Itafos reports 4Q18 and full year 2018 financial results

“2018 was a record-setting year for Itafos Conda in terms of environmental, health and safety and operational performance, marked by no recordable injuries since July 2018 and coupled with our highest ever production rates in October 2018. 4Q18 results were positively impacted by the continued solid operational and commercial performance at Itafos Conda where strength in phosphate fertilizer prices carried into the early part of the quarter. Itafos Conda generated Adjusted EBITDA of US$20.9 million in 4Q18 and has generated Adjusted EBITDA of US$63.6 million since we acquired the business on 12 January 2018.

During the second half of 2018 and 1Q19, we developed and implemented an efficiency improvement plan at Itafos Arraias focused on improving mass yield, P2O5 recovery and overall product quality. While certain of the operational challenges have been resolved and the business has improved, the efficiency improvement plan did not achieve our expected results. After considering several alternatives, we have decided to implement a repurpose plan aimed at optimising Itafos Arraias’ finished fertilizer production with a multi-product portfolio of higher-grade SSP, micronutrient SSP and value added premium PK compound products. To enable the repurpose plan, Itafos Arraias will procure higher-grade phosphate rock from third parties and, once operational, from Itafos Farim. The repurpose plan is expected to significantly enhance Itafos Arraias’ competitive positioning and profitability while reducing its operational and environmental risk profile.

Finally, we are pleased with the progress made this year toward extending Itafos Conda’s mine life by further advancing air quality and groundwater permits as well as technical studies of our nearby development projects, Itafos Paris Hills and Itafos Husky 1/North Dry Ridge. We have also made significant progress with continued de-risking of Itafos Farim where we received our operating license and environmental permit, advanced resettlement actions and commenced camp construction,” said Brian Zatarain, CEO of Itafos.

The company’s financial highlights for 4Q18 and full year 2018 were as follows:

• revenues of US$100.6 million in 4Q18 and US$302.2 million for full year 2018;
• Adjusted EBITDA of US$7.6 million in 4Q18 and US$34.1 million for full year 2018;
• net loss of US$(153.5) million in 4Q18 and US$(113.5) million for full year 2018; and
• fully diluted loss per share of US$(1.08) in 4Q18 and US$(0.82) for full year 2018.

Net loss and fully diluted loss per share for 4Q18 and full year 2018 were affected by US$146.6 million of impairments of non-current assets of Itafos Arraias, Itafos Farim and Itafos Santana triggered by the company’s book value of net assets exceeding its market capitalisation as of 31 December 2018. The impairment of Itafos Arraias was primarily due to the delay in ramp-up to optimal capacity utilisation and associated capital expenditures and working capital requirements combined with lower projected run-rate EBITDA due to margin compression. The respective impairments of Itafos Farim and Itafos Santana were primarily due to the decline in multiples of comparable publicly traded companies and transactions during 2018.

4Q18 Highlights

• Itafos Conda sales included:

- 101 652 t of monoammonium phosphate (“MAP”) at an average realised price of US$473/t;
- 41 079 t of superphosphoric acid (“SPA”) at an average realised price of US$1006/t
- 113 t of merchant grade phosphoric acid (“MGA”) at an average realised price of US$1106/t; and
- 8602 t of ammonium polyphosphate (“APP”) at an average realised price of US$396/t.

• Itafos Arraias sales included:

- 33 739 t of single superphosphate (“SSP”) at an average realised price of US$135/t;
- 6672 t of SSP with micronutrients (“SSP+”) at an average realised price of US$160/t; and
- 13 609 t of sulfuric acid at an average realised price of US$152/t.

• On 12 December 2018, the company received conditional acceptance from the TSXV to commence a Normal Course Issuer Bid (“NCIB”). Through the NCIB, the company may purchase up to 7 103 515 shares of the company, representing 5.0% of the company’s issued and outstanding shares as of 12 December 2018. As of 4 April 2019, the company repurchased 1 478 500 shares through the NCIB.
• As of 31 December 2018, the company’s book value of net assets exceeded its market capitalisation, which triggered an overall impairment assessment. The company performed valuations to estimate the recoverable value of its assets and as a result recorded US$146.6 million of impairments of non-current assets as follows:

- US$132.3 million at Itafos Arraias;
- US$11.2 million at Itafos Farim; and
- US$3.1 million at Itafos Santana.

4Q18 and Full Year 2018 Segment Highlights

The company acquired Itafos Conda on 12 January 2018. Strong sales volumes coupled with rising fertilizer pricing drove 4Q18 revenues of US$92.9 million and Adjusted EBITDA of US$20.9 million. For the full year 2018, revenues were US$276.5 million and Adjusted EBITDA was US$63.6 million.

Itafos Arraias achieved commercial production on 3July 2018. Despite having achieved commercial production, Itafos Arraias has experienced operational challenges post declaration of commercial production resulting in lower than optimal levels of capacity utilisation. Lower production volumes due to the implementation of the efficiency improvement plan drove 4Q18 revenues of US$7.7 million and Adjusted EBITDA of US$(9.3) million. For the full year 2018, revenues were $25.7 million and Adjusted EBITDA was US$(18.6) million.

The company’s development and exploration Adjusted EBITDA was US$(1.6) million in 4Q18 and US$(3.6) million for full year 2018, while corporate Adjusted EBITDA was US$(2.5) million in 4Q18 and US$(7.3) million for full year 2018.

The company’s net debt at year end 2018 was US$152.1 million as compared to US$(33.2) million at year end 2017. The increased net debt is largely due to the closing of the US$165.0 million secured term credit facility in June 2018. The net proceeds of the credit facility are being used to fund working capital and other cash requirements of Itafos Conda and Itafos Arraias, as well as continued implementation of the company’s business development initiatives.

Outlook

Currently, the company is executing its strategy by focusing on the following:

• extending Itafos Conda’s current mine life through advancing permitting of Itafos Paris Hills and Itafos Husky 1/North Dry Ridge and pursuing other alternatives;
• implementing the repurpose plan to optimise Itafos Arraias’ finished fertilizer production with a multi-product portfolio of higher-grade SSP, micronutrient SSP and value added premium PK compound products and procuring higher-grade phosphate rock from third parties and, once operational, from Itafos Farim for Itafos Arraias; and
• finalising permitting, negotiating offtake agreements, selecting contractors and securing project financing for Itafos Farim.

Read the article online at: https://www.worldfertilizer.com/phosphates/08042019/itafos-reports-4q18-and-full-year-2018-financial-results/