, Mosaic delivered adjusted EBITDA of $584 million on revenues of $2.8 billion, compared with adjusted EBITDA of $744 million on revenues of $3.4 billion a year ago. Adjusted earnings per share for the quarter were $0.54, compared with $1.04 in 2023. We are making good progress across our strategic initiatives, both to grow the company and manage costs, and our market outlook remains constructive. I'll start with the actions we're taking to strengthen the business for the long term. We are hyper-focused on managing costs, and we're making good progress across G&A operating and capital expenditures. Since the announcement of our $150 million expense reduction program between SG&A and cost control measures implemented in Brazil, we have already achieved more than one-third of the annual run rate cost savings target. This does not include phosphate fixed cost absorption, resulting from higher production volumes in the second quarter. We have also executed Phase 1 of our third-party contractor reduction plan in Brazil and expect to begin seeing the benefits in the second half of this year. With several projects winding down in careful CapEx management, we are on track to achieve our targeted $200 million reduction in capital expenditure. Our work to improve our operations and drive operational efficiency is paying off. Phosphate production volume in the second quarter increased by almost 100,000 tons over the first quarter. This is a significant improvement on an annualized basis. Efficiency improvement is also seen in our potash and Mosaic Fertilizantes segments, where unit production costs improved meaningfully across the board. Our growth projects are proceeding well. Our MicroEssentials expansion at Riverview is operating and ramping up. Our potash compaction project at Esterhazy is complete, and the new Palmeirante blending facility in the northern region of Brazil is on track to be completed in 2025. Our Mosaic Biosciences business is making significant progress. In fact, we have launched our biological products in North America, Brazil, China, India, and nine other Central American markets. Our products are now in use on 5 million acres in North and Central America, which highlights the competitive advantage our brand, customer relationships, and distribution strength provide as we introduce new and innovative products. We completed and successfully launched our global digital acceleration program, which is driving improved customer service, cost reductions, and many other benefits. The strength of our business and our cost controls have allowed us to continue to return significant capital to shareholders. We have returned almost $300 million to shareholders, including $160 million of share repurchases in the first six months of this year. Our business improvements are complemented by the positive signs we're seeing in fertilizer and broader agriculture markets. Strong global phosphate demand drove higher prices through the second quarter as seasonal sentiment improved. We believe the long-term outlook for phosphate with increasing demand for food, fiber, fuel, and industrial use is compelling. Potash contract settlements in China and India established a price floor and brought buyers back to the market. In-season fertilizer demand in Brazil is strong, and we continue to execute well amid the recovering ag environment there. Mosaic Resources results are solid, and our cost position demonstrates improvements. Let's take a deeper look at our progress in the U.S. phosphate business, where our goal is to return to a run rate of 8 million tons per year by the end of 2024. We're making good progress as demonstrated in our second quarter production volumes, which advanced 98,000 tons from the first quarter. On a run rate basis, some of our facilities, specifically Varto in New Wales, have achieved about 90% of the production levels we need to reach our system-wide goal. Our turnaround work is clearly paying off. For example, in New Wales, following the turnarounds we executed in March and April, we saw a significant step up in production for the second quarter. In Louisiana, our production run rate has improved after several unplanned outages last year and has reached 85% of the target production level. Several projects are scheduled for the remainder of the year, which will further close the gap to the target rate. Riverview performance in the quarter was lower than target rate due to the outage caused by a brush fire earlier this year and a normal pace of production ramp-up after a major capacity conversion, which was completed in May. The outlook for the rest of the year is solid. All in all, we are pleased with the progress we have made in our production ramp, and our hard work will continue to grow. We will continue to pay off for the remainder of the year. Higher production brings lower unit costs, as you can see in our second quarter results. The majority of our turnaround activity will be complete by the end of the year, resulting in significant production improvements and a $20 to $30 per ton conversion cost savings. Now, let's move on to a brief look at the markets. Ag commodity markets have diverged around the world, with corn and soybean prices softening and other crop prices, notably for palm oil, rising. The important factor for Mosaic is that crop nutrients remain affordable for most of the world's farmers, which leads to strong fertilizer demand and application. In phosphate, our long-term positive outlook continues. Rising demand for grains and oilseeds to support both increasing food and fuel demand combines with soaring demand for industrial uses to create competition for limited phosphate supply. Chinese exports remain subdued, and major new supply is years away. In the short term, the seasonal price reset that we saw in the first and second quarters of this year was shorter and less severe than expected. Prices have rebounded, given strong demand and tight supply. North American demand is particularly strong, with buyers seeking summer fill after emptying their bins this spring. Brazil demand is also good, with growers concerned about limited availability. In India, where grower demand is very strong, importers are still awaiting a more compelling government subsidy. While Chinese exports have resumed, recent news indicates that government restrictions could tighten, given rising in-country phosphate prices. Due to the positive dynamics and sentiment, as well as subdued raw material costs, stripping margins remain well above historical averages, and we expect strong margins to continue. The potash market remains balanced. After a very strong North American spring planting season, our summer fill program was very well received. In fact, the recent contract settlements in China and India signaled a floor for prices, and as usual, stimulated buying activity all over Asia, resulting in Canpotex being sold out through quarter three. We restarted Colonsay in early July to make sure we have enough product to meet our customer commitments while Esterhazy is in turnaround. Keep in mind, we need to run Colonsay for approximately five months to offset one month of Esterhazy production. We will continue to flex Colonsay as needed. Now, I'll provide some color to our segment results. In phosphate, we reported adjusted EBITDA of $308 million on revenue of $1.2 billion. Sales volumes were solid and higher than first quarter, and prices were strong. Margins were up from the first quarter due to strong pricing, fewer tons purchased from third parties, and our lower conversion costs. We expect sales volumes to increase sequentially in the third quarter. Potash adjusted EBITDA was $271 million on revenue of $663 million. While second quarter prices declined from the first quarter, sales volumes were solid, and costs were down. We remain highly efficient in our operations. In fact, production unit costs improved again in the second quarter with MOP cash production costs per ton declining 11% from the first quarter. Our third quarter pricing expectations reflect a higher mix of international sales compared with the second quarter. In Brazil, we recorded adjusted EBITDA of $96 million and sales volumes of 2.2 million tons. Our results were solid due to our strategy of prioritizing margin and cash flow over volume. Our distribution margin was within our normalized $30 to $40 per ton range, and we expect similar margins in the third quarter. Our production margins improved from the prior year. Cash unit costs of mine rock, phosphate, and potash production all came down due to our focus on cost reductions. In addition, we had another strong quarter in co-product sales. Finally, a brief word on capital allocation. Our strategy has not changed. We're investing in the business, conserving capital where we can, and returning excess cash to shareholders. To conclude, Mosaic is executing well across our strategic initiatives. And we are generating solid results, and our outlook for the remainder of 2024 and beyond is positive. Now, let's move on to the first set of questions.

Thanks, Bruce. Before we move on to the live Q&A, as we've done in past quarters, we'd like to address some of the most common questions we received after publishing our earnings last night. Our first question is related to the markets. What is your view on the demand outlook for fertilizers given the recent weakness in corn and soybean prices?

That's a great question. So let me start first with the ag commodity market, which is very constructive with global grain and oilseed stock-to-use ratios still well below historical average. While no doubt corn and soybean prices have softened, other grain and oil seeds, and specialty crops, are favorable, especially for crops like palm oil and rice. And I want to remind investors, as we've said in the last couple of earnings calls, that only one-third of phosphate and potash consumption is related to corn and soybeans. And the demand pull from the remaining crops continues to support constructive fertilizer fundamentals. On a higher level, phosphate demand is strong across all the key markets we sell in. For potash, demand has definitely come back significantly, particularly in Southeast Asia given the favorable weather conditions, pent-up demand for multi-year under-application, and the current attractive prices. The recent settlements of the China and India seaborne contracts are going to further stimulate demand all over Asia. With that, I'm going to pass it over to Jenny to talk a little more detail about the near-term demand.

Thanks, Bruce. There's no doubt that growers in the U.S. and Brazil are watching the future corn and soybean prices, along with any news about weather developments, which might impact yield projections and hence prices. In terms of the near-term demand, in North America we had a very strong summer fill program. In fact, we have sold out all of our Q3 available phosphate and 80% of our available potash tons in the North American market. In Brazil, the summer season is in full swing. The demand is robust. We expect 2024 shipments to be at a record or going to set a new record. We have a very full sales book to execute upon. We have sold 100% of our available tons for Q3 with a very strong customer prepayment. In India, with favorable monsoon conditions, growers need their fertilizers to maximize their production on rice, wheat, and other crops. In China, we have seen very strong domestic shipments for both phosphate and potash in the first half of the year. We are seeing 20% growth year-over-year, supported by very strong ag fundamentals and supported by their policies to ensure food security.

Thanks, Bruce and Jenny. For our next question, what is the latest on phosphate exports out of China, and how do you see that evolving over the rest of the year?

Well, this is something we pay attention to a lot. We anticipate limited exports of phosphate out of China, which bodes well for global phosphate prices. First half exports were approximately 1 million tons below this same time in 2023 due to strong in-country demand for both fertilizers and industrial uses. China's domestic prices continue to move up considering that demand, and we believe the export restrictions will likely remain or potentially even be tightened to limit further domestic price escalation. With that, I'm going to ask Jenny to share some additional details.

Thanks, Bruce. As Bruce mentioned, the first half export in China reduced by 27% or over a million tons. That is the result of changes in Chinese local supply and demand for phosphate. On the demand side, Chinese phosphate domestic shipments increased over 20% in the first half of the year, which is probably a record, driven by several factors. First, strong ag fundamentals supported by agricultural policies to ensure food security. Second, significant growth of vegetable and fruit planting acreage over the last five years. Third, the introduction of high-tech seed technologies have required more balanced fertilizer to maximize yield. And lastly, we also recognize that there are some earlier seasonal pulls for the fall demand. As a result, the demand for Chinese phosphate domestic shipments has increased significantly in the first half of the year. On the supply side, the continued shift from fertilizer production to industrial products like PPA and LFP has reduced the availability of fertilizers, especially DAP. The production of LFP in the first half of the year has reached over 1.1 million tons, which is an increase of 82% year-over-year, and that represents over 90% compound annual growth rate from 2020 to 2023. So in the first half of 2024, over 1 million tons of DAP products are shifted to LFP. So the growth of domestic demand, the reduction of production, and fast-rising prices have led the Chinese government to tightly control the export of phosphate out of China. We expect the restrictions to continue in the second half and going forward.

Sticking with phosphates for our next question, how's the production ramp-up going? And how do you see the rest of the year playing out from a volume and cost perspective?

We're making significant progress in our phosphate production ramp-up. And as a result, we're seeing good fixed cost absorption benefits, especially in the past two months. You can see the progress in our second quarter production volume and unit conversion costs. Our volumes were up close to 100,000 tons sequentially, which is a significant achievement. And our cash conversion costs were the lowest since the end of 2023. We have certain sites, for example, Bartow in New Wales, which are performing particularly well and are contributing at the rates required for the business to return to historical production objectives. We'll undertake several maintenance turnarounds in Louisiana and Riverview to further improve our production run rate in the second half of the year. Note, we will always see some variations from quarter to quarter due to the normal turnaround schedule, the scope of those turnarounds, and the decisions we make on finished product mix from the phosphoric acid we produce. So we expect annual production to be in the range of 7.8 million to 8.2 million tons once we get back into a normal routine on turnaround activities. Unit costs are expected to demonstrate continued improvement as we increase production, and we're on track to achieve $20 to $30 per ton in cost reduction from higher operating efficiency.

Now switching over to Potash, what's the thought process on restarting Colonsay?

Well, thanks for that question. I know it's on a lot of people's minds. For Mosaic, we've been consistent with this. Colonsay is an important component of our Potash portfolio. It gives us the flexibility to meet our operating objectives. One objective is to ensure we meet market demand. Now that the settlements of the China and India potash contracts are behind us and a price floor is established, our focus is to produce enough product to meet customer commitments. We have maintenance activities and turnaround scheduled for our assets every year, and in fact, Esterhazy is scheduled for one in the third quarter of this year. In order to have enough product on hand to meet our commitments with Canpotex, which we just mentioned was sold out for the third quarter, we must restart Colonsay. And just as a reminder, it takes approximately five months of Colonsay operation to replace approximately one month of Esterhazy production.

Our next question is related to Brazil. The market has been challenging for several quarters in a row within your industry. What is the latest situation from your perspective?

The operating environment in Brazilian agriculture has been challenging for the past year. It has taken a toll on many participants in the market. I want to highlight that our deep expertise and strong brand in the Brazilian market, with over two decades of distribution experience, has allowed us to mitigate the market-related risks and deliver strong results. Our assets, which include in-country production, ports, warehouses, and blending facilities, provide us with the required scale, geographic diversification, and cost efficiency to succeed in this geography. Our strengths have allowed us to gain further advantage as others have exited the market or reduced their footprint in-country. Retailers and large growers have turned to us for reliable supply, and we are here to meet that demand.

Thanks, Bruce. For the next question, you previously announced targets related to cost savings and CapEx reductions. Are you on track to meet those targets?

We've made significant progress on our cost and CapEx initiatives. There are three categories. The first, operating efficiency. In phosphate, higher production volumes have significantly improved our fixed-cost absorption. We had very good results in the past two months, as I previously mentioned. As you can see, our cash conversion costs have decreased 15% from the high point at the end of last year. We do expect further improvement in the remainder of the year as production volume continues to recover. Operating efficiency is not just in the phosphate segment; however, costs came down in the potash and Mosaic Fertilizantes segments as well. Our unit cash cost of mined rock and phosphate conversion and potash production declined across all three segments since the same time last year. Second, our cost focus is not exclusively on operations. We have a focus on reducing costs in all areas of the company. As mentioned last quarter, we have plans to reduce headcount, mostly third-party contractors. I'm pleased to announce we have implemented the first phase of that reduction. We will start reaping the benefits in the second half of 2024. The full program will be completed by mid-2025 and result in run-rate savings of approximately $20 million to $30 million. Our other cost controls in Brazil and SG&A reduction are also on track. Since the inception of the initiatives, we have achieved about $50 million in run-rate cost reductions, about one third of the total $150 million target. Finally, on the CapEx front. We finished several growth projects in the past six months. As these projects continue to wind down, we are on track to reduce CapEx by $200 million this year.

Thanks, Bruce. With that, we'll now move on to the open question-and-answer session. Operator, please open the line for follow-up questions.

Thank you. We will now begin the question-and-answer session. Our first question comes from Ben Isaacson from Scotiabank. Please go ahead.

Thank you so much. Good morning, everyone. Question on the phosphate side of the business. You have high prices against low crop prices, but it doesn't sound like you're worried about demand disruption in the Americas. It doesn't sound like you're worried about trade flows becoming an issue out of China. So if we put on our bear hats, what's going to disrupt this phosphate cycle right now? Is it new supply coming on? Can you address that? And then just as my follow-up, can you talk about where you expect LFP demand to be in DAP equivalent terms in 2030? Thank you.

Well, thanks, Ben. I'll take the first part of your question and then hand it over to Jenny for any commentary on the LFP. But we agree phosphate prices look very constructive for the near term. As far as what is out there to change something, we don't see a lot of new capacity coming on, which historically has influenced kind of the outlook on price. The fact that there's not anything significant is encouraging. We're very optimistic about how prices are going to play out. If you look at our stripping margins, they're well over $400. We expect to continue seeing that in the back half of the year and that kind of mid-$400 range. No doubt, there are affordability issues. But if you look at total crop affordability, I think Jenny talked about that earlier in the fireside chat, it is still very constructive. However, there are pressures on certain areas, like corn and soybeans as an example. But again, 30% to 33% of overall P&K demand is in corn and soybeans; the other 67% is in other grains and oilseeds, which, quite honestly, remains very constructive and healthy. For example, crops like palm oil, sugarcane, coffee, and others are doing well. I don't currently see a big catalyst for a change in the forthcoming future, but you never know what could come out geopolitically or something like that. With that, I'll turn it over to Jenny to maybe answer the LFP part.

Sure. Thanks, Bruce. Ben, regarding your question on LFP, I just want to remind everyone that LFP is mainly used in China, both for Chinese producers and for Tesla. The adoption of LFP as a battery for EVs in China has risen to 69%, meaning 69% of EV batteries are utilizing LFP. For the long-term projection, there is a very wide range of projections around LFP growth globally. We believe the global EV battery adoption for LFP will be somewhere between 35% and 55%. We do not believe it will ever reach the same levels as in China today. A major driver for LFP adoption is in the energy storage sector, specifically stationary batteries. The adoption of LFP for that application is already over 80%, with the batteries being produced in China mainly and shipped to the rest of the world and through Tesla as well. We believe that will be the primary driver for LFP going forward. So there is a significant range. Using China as a proxy for EVs, future growth from the rest of the world will continue, and many people overlook that stationary energy storage battery, which may become a bigger driver.

The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Thank you. Good morning, everyone. Wondering, to start off, if you could give us an update on where you think industry shipments are going to be for 2024 for both Potash and Phosphate and whether those expectations have improved since the year began. And then let's start there.

Yeah. No, thanks, Vincent. For Phosphate, our projections are in the range of 73 million to 76 million tons for global shipments. For Potash, that range is 70 million tons to 73 million tons. I think, Jenny, correct me if I'm wrong, our Potash numbers have gone up a little bit, that midpoint around 1 million tons based on what we're seeing develop in Southeast Asia and really all Asian markets in general, given where these contracts have settled in China and India and the sentiment that's provided confidence in the industry that the bottom has set in on potash. On Phosphate, I don't think that range has changed much for us since the beginning of the year, just given that supply is limited.

Okay. And as a follow-up, if you could just provide an update on where the CVD situation in the U.S. is. I believe it's still under some back and forth between the different relevant agencies. Any relevant update there would be helpful.

Yeah. As we've said before, there's always a lot going on in that space. I know it's hard to track, but the ITC still has appeals and rulings that they owe the industry, and the Department of Commerce several months ago came out with their preliminary rate adjustments for last year, 2023. Those adjustments went up for OCP by 12%. They went down for PhosAgro by about 10% and stayed the same for EuroChem. But again, those are preliminary. The final numbers will come out in November. So we'll wait and see what happens between now and then.

Our next question comes from Joel Jackson from BMO Capital Markets. Please go ahead.

Hi. Good morning. Mosaic Fertilizantes. Can you discuss the typical seasonality in Q3 where the business usually earns more compared to Q2? Are we seeing destocking or just-in-time inventory in Brazil? Will margins in Q3 be similar to those in Q2, which might result in a smaller seasonal earnings increase for Q3 than usual, considering that margins in Q2 were quite good? Thank you.

Thanks, Joel. I'll start just at a high level, and maybe Jenny can get into some of the details on seasonality. But we're pretty pleased overall with the performance of Mosaic Fertilizantes. I know in this space, there are a lot of other players not having as good news and success; for us, that could be an opportunity. But we do see margins staying pretty steady in that $30 to $40 range for our distribution volumes and don't see that changing much. On the volume side, overall in Brazil, we still see very good overall volumes and total fertilizer demand for the year. There may be some risk at the end of the year due to some conditions, but still see, and Jenny can get into that, still see at or near historical fertilizer shipments in that market for the full year.

Sure, Bruce. I just want to provide a little bit of color on the seasonality and where we see the market as of today. The sulfur season is in full swing. We are seeing very strong demand, which is basically the ongoing Q3 delivery for the sulfur season. The farm economics are very solid, and the farmers are selling their own crops. Soybean prices are actually ahead of last year and at a five-year average, although they're selling off the corn a little bit slower than the five-year average, but they're the same as last year. Farmers are really keeping pace on selling their crops, which is improving liquidity in the system. Specifically for fertilizer commercialization, if we assume the full year is going to set a new record for the shipment of the year, 82% of the fertilizers for the full year have been sold. This number is slightly lower than last year. For Mosaic, we are tracking the same pace as last year and are selling ahead of the market trend for the season. We're focusing on value over volume and are prioritizing our sales and shipments to customers who have a much lower credit risk. Lastly, there are some potential shifts for the Q4 sales, which is the safrinha season for corn and cotton, and there might be a shift from November and December sales into January that will define the final shipments in Brazil. Farmers are relatively more cautious for that purchasing season. As of today, we have seen 30% of the purchases for safrinha compared to mid-30s last year. So it's relatively slower, with some demand potentially shifting from late Q4 into early Q1. So that's basically the situation. We have sold every single ton available for Q3, and we are in full execution mode.

Okay. My thanks for that, Jenny. My second question would be kind of a two-parter quick. Could you elaborate a bit more on safety and maintenance? And then second question, just quickly talk about phosphate production sales improving in Q4 versus Q3. Do you think you can reach that 2 million-ton quarterly run rate in Q4, Bruce?

Yeah. Joel, thanks for the additional questions. The serious incident we had at New Wales recently was actually a fatality. It did get headline news, and I want to be very transparent about that. It's a serious matter for us as industrial operators, and as we said, we take it very seriously, and lessons learned are shared across the entire geography. We feel for the families and those impacted by any serious incidents within Mosaic. Regarding the phosphate ramp-up and return to production, as you saw from Quarter 1 to Quarter 2, we are definitely demonstrating results. I think one of the slides we have in our earnings presentation shows some more color on our progress. As we said, Bartow and New Wales have shown good signs due to our investments and catching up on the turnarounds, even going back to COVID, as we've discussed in earlier calls. Louisiana is also ramping up; it had a decent quarter, but there's still more to go as we've planned more work in the back half of the year. Riverview with the brush fire that we've talked about before, along with the conversion of a major granulation plant over to MicroEssentials, has slowed that operating rate in Quarter 2. However, we are optimistic that with the work we've lined up and the progress we've shown at New Wales and Bartow, we're on track to achieve the historical run rate we've been targeting.

The next question comes from Steve Byrne from Bank of America. Please go ahead.

Bruce, I'd like to drill into your outlook for potash fundamentals. You raised your global shipments for the year a bit, but we've had a couple of years that were really low. Do you have a view on whether inventory levels in the world are roughly back to normal or are soy nutrient levels relatively back to normal? If not, why do you think pricing here is roughly the same as they were in 2019? And yet we have 40% of global supply, the sanctions? Are you getting a value proposition out of Canpotex?

Yeah, Steve, that's a pretty complicated question. I mean, maybe it's easier to back up on how we see the overall potash market. First on supply—yes, you're correct, sanctions exist on products, particularly in the FSU, and Belarus, especially. However, we are seeing trade flows just getting shifted around. For instance, there has been a large rebound both in Russia and Belarus this year compared to last year, and it's been progressing over the past couple of years. These tons are available; they're just hitting the geographies given the restrictions they have, and markets that they can participate in are just taking larger shares in closer home markets. Think about Belarus doing it with rail into China, but that comes at a cost, which is likely raising the umbrella on how low potash prices could ultimately go by $40 to $50 compared to historical numbers, just considering logistics challenges they have. However, there are several buyers, and Brazil, for example, will buy from whoever they need to because they are a large importer. So it has simply just changed the trade flows around. We think the supply side has returned to where it used to be before the sanctions, and we are seeing demand as that supply has come back. This year, our outlook is at 70 million to 73 million tons and will be at or near record levels. Thus, nutrient supply is declining as demand becomes more available.

Okay. Very good. Thank you. I'd like to drill in just a little bit on the biologicals that you're now selling. Are they effectively blended with your P&K blended material that you sell? Or are they sold through a completely different channel? Just where do you see this business model going?

Yeah, Steve, thanks. First off, we're excited about biologics. We see a lot of synergies with our distribution network, customer relationships, and the brand that we believe we have in the marketplace. We're bringing higher-performing products with real science and data back to market. We think they're complementary to what we're currently selling. I'll let Jenny unpack a bit more details, but we see meaningful growth potential for these products, and we think we can achieve significant yield results without impacting the overall fertilizer application. In fact, the two combined yield and efficiency story really helps farmers or growers get more out of the same amount of acres. So I'll turn it over to Jenny to talk more about mechanisms and delivery.

Sure, Bruce. In terms of the go-to-market for our bioscience products, we are, of course, leveraging our current customer base and market access. One of the major leading brands that we are selling in North America and Central America, PowerCoat, is basically coated on the fertilizer granules. We're also selling a product called Bypass as a standalone foliar application; it can be mixed with fungicides and insecticides. We have invested in a next-generation nitrogen fixation product that will likely go with seed coating for the highest efficiency at the lowest cost. We're currently working with several major seed companies on that front, and hopefully we can provide more updates in the near future. Thanks.

PowerCoat is essentially coated on the fertilizer granules. We're also selling a product called Bypass as a standalone foliar application; it can be mixed with fungicides and insecticides. We have invested in a next-generation nitrogen fixation product that will likely go with seed coating for the highest efficiency at the lowest cost. We're currently working with several major seed companies on that front, and hopefully we can provide more updates in the near future. Thanks.

Can you provide an estimate of how long Esterhazy will be down this quarter? Additionally, with the restart of Colonsay, will this help replace the tonnage lost during the turnaround? What are the associated costs, and how do you anticipate costs will be affected in Q3 and moving into Q4? Will we return to the usual capacity of Esterhazy for production? Thank you.

Richard, thanks. Yes, the scheduled turnaround for Esterhazy is currently set for approximately a month, plus or minus a few days based on discoverables as they assess the equipment. As we've mentioned, you have to run Colonsay about five months to replace one month of Esterhazy production. Colonsay is likely going to run much of the remainder of the year to provide that volume offset. Colonsay is our flexible tonnage to do just that, to analyze market needs overall and ensure that we fulfill our commitments. From a cost standpoint, we prefer to operate Esterhazy and Bell Plan first, as those are our two low-cost producers in North America. Colonsay is at a higher cost, so there will likely be some impact on production costs during those times; however, we've made significant improvements over time in Colonsay, and we don't expect the incremental costs to be significant from an overall unit cost standpoint. I will leave it there, Richard, and move on to the next question.

The next question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Thank you. Good morning, everyone. Bruce, in your prepared remarks, you alluded to phosphate shipping margins remaining well above historical averages and expected to remain so. Given some of the dynamics within your phosphate business and the actions you're taking, can you help us quantify the gap in your realized gross margin or EBITDA per ton versus what the stripping margins reflect? And could you provide clarity on why ammonia costs in COGS went up sequentially despite internal production?

Thanks for the question. Generally, our realized stripping margins are higher than benchmark stripping margins. This is largely due to our ammonia cost advantages with our long-term CF contract and our own internal production at Fostina, along with our purchasing power for sulfur and ammonia. Ammonia costs went up as you mentioned in Q2, and that's due to having more spot inventory flow from Q1, since our ammonia plant was down for most of Quarter 1. You will see the benefits of running more in quarter 2 reflected in quarter 3. I hope this addresses your question.

The next question comes from Chris Parkinson from Wolfe Research. Please go ahead.

Thanks so much for taking the question. Bruce, your execution is, I'd say, very much on trajectory for kind of the goals you've been laying out. Given the high phosphate stripping margins and an improved balance sheet, what else do you think needs to be done to reengage investors? Is it just the belief that further execution is key? How do you see current market dynamics right now?

Yeah, I agree, Chris, and thank you for the question. The market fundamentals appear strong, and we don't see anything that will derail our trajectory. To your point, why aren't we getting more credit given our phosphate leverage? It's about execution and delivering results. We're making progress, and I appreciate the commentary because we feel good about how we're executing our strategy. However, we still have a lot to do in the back half of the year to hit that 8 million ton run rate, which is essential for cost absorption. So demonstrating output and ROI is key. Investors may perceive China differently and their potential to impact our prices, but the demand within China and the growth of LFP will remain constant, limiting phosphate supply.

The next question comes from Ben Theurer from Barclays. Please go ahead.

Good morning, and thanks for taking my questions. I wanted to quickly get your thoughts on Fertilizantes for the second half. You clearly had a very strong first half in terms of distribution margin. You're guiding for the historical range; what are the factors that could take you higher? And can you provide a preliminary preview of your expectations for fourth-quarter profitability?

I'll start at a high level, and then Jenny, I'll turn it over to you for more details, but we're very optimistic about the second half of the year for Fertilizantes. Historically, we're looking at 9 million tons distribution growing to 10 million tons from a volume standpoint, $30 to $40 distribution margin, with about $100 million of EBITDA contribution on co-products each year. There's another $100 million of SG&A costs that must be accounted for. Overall, considering demand in Brazil, we see good returns in EBITDA contribution for Fertilizantes in the second half.

Your question specifically on Q4—I want to emphasize that Q3 is historically the highest quarter with a gross margin per ton around $30 to $40. For Q4, depending on market dynamics moving from the second half of Q4 into the first half of Q1, there might be some shifts on volumes. Also, Q4 is the safrinha season, where nitrogen has a much higher percentage in the total market, but we're participating less in that market segment. As a reminder, we're maintaining a strong sales pace, and we have sold every single ton available for Q3. We are executing fully.

The only other thought to consider is the FX tailwinds. Recent FX movements have provided some tailwinds to our operating costs. This should support margin expansion as well.

The next question comes from Edlain Rodriguez from Mizuho. Please go ahead.

Thank you. Good morning, everyone. Just a quick question on the resiliency of phosphate prices. With the disconnect between P&K prices, is that gap going to narrow with P coming down or K increasing?

Yeah. Edlain, thank you for your question. I don't know that our crystal ball is any better than yours. The fundamental supply and demand issues are different between those two commodities. Just because they're divergent today doesn't mean they necessarily need to converge. It's going to depend on those commodities independently, and we know the crops' needs. In the meantime, we're optimistic about P; we don't see prices at risk. K is also in a solid range. Price fluctuations may occur seasonally, but we don't envision significant changes in either direction as they remain independent.

The next question comes from Josh Spector from UBS. Please go ahead.

This is Lucas Beaumont for Josh. I want to revisit your comments on the costs in phosphates. They're down about 15% from the end of the year but only down about $5 ton year-over-year. You're still running at about $100 a ton now. In 2018 and 2019, when you used to produce at the 8 million ton run rate, costs were about $65 million. We understand there will be additional advantages as you get back to that run rate, but could you help us think about that range? Are you looking to $90 or $80?

Thanks, Lucas. As you mentioned, we’ll view that positively, especially with respect to fixed cost absorption. In addition to cost savings, we will benefit from our internal power generation reducing some costs instead of buying from third-party sources. Overall, we anticipate a $20 to $30 reduction in total cost. Will we return to the $65 million mark? Given the inflation we've seen worldwide, I do not foresee achieving those numbers. However, we should see further improvement, possibly another $20 decline in our current cost as we return to historical runs.

The next question comes from Andrew Wong from RBC Capital Markets. Please go ahead.

Hey, good morning. I have two questions. With the expansion stage for mid-2025, do you still anticipate needing to keep Colonsay on hot standby? What's the cost to maintain that on standby, and if you permanently shut it down, what would be the cost savings? Second, can you talk about the rationale behind maintaining supply flexibility in your potash strategy? How do you see that impacting buyer behavior?

Yeah, Andrew. We think having Colonsay as a flexible option is significant in maximizing shareholder value. It provides valuable optionality when market demand intersect. Given that it's essential to have flexibility, especially when handling the temporary absence of Esterhazy. Colonsay must continue operating. Should we consider shutting it down permanently, it would be evaluated depending on market conditions. Keeping adequate production continuity is vital. We'll maintain that flexibility for our shareholders and customers and will determine future actions accordingly. I want to reiterate a couple of key themes. One is Mosaic delivered solid second quarter results and operational performance. We are making steady progress on our strategic initiatives to grow the company, manage costs, and maximize returns. Fertilizer demand is robust worldwide, and our market outlook remains constructive. Overall, we anticipate a positive outlook for the remainder of 2024.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.