RE:IFOS Q3 Results
Itafos earns $15.7-million in Q3 2021
2021-11-11 19:24 ET - News Release
Mr. David Delaney reports
ITAFOS REPORTS RECORD Q3 2021 RESULTS, RAISING FULL-YEAR 2021 GUIDANCE
Itafos Inc. has released its third quarter and year-to-date (nine-month) 2021 financial and operational highlights. The Company's financial statements and management's discussion and analysis for the three and nine months ended September 30, 2021 are available under the Company's profile on SEDAR and on the Company's website. All figures are unaudited in thousands of US Dollars except as otherwise noted.
CEO Commentary
"We delivered record operational and financial performance during Q3 2021, resulting in a year-to-date 2021 adjusted EBITDA at Conda of $107.7 million and $95.5 million on a consolidated basis," said G. David Delaney, CEO of Itafos. "We are raising our full-year guidance for 2021 to reflect the continued strength of the business and strong fundamentals in the agriculture and phosphate fertilizer markets. The positive market fundamental trends are expected to continue into 2022. In raising our full-year guidance for 2021 we have taken into account the expected negative impacts of the previously announced disruption in sulfuric acid supply to Conda from its primary supplier, which we expect to be resolved during Q4 2021."
Q3 and 9M Market Highlights
- DAP NOLA prices averaged $624/st in Q3 2021 compared to $335/st in Q3 2020, up 86% year-over-year driven by strong agriculture and phosphate fertilizer market supply and demand dynamics. Similarly, DAP NOLA prices averaged $568/st in 9M 2021 compared to $292/st in 9M 2020, up 94% year-over-year. Specific factors driving the year-over-year improvements in DAP NOLA were as follows:
- no significant phosphate fertilizer supply capacity additions, which resulted in continued drawdown of global phosphate fertilizer inventory levels;
- strong phosphate fertilizer demand underpinned by global coarse grains and oilseeds at multi-year low stocks-to-use ratios and the highest prices in nearly a decade, supporting demand and fertilizer relative affordability; and
- CVD orders confirmed by the US ITC on phosphate fertilizer imports to the US from Morocco and Russia.
Q3 2021 Financial Highlights
- The Company's revenues, adjusted EBITDA, net income and free cash flow were all up in Q3 2021 compared to Q3 2020 as follows:
- revenues of $103.0 million in Q3 2021 compared to $47.6 million in Q3 2020;
- adjusted EBITDA of $41.2 million in Q3 2021 compared to $(0.3) million in Q3 2020;
- net income of $15.7 million in Q3 2021 compared to $(13.8) million in Q3 2020; and
- free cash flow of $2.3 million in Q3 2021 compared to $(8.3) million in Q3 2020.
- The Company's total capex spend in Q3 2021 was $7.5 million compared to $4.9 million in Q3 2020 with the increase reflecting activities relate to the initiative to produce and sell HFSA at Conda.
9M 2021 Financial Highlights
- The Company's revenues, adjusted EBITDA, net income and free cash flow were all up in 9M 2021 compared to 9M 2020 as follows:
- revenues of $296.5 million in 9M 2021 compared to $185.1 million in 9M 2020;
- adjusted EBITDA of $95.5 million in 9M 2021 compared to $10.2 million in 9M 2020;
- net income of $27.2 million in 9M 2021 compared to $(52.9) million in 9M 2020; and
- free cash flow of $42.4 million in 9M 2021 compared to $(15.7) million in 9M 2020.
- The Company's total capex spend in 9M 2021 was $28.5 million compared to $11.2 million in 9M 2020 with the increase reflecting the completion of a full scope plant turnaround at Conda during June 2021 and activities related to the initiative to produce and sell HFSA at Conda.
September 30, 2021 Net Debt and Liquidity Highlights
- As at September 30, 2021, the Company had net debt of $236.5 million compared to $233.9 million at the end of 2020 with the increase primarily a result of closing the Term Loan, in-kind interest related to the Promissory Note and higher deferred financing costs related to the Term Loan, which were largely offset by higher cash. The Company's net debt as at September 30, 2021 was comprised of $24.1 million in cash and $260.6 million in debt.
- As at September 30, 2021, the Company had liquidity of $29.6 million comprised of $24.1 million in cash and $5.4 million in Conda ABL undrawn borrowing capacity.
Debt Refinancing
- On August 25, 2021, the Company announced that closed a three-year $205 million secured term loan (the "Term Loan"). The proceeds of the Term Loan were used to repay the Company's existing secured term credit facility (the "Credit Facility") and to pay related transaction costs and fees. In connection with the closing of the Term Loan, the Company also completed an amendment to its existing secured working capital facility at Conda (the "Conda ABL") to increase the commitment amount from $20 million to $40 million and extend the term, among other modifications as detailed below. Also in connection with the closing of the Term Loan, the Company completed an amendment to its existing unsecured and subordinated promissory note (the "Promissory Note") to cancel the remaining availability and extend the term, among other modifications.
Q3 2021 Operational Highlights
- EHS
- continued corporate-wide risk mitigation measures to address potential impacts to employees, contractors and operations as a result of the COVID-19 pandemic resulting in no material impact on operations; and
- sustained EHS excellence, including no reportable environmental releases and one recordable incident, which resulted in a consolidated TRIFR of 0.84.
- Conda
- announced a disruption in sulfuric acid supply from its primary supplier and advanced efforts to mitigate potential adverse effects of the disruption, including procuring additional sulfuric acid volumes from third part producers;
- produced 146,267 tonnes in Q3 2021 compared to 97,547 tonnes in Q3 2020 with the increase primarily due to a disruption in sulfuric acid supply from its primary supplier in 2020;
- generated revenues of $103,005 in Q3 2021 compared to $47,588 in Q3 2020 with the increase primarily due to higher realized prices and sales volumes;
- generated adjusted EBITDA at Conda of $45,864 in Q3 2021 compared to $4,259 in Q3 2020 with the increase primarily due to the same factors that resulted in higher revenues, which were partially offset by higher input costs;
- recorded net income (loss) at Conda of $28,746 in Q3 2021 compared to $(1,757) in Q3 2020 with the increase primarily due to the same factors that resulted in higher adjusted EBITDA and lower depreciation and depletion, which were partially offset by higher finance and income tax expenses;
- placed incremental surety bonds of $45,323 to guarantee Conda's obligations under its existing operating and environmental permits;
- posted incremental letters of credit of $16,619 under the Conda ABL as collateral for surety bonds that guarantee Conda's obligations under its existing operating and environmental permits;
- advanced activities related to the extension of Conda's mine life through permitting and development of H1/NDR, including progression of the NEPA EIS preparation and public engagement process;
- advanced activities related to the optimization of Conda's EBITDA generation, including:
- continued ramp up of MAP+ production and sales volumes, including achievement of record quarterly MAP+ production volumes during Q3 2021;
- advanced initiative to produce and sell HFSA, including completion of detailed engineering and design, advancement of procurement and implementation and execution of a long-term offtake agreement; and
- advanced MgO reduction initiative to enhance SPA production and sales volumes, including advancement of test work.
9M 2021 Operational Highlights
- EHS
- continued corporate-wide risk mitigation measures to address potential impacts to employees, contractors and operations as a result of the COVID-19 pandemic resulting in no material impact on operations; and
- sustained EHS excellence, including no reportable environmental releases and two recordable incidents, which resulted in a consolidated TRIFR of 0.84.
- Conda
- completed a full scope plant turnaround at Conda during June 2021, including certain activities that had been deferred following the Company's decision to conduct a reduced scope plant turnaround in 2020 as part of Company's COVID-19 risk mitigation measures;
- announced a disruption in sulfuric acid supply from its primary supplier and advanced efforts to mitigate potential adverse effects of the disruption, including procuring additional sulfuric acid volumes from other third party producers;
- produced 398,975 tonnes at Conda in 9M 2021 compared to 370,834 tonnes in 9M 2020 with the increase primarily due to a disruption in sulfuric acid supply from its primary supplier in 2020, which was partially offset by the completion of a full scope plant turnaround at Conda during June 2021 compared to a reduced scope plan turnaround in 2020;
- generated revenues of $296,463 at Conda in 9M 2021 compared to $180,469 in 9M 2020 with the increase primarily due to higher realized prices and sales volumes;
- generated adjusted EBITDA at Conda of $107,733 in 9M 2021 compared to $27,013 in 9M 2020 with the increase primarily due to the same factors that resulted in higher revenues, which were partially offset by higher input costs;
- recorded net income at Conda of $67,880 in 9M 2021 compared to $2,627 in 9M 2020 with the increase primarily due to the same factors that resulted in higher adjusted EBITDA and lower depreciation and depletion, which were partially offset by higher finance and income tax expenses;
- placed incremental surety bonds of $45,323 to guarantee Conda's obligations under its existing operating and environmental permits;
- amended the Cond--ABL to increase the commitment amount from $20,000 to $40,000 and extend term;
- posted incremental letters of credit of $16,619 under the Conda ABL as collateral for surety bonds that guarantee Conda's obligations under its existing operating and environmental permits;
- advanced activities related to the extension of Conda's mine life through permitting and development of H1/NDR, including progression of the NEPA EIS preparation and public engagement process;
- advanced activities related to the optimization of Conda's EBITDA generation, including:
- continued ramp up of MAP+ production and sales volumes, including achievement of record quarterly MAP+ production volumes during Q3 2021;
- advanced initiative to produce and sell HFSA, including completion of detailed engineering and design, advancement of procurement and implementation and execution of a long-term offtake agreement; and
- advanced MgO reduction initiative to enhance SPA production and sales volumes, including advancement of test work.
Q3 and 9M 2021 Other Highlights
- Also during Q3 and 9M 2021, the Company:
- -completed a redomiciliation from the Cayman Islands to the US; -maintained the idling of Arraias following best practices; and -maintained Farim at construction-ready state.
Subsequent Events
Subsequent to September 30, 2021, the Company:
- announced its decision to restart the sulfuric acid plant at Arraias;
- announced a significant milestone on Conda's mine life extension with the publication of the Draft EIS for H1/NDR; and
- realized a reduction in Conda's guarantee requirements from $85,080 to $77,739 as part of standard regulatory reviews by the respective governmental agencies.
Market Outlook
The Company expects the current global agriculture and phosphate fertilizer fundamentals to remain strong for the remainder of 2021 and throughout 2022. Accordingly, the Company expects continued strength in pricing and volume fundamentals in the phosphate fertilizer markets.
Specific factors the Company expects to influence the continued strength in the phosphate fertilizer markets are as follows:
- no significant phosphate fertilizer supply capacity additions in 2021 or 2022 due to voluntary postponement of project schedules in recent years and delays related to the COVID-19 pandemic, which is expected to result in continued drawdown of global phosphate fertilizer inventory levels;
- continued strong phosphate fertilizer demand underpinned by global coarse grains and oilseeds reaching multi-year low stocks-to-use ratios and the highest prices in nearly a decade, the effects of which are expected to continue beyond the current growing season; and
- China's decision to halt phosphate fertilizer exports through at least June 2022.
The Company expects sulfur prices to remain at high levels as supply remains tight due to solid demand from phosphates and metals consumers. The Company expects ammonia prices to also remain at high levels as higher natural gas prices have led to production shutdowns and increased production costs.
Financial Guidance
The Company has revised its guidance for FY 2021 as follows:
Actual Projected Projected (in millions of US Dollars) 9M 2021 Q4 2021 FY 2021 Adjusted EBITDA $ 95 $ 25-35 $ 120-130 Maintenance capex 20 3-6 23-26 Growth capex 8 5-7 13-15 Free cash flow 42 18-28 60-70
The Company's revised guidance for FY 2021 is explained as follows:
- increased adjusted EBITDA guidance to $120-130 million (previously $110-120 million) to reflect the Company's view of expected higher Q4 2021 prices at Conda, including the current DAP NOLA prices (100% of Conda's MAP is sold under a long-term offtake agreement with pricing indexed to DAP NOLA on an average three-month trailing basis) and higher prices for SPA, which are expected to be partially offset by a disruption in sulfuric acid supply to Conda from its primary supplier;
- increased maintained maintenance capex guidance to $23-26 million (previously $22-25 million) to include the capex requirements associated with the restart of the sulfuric acid plant at Arraias;
- tightened growth capex guidance to $13-15 million (previously $12-15 million); and
- increased free cash flow guidance to $60-70 million (previously $55-65 million) to reflect the increase in adjusted EBITDA guidance.
Business Outlook
The Company continues to execute on its strategy, which is focused on the following:
- extending Conda's current mine life through permitting and development of H1/NDR;
- optimizing Conda's EBITDA generation;
- restarting the sulfuric acid plant at Arraias (remainder of infrastructure to remain idled) while evaluating strategic alternatives;
- maintaining Farim at construction-ready state while evaluating strategic alternatives;
- maintaining the integrity of the concessions of Santana and Araxa while evaluating strategic alternatives; advancing the wind down of Paris Hills and Mantaro;
- deleveraging the balance sheet with cash flows generated from the business; and
- continuing cost savings and corporate streamlining initiatives.
About Itafos
The Company is a phosphate and specialty fertilizer company. The Company's businesses and projects are as follows:
- Conda a vertically integrated phosphate fertilizer business with production capacity of approximately 550kt per year of monoammonium phosphate ("MAP"), MAP with micronutrients ("MAP+"), superphosphoric acid ("SPA"), merchant grade phosphoric acid ("MGA") and ammonium polyphosphate ("APP") located in Idaho, US;
- Arraias a vertically integrated phosphate fertilizer business with production capacity of approximately 500kt per year of single superphosphate ("SSP"), SSP with micronutrients ("SSP+") and approximately 40kt per year of excess sulfuric acid (220kt per year gross sulfuric acid production capacity) located in Tocantins, Brazil;
- Farim a high-grade phosphate mine project located in Farim, Guinea-Bissau;
- Santana a vertically integrated high-grade phosphate mine and fertilizer plant project located in Para, Brazil;
- Araxa a vertically integrated rare earth elements and niobium mine and extraction plant project located in Minas Gerais, Brazil;
- Paris Hills a phosphate mine project located in Idaho, US (wind down in process); and
- Mantaro a phosphate mine project located in Junin, Peru (wind down in process).
The Company is a Delaware corporation that is headquartered in Houston, TX. The Company's shares trade on the TSX Venture Exchange ("TSX-V") under the ticker symbol "IFOS". The Company's principal shareholder is CL Fertilizers Holding LLC ("CLF"). CLF is an affiliate of Castlelake, L.P., a global private investment firm.
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