Executive Summary / Key Takeaways

• Operational Repair Compounding with Market Tightness: After two years of asset reliability struggles and hurricane disruptions, Mosaic's phosphate production is normalizing toward 8 million tonnes annually while global phosphate markets remain structurally tight due to Chinese export restrictions and booming LFP battery demand, creating a rare alignment of volume recovery and pricing power.

• Cost Discipline Delivering Margin Leverage: The company has achieved $150 million in initial cost savings and is targeting $250 million by end-2026 through automation, supply chain optimization, and fixed cost absorption, with phosphate cash conversion costs already declining from $134/tonne in Q1 toward the $95-100 target range.

• Brazil Transformation Underway: Mosaic Fertilizantes has emerged as a consistent earnings driver, delivering $241 million EBITDA in Q3 2025 despite a challenging credit environment, while strategic divestitures (Patos de Minas, Taquari) and the new Palmeirante blend plant demonstrate capital reallocation to higher-return opportunities.

• Working Capital Headwinds Masking Cash Generation: A $400+ million working capital build in Q3 2025 has temporarily suppressed free cash flow, but management expects 2026 to show significant improvement as phosphate rock inventories are consumed and raw material prices stabilize, making 2025 a transition year rather than a structural problem.

• Valuation Reflects Execution Risk, Not Cycle Peak: At $23.61 per share (5.3x EV/EBITDA, 0.6x sales), Mosaic trades at a discount to historical mid-cycle multiples despite operating margins expanding to 12% and ROE reaching 10%, suggesting the market is pricing execution risk rather than recognizing the earnings power of a repaired asset base in tight markets.

Setting the Scene: The Business of Essential Nutrients

The Mosaic Company, incorporated in 1987 and headquartered in Tampa, Florida, operates at the foundation of global food security. The company produces and markets concentrated phosphate and potash crop nutrients through three integrated segments: Phosphates (mines and plants in Florida, Louisiana, and Peru), Potash (mines in Canada and the U.S., with Canpotex export access), and Mosaic Fertilizantes (the Brazil platform acquired in 2018, encompassing mines, plants, and distribution). This isn't a commodity trading operation—it's a vertically integrated system that transforms mined ore into finished fertilizers while controlling logistics, blending, and customer relationships across two continents.

The industry structure is oligopolistic by necessity. Building a phosphate mine requires billions in capital, navigating decades of environmental permitting, and securing access to finite ore bodies. Potash production demands even deeper pockets—shaft sinking in Saskatchewan costs hundreds of millions, with decade-long development timelines. These barriers protect incumbents but also create operational complexity that can punish misexecution. For Mosaic, the past two years have been defined by exactly this challenge: fortifying aging U.S. phosphate assets while managing through hurricane disruptions, workforce turnover, and supply chain constraints.

The current market environment is unprecedented. Global phosphate markets have been tight for two years, not due to demand shocks but supply destruction. Chinese exports of DAP/MAP/TSP are down over 1.5 million tonnes in 2025 as domestic LFP battery production consumes phosphate molecules that previously reached global markets. LFP production grew 55% in Q1 2025 alone, creating a structural shift in phosphate availability. Simultaneously, Russian and Belarusian production faces maintenance slowdowns, Laos expansion has stalled due to mine inflows, and Chilean output is constrained. The result: demand is being rationed by price, not satisfied by supply.

Potash markets tell a similar story. Global shipments are tracking toward another record in 2025, driven by strong affordability, robust palm oil prices supporting Southeast Asian demand, and the need to replenish soils after massive North American and Brazilian crops. Yet supply is more constrained than last year, with Chinese producers guiding lower output, Belaruskali and Uralkali announcing production cuts, and ongoing uncertainty around Laos expansion. Canpotex shipments are expected to reach a record, giving Mosaic's Canadian operations maximum leverage.

Technology, Products, and Strategic Differentiation

Mosaic's competitive moat rests on three pillars: low-cost integrated production, strategic market access, and operational agility. The Phosphates segment owns mines in Florida's Bone Valley, among the world's highest-quality phosphate deposits, with integrated processing plants that convert rock to phosphoric acid to finished fertilizers. This vertical integration eliminates margin leakage and provides cost visibility. The Potash segment operates some of Canada's lowest-cost mines, with Belle Plaine achieving 100% operating rates and record production in 2024, while the Esterhazy complex's new HydroFloat system is delivering incremental tonnes at industry-leading cash costs of $71/tonne in Q3 2025.

The Brazil platform represents Mosaic's most differentiated asset. Unlike pure producers, Mosaic Fertilizantes controls the entire value chain from rock to retail, with blending facilities, port terminals, and direct relationships with mega-farmers, traders, and co-ops. This allows margin capture at multiple stages and the ability to shift product mix based on market conditions. The new Palmeirante blend plant, inaugurated in July 2025, adds 1 million tonnes of distribution capacity in Brazil's fast-growing northern region, where Mosaic had limited presence. Management has already sold over 50% of this additional capacity for 2025, demonstrating the platform's commercial velocity.

Mosaic Biosciences, while still small, represents a strategic wedge into higher-margin biological solutions. Revenues more than doubled year-over-year in the first nine months of 2025, with the Neptunion biostimulant launch in China marking entry into a market where regulatory approvals, not demand, constrain growth. Gross margins on proprietary products reach 60%, compared to 30-40% on licensed-in products, giving Mosaic a path to $250 million in EBITDA longer-term if regulatory approvals accelerate.

Cost discipline is not a one-time initiative but a structural program. The $150 million in achieved savings came from automation, supply chain optimization, and improved fixed cost absorption. The extended $250 million target by 2026 includes further automation following new software platform implementations and continued mining cost reductions in Brazil, where a new mine plan at Patrocinio and better performance at Cajati eliminated the need for expensive imported rock.

Financial Performance: Evidence of Strategy Working

Mosaic's Q3 2025 results provide the first clear evidence that the operational repair is taking hold. Consolidated net sales rose 23% to $3.45 billion, while adjusted EBITDA surged 80% to $806 million from $448 million a year ago. This isn't just price leverage—it's operational leverage as production volumes recover and unit costs decline.

The Phosphates segment delivered the most dramatic turnaround. Operating earnings of $102 million in Q3 2025 compared to just $8 million in Q3 2024, a 1,246% increase. Average selling prices rose 23% to $712/tonne, but more importantly, sales volumes increased to 1.6 million tonnes and the operating rate improved to 68%. Cash conversion costs remained elevated at $131/tonne in Q3, but management expects a "meaningful decline" in Q4 as production normalizes and fixed cost absorption improves. The rule of thumb is clear: every additional 100,000 tonnes in a quarter reduces cash conversion costs by $7/tonne. With trailing three-month production reaching 1.8 million tonnes in October, the path to sub-$120/tonne costs—and eventually the $95-100 target—is visible.

The Potash segment demonstrated consistent execution. Operating earnings of $229 million in Q3 2025 compared to $109 million a year ago, a 109% increase. Average selling prices rose 19% to $278/tonne while sales volumes increased 15% to 2.3 million tonnes. Cash production costs fell to $71/tonne from $75 in Q2 as volumes increased. The Esterhazy turnaround completed in Q2, and the HydroFloat system is delivering incremental tonnes as promised. With annual guidance raised to 9.3-9.5 million tonnes, Mosaic is running near record rates to meet strong Eastern Hemisphere demand.

Mosaic Fertilizantes posted $241 million in adjusted EBITDA in Q3, above the $200 million guidance even after stripping out a $27 million bad debt recovery. This represents a $120 million improvement from the underlying Q4 2024 run rate, driven by cost reductions, higher realized prices, and improved distribution margins. While Q4 EBITDA is expected to decline seasonally to $150-170 million due to product mix and lower co-product sales, this still represents a doubling from prior-year levels and validates the platform's earnings power.

The Corporate segment's $87 million operating loss in Q3 included $27 million in net unrealized losses on derivatives, a non-cash volatility that obscures underlying performance. More importantly, Mosaic Biosciences' revenues more than doubled year-over-year, and management expects the segment to contribute positively to consolidated adjusted EBITDA beginning in Q4 2025, marking the transition from investment to earnings contributor.

Cash flow tells a more nuanced story. Q3 operating cash flow was just $229 million due to a $400+ million working capital build from higher physical inventories, elevated raw material prices, and deliberate phosphate rock inventory buildup. Management expects 2025 cash flow to be "well below what is intrinsic to the business" but projects significant improvement in 2026 as rock inventories are consumed, raw material prices stabilize, and Brazilian inventory adjustments normalize. This working capital cycle is temporary, not structural, and prudent management has deferred extraordinary dividends or buybacks to 2026.

Outlook, Guidance, and Execution Risk

Mosaic's management has shifted to a "prove then guide" philosophy, basing forward-quarter guidance on demonstrated performance rather than aspirational targets. This reflects hard-won lessons from the phosphate asset reliability issues that plagued 2024 and early 2025. For Q4 2025, phosphate sales guidance of 1.7-1.9 million tonnes reflects actual production capability, not theoretical capacity. The company has completed "all major work" at Riverview, Bartow, and New Wales, including the final gypsum pumping station, and "no more planned maintenance" will impede reaching the 8 million tonne annual run rate.

The path to normalized production is taking longer than anticipated due to "muscle memory" loss from five years of underutilization and high workforce turnover. Asset health on major unit operations is no longer the primary issue; the focus has shifted to operational consistency and institutional knowledge. This matters because it explains why production improvements are lumpy rather than linear, but also why the gains will be sustainable once achieved. The trailing three-month production of 1.8 million tonnes through October demonstrates the capability exists—now it's about consistency.

Potash guidance was raised to 9.3-9.5 million tonnes for 2025, reflecting strong global demand and the Esterhazy HydroFloat contribution. Unit costs are expected to finish the year in the low-to-mid $70s per tonne, hitting the Investor Day targets when adjusted for current exchange rates. This segment is firing on all cylinders, providing a stable earnings foundation while phosphate repairs continue.

Mosaic Fertilizantes is expected to deliver Q4 EBITDA of $150-170 million, down from Q3's $241 million but still double prior-year levels. The decline is driven by seasonal product mix (more low-analysis products) and lower co-product sales, not fundamental weakness. Management's focus on selling to "lower-risk customers"—mega-farmers, traders with barter businesses, and co-ops—has reduced credit risk while maintaining volume growth. The new Palmeirante plant positions Mosaic to capture northern Brazil's growth, where fertilizer demand is expanding fastest.

The $250 million cost savings target by end-2026 is backed by specific initiatives: automation from new software platforms launching in Q3 2025, supply chain optimization, and improved fixed cost absorption as phosphate production reaches target rates. Mosaic Fertilizantes has contributed $45 million of the $90 million achieved so far, with $20 million coming from consuming internally produced rock instead of expensive imports.

Risks and Asymmetries: What Could Break the Thesis

The most material risk is execution failure on the phosphate production ramp. If Mosaic cannot consistently achieve 2 million tonnes per quarter, unit costs will remain above the $95-100 target, compressing margins even in a tight market. The company has demonstrated capability—March 2025 was the third-strongest production month in 18 months, and October's trailing three-month rate hit 1.8 million tonnes—but institutional knowledge gaps from workforce turnover could cause continued volatility. This risk is mitigated by the fact that "all planned maintenance for asset health and reliability is truly now behind us," but operational discipline remains unproven at sustained high rates.

Working capital headwinds could persist longer than expected. While management expects 2026 improvement, a further $160 million working capital increase is projected for full-year 2025. If raw material prices remain elevated or Brazilian inventory adjustments take longer, free cash flow could remain suppressed, delaying capital returns. However, this is a timing issue, not a structural problem—inventory builds support future production and sales.

Commodity price volatility remains a fundamental risk. While current phosphate and potash prices are supported by supply constraints, a demand destruction event from fertilizer unaffordability or a global recession could reverse the dynamic. Management acknowledges that "headwinds we see in certain geographies related to fertilizer affordability will necessarily trim some demand," but argues this creates pent-up demand for 2026. The risk is asymmetric: supply constraints provide a floor, but demand shocks could still pressure prices.

Environmental and regulatory risks are ever-present. The New Wales gypsum stack issues (Phase II East and West) have required $71.7 million in reserves, and "potential future additional financial impacts" cannot be estimated. Brazil's legal contingencies total $651.7 million in potential damages, with $76.3 million accrued. While these are manageable relative to Mosaic's $12.9 billion equity base, they represent ongoing cash flow uncertainty.

The Brazil credit environment requires vigilance. While Mosaic has shifted to lower-risk customers, "the challenging farm credit situation in Brazil continues to exacerbate" demand deferral. Higher interest rates and reduced government support are squeezing small farmers, accelerating consolidation that favors Mosaic's mega-farmer focus but could reduce total addressable demand if credit availability tightens further.

Competitive Context: Where Mosaic Stands

Against Nutrien (NTR), Mosaic holds a cost advantage in phosphates but lacks Nutrien's scale and retail integration. Nutrien's 8.24x EV/EBITDA multiple reflects its diversified portfolio and larger market cap ($29.4B vs Mosaic's $7.5B), but Mosaic's phosphate margins are superior (Q3 operating margins of 7.9% vs Nutrien's overall 13.5% operating margin). Mosaic's potash operations are efficient but smaller, making Nutrien the price leader in that market.

CF Industries (CF) competes in phosphates but is primarily a nitrogen play. CF's 33.9% operating margin reflects nitrogen's current profitability, but its phosphate operations lack Mosaic's integrated cost structure. Mosaic's 5.3x EV/EBITDA is lower than CF's 4.7x, but Mosaic offers pure-play exposure to phosphate and potash markets that are structurally tighter than nitrogen.

Yara International (YAR) leads in European nitrogen and phosphate markets but faces higher energy costs and currency volatility. Yara's 49.4x EV/EBITDA multiple reflects its European premium and specialty focus, while Mosaic's North American base provides more stable cost inputs. Mosaic's Brazil platform matches Yara's international reach but with better cost control.

ICL Group (ICL) is a specialty phosphate and potash player with smaller scale. ICL's 7.0x EV/EBITDA and 5.2% profit margin compare unfavorably to Mosaic's 10.3% profit margin and larger production base. Mosaic's cost advantage in standard fertilizers is significant, though ICL leads in certain specialty segments.

Mosaic's primary moat—low-cost integrated phosphate production—remains intact and is strengthening as production normalizes. The company's ability to shift tonnes to regions with strongest demand, demonstrated by record Canpotex shipments and Brazil's northern expansion, provides pricing power that pure traders cannot match.

Valuation Context: Pricing Execution Risk

At $23.61 per share, Mosaic trades at 5.31x EV/EBITDA and 0.63x sales, a discount to the 6-8x EV/EBITDA range typical for mid-cycle fertilizer producers. The 3.73% dividend yield, with a 22.5% payout ratio, provides income while investors wait for the operational turnaround to fully materialize. The 0.37 debt-to-equity ratio and $12.9 billion equity base provide balance sheet strength to weather volatility.

Peer multiples suggest Mosaic is undervalued relative to its improved earnings power. NTR's 8.24x EV/EBITDA reflects its larger scale but also its exposure to nitrogen, which faces new capacity additions. CF's 4.67x multiple is lower but reflects nitrogen's cyclicality. YAR's 49.42x multiple is distorted by European factors, while ICL's 7.02x is closest to Mosaic but ICL lacks Mosaic's production scale.

Mosaic's 10.33% profit margin and 10.12% ROE have improved dramatically from 2024 levels but remain below CF's 20.5% profit margin and 22.0% ROE. However, Mosaic's margin expansion is more recent and driven by operational improvements rather than commodity price spikes alone, suggesting better sustainability.

The key valuation question is whether Mosaic deserves a mid-cycle multiple on what management promises will be mid-cycle earnings power. With 2026 cash flow expected to improve significantly and the $250 million cost savings program still delivering, the current multiple appears to price in execution risk rather than cycle risk. If Mosaic achieves its 8 million tonne phosphate run rate and maintains current pricing, EBITDA could approach $2.5-3.0 billion, making the current $12.1 billion enterprise value look conservative.

Conclusion: The Inflection Point Is Here

Mosaic stands at the intersection of operational repair and structural market tightness, a combination that could drive earnings power well above current levels. The company's phosphate assets, after two years of fortification, are demonstrating the capacity to produce at 8 million tonnes annually. Global phosphate markets, constrained by Chinese export restrictions and LFP battery demand, provide pricing support that should persist into 2026. Potash operations are running at record rates, capturing strong Eastern Hemisphere demand. The Brazil platform has transformed from a drag to a driver, delivering consistent EBITDA above $200 million while strategic divestitures streamline the portfolio.

The central thesis hinges on two variables: execution consistency on phosphate production and working capital normalization. Management's "prove then guide" approach reduces guidance risk but means investors must trust operational reports rather than forward promises. The trailing three-month production rate of 1.8 million tonnes through October provides tangible evidence that the capability exists—now it's about sustaining it.

Valuation at 5.3x EV/EBITDA appears to price in continued execution risk rather than recognize the earnings power of a repaired asset base operating in the tightest nutrient markets in a decade. With $250 million in additional cost savings coming by 2026 and 2026 cash flow expected to improve significantly as working capital headwinds reverse, Mosaic offers an asymmetric risk/reward profile. The downside is protected by balance sheet strength and supply-constrained markets; the upside depends on management delivering the operational consistency they've demonstrated in recent months but have yet to prove sustainable. For investors willing to underwrite execution, Mosaic represents a margin inflection story with multi-year legs.