Itafos Reports Q3 2019 Financial Results and Operational Highlights
ITAFOS REPORTS Q3 2019 FINANCIAL RESULTS AND OPERATIONAL HIGHLIGHTS
TORONTO, ON – November 29, 2019 – Itafos (TSX VENTURE: IFOS) (the “ Company”) reported
today its Q3 2019 financial resu lts and operational highlights. The Financial Statements and
Management’s Discussion and Analysis for the quarter ended September 30, 2019 are available under
the Company’s profile at www.sedar.com and under the Investors – Financial Statements page of the
Company’s website, www.itafos.com. All dollar values referenced in this news release are unaudit ed
amounts in thousands of US Dollars except as otherwise noted.
Overall Highlights
For the three months ended September 30, 2019, the Company’s overall highlights were as follows:
experienced significant and cont inued downward pressure on fer tilizer prices in key markets
including North America and Brazil;
continued strong operational and environmental, health and saf ety performance at Itafos
Conda;
launched new semi-specialty fert ilizer product MAP+ at Itafos Conda;
implemented plan at Itafos Arra ias to optimize finished fertil izer production and launched a
multi-product portfolio of higher grade SSP and SSP+ and premiu m PK compounds (the
“Repurpose Plan”);
advanced development of Itafos Farim, with focus on permitting , negotiating offtake
agreements, finalizing works c ontractors and procurement packag es and securing project
financing;
completed $15,000 capital raise in the form of convertible unsecured promissory notes issued
to CLF (the “CLF Promissory Note”);
executed the fourth amendment (the “ Fourth Amendment”) to the secured term credit facility
(the “Facility”) to sculpt financial covenants and provide additional flexibi lity to raise working
capital financings at Itafos Conda and Itafos Arraias;
launched aggressive corporate wide cost savings initiative; and
advanced capital ra ising initiatives.
Subsequent to the three months ended September 30, 2019, the Co mpany’s overall highlights were
as follows:
announced the results of the Itafos Conda Technical Report con cluding increased resources
from existing mines and defining Husky 1/North Dry Ridge (“H1/NDR”) as the Company’s path
forward for mine development;
closed a $20,000 secured working capital facility (the “ Revolving Facility”) at Itafos Conda
and expanded commercial relations hip with Gavilon Fertilizer, L LC (“Gavilon”), a subsidiary
of The Gavilon Group, LLC;
announced the decision to idle Itafos Arraias and suspend the Repurpose Plan at Itafos Arraias
as part of a disciplined approach to capital allocation conside ring the continued downward
pressure on global fertilizer prices; and
announced the resignation of Br ent de Jong as Chairman and mem ber of the Company’s
Board of Directors and appointment of Anthony Cina to serve as Chairman on an interim basis.
Financial Highlights
For the three and nine months ended September 30, 2019 and 2018 , the Company’s financial
highlights were as follows:
(unaudited in thousands of US Dollars
For the three months ended
September 30,
For the nine months ended
September 30,
except for per share amounts) 2019 2018 2019 2018
Revenues, net $ 81,749 $ 76,282 $ 257,999 $ 201,585
Operating income (loss) $ (14,343) $ (2,547) $ (34,432 ) $ 8,699
Net income (loss) (20,778) (14,390) (55,706 ) 41,670
Adjusted EBITDA 975 6,279 505 27,811
Maintenance capex $ 2,109 $ 9,319 $ 19,156 $ 31,109
Growth capex 9,327 4,878 15,507 19,111
Basic loss per share $ (0.15) $ (0.10) $ (0.40 ) $ 0.30
Fully diluted income (loss) per share $ (0.15) $ (0.10) $ (0.40 ) $ 0.30
For the three and nine months ended September 30, 2019 and 2018 , the Company’s financial
highlights were explained as follows:
revenues were up year-over-year primarily due to higher MAP an d SPA sales volumes as well
as higher realized SPA prices, which were partially offset by l ower realized MAP prices, at
Itafos Conda and revenue contributions from Itafos Arraias duri ng 2019, which had not
achieved commercial production during H1 2018;
net income (loss) was down year-over-year primarily due to a g ain on the fair valuation of Itafos
Conda and a gain from investments in associates related to the GB Minerals Ltd. (“ GBL”)
Arrangement during Q1 2018;
adjusted EBITDA was down year-over-year primarily due to highe r input costs at Itafos Conda
and constrained production due to the implementation of the Repurpose Plan at Itafos Arraias
during 2019, which had not achieved commercial production during H1 2018;
maintenance capex was down year -over-year primarily due to a p artial planned plant
turnaround at Itafos Conda during 2019 compared to a full plann ed plant turnaround at Itafos
Conda during 2018; and
growth capex was down year-over-year primarily due to the capi talization of costs at Itafos
Arraias during H1 2018 ahead of achieving commercial production, which were partially offset
by development activities at Itafos Farim, gyp stack expansion and mine life extension
activities at Itafos Conda during 2019.
As at September 30, 2019 and De cember 31, 2018, the Company’s f inancial highlights were as
follows:
(unaudited in thousands of US
Dollars)
September 30,
2019
December 31,
2018
Total assets $ 568,630 $ 576,419
Total liabilities 352,951 304,640
Net debt 171,919 152,088
Total equity 215,679 271,779
As at September 30, 2019 and December 31, 2018, the Company’s financial highlights were explained
as follows:
total assets were down period-over-period primarily due to dec reases in receivables and
inventory at Itafos Conda and increases in depreciation of assets in service during 2019, which
were partially offset by an increase in property, plant and equipment related to the application
of IFRS 16 during 2019 and growth capex during 2019;
total liabilities were up period-over-period primarily due to increases as a result of the
recognition of lease liabilities related to the application of IFRS 16, increases in long-term
provisions due to additions to asset retirement obligations at Itafos Conda and higher trade
payables during 2019;
net debt was up period-over-period primarily due to the CLF Pr omissory Note, paid-in-kind
interest expense at corporate and additional equipment financing at Itafos Conda during 2019;
and
total equity was down period-ov er-period primarily due to an increase in deficit due to the net
loss and a decrease in share capital due to the repurchase of s hares through the Normal
Course Issuer Bid (“NCIB”) during 2019.
Itafos Conda Highlights
For the three and nine months ended September 30, 2019, Itafos Conda continued its strong
operational performance with overall production volumes up year-over-year. In addition, Itafos Conda
sustained environmental, health and safety excellence including achievement of a notable milestone
by exceeding one year without a r eportable injury prior to one recordable injury occurring during Q3
2019 and continued avoidance of any chemical releases during 2019. Unusually cold and wet weather
conditions across key growing regions affected short-term ferti lizer buying patterns in the US and
caused many growers to defer fertilizer purchases. These developments have elevated inventories to
near historic highs, putting significant downward pressure on f ertilizer prices in the short-term. SPA
production and sales were cons trained due to increased amounts of unfavorable ore elements,
shortage of finished product rail cars and lack of sulfuric aci d availability, which were impacted by
weather and logistical challeng es and correspondingly resulted i n a s h i f t t o i n c r e m e n t a l M A P
production. The increase in unfav orable ore elements, most nota bly magnesium oxide, resulted in
evaporation capacity limitations, which negatively impacted SPA production. To mitigate the potential
impact of unfavorable ore elements affecting future periods, It afos Conda is taking steps to further
optimize ore blending and evaluating selective beneficiation processes.
Itafos Conda’s margins were compr essed year-over-year primarily due to higher input costs, most
notably purchased sulfuric acid, ore and natural gas. The highe r input costs were related to sulfuric
acid contract repricing in 2019, h igher ore feed costs driven b y reduced ore volumes due to mine
sequencing and a spike in natural gas price driven by a supply disruption due to an off-site pipeline
explosion, which negatively impacted the Sumas index in late 20 18. To mitigate the potential impact
of input costs affecting future periods, Itafos Conda made operational improvements to improve mining
efficiencies during Q3 2019 and entered into a two-year fixed p rice natural gas supply agreement
during Q4 2019.
During Q3 2019, Itafos Conda completed a pilot production run o f a new semi-specialty fertilizer
product, MAP+. The Company expects that production and sales of MAP+ will improve Itafos Conda’s
margin profile by reducing exposure to diammonium phosphate (“DAP”) New Orleans (“NOLA”) price
fluctuations, requiring less P2O5 per tonne and limiting the commercial impact of lower near-term SPA
production. Also during Q3 2019, Itafos Conda completed a signi ficant amount of exploratory drilling
work in support of the Itafos C onda Technical Report and enviro nmental baselines in support of the
permitting process for H1/NDR.
Also during 2019, Itafos Conda completed a partial planned plan t turnaround compared to a full
planned plant turnaround during 2018. For the three and nine mo nths ended September 30, 2018,
Itafos Conda’s business highlight s consider the period from the date of acquisition on January 12,
2018 through September 30, 2018.
For the three and nine months ended September 30, 2019, and 201 8, Itafos Conda’s business
highlights were as follows:
(unaudited in thousands of US Dollars
For the three months ended
September 30,
For the nine months ended
September 30,
except for volumes, prices and costs) 2019 2018 2019 2018
Production volumes (t)
MAP 94,323 96,979 285,326 270,663
MAP+ 9,028 — 9,028 —
SPA 36,523 42,529 109,054 110,079
MGA 467 281 1,078 281
APP 4,245 5,844 30,779 17,782
Sales volumes (t)
MAP 108,243 64,335 307,006 226,199
MAP+ — — — —
SPA 28,636 28,793 96,275 87,290
MGA 397 281 1,078 281
APP 4,881 5,987 26,229 17,925
Realized price ($/t)
MAP $ 360 $ 448 $ 396 $ 425
MAP+ $ — $ — $ — $ —
SPA $ 938 $ 927 $ 982 $ 912
MGA $ 935 $ 936 $ 1,005 $ 936
APP $ 463 $ 429 $ 471 $ 431
Revenues ($)
MAP $ 38,948 $ 28,809 $ 121,501 $ 96,051
MAP+ $ — $ — $ — $ —
SPA, net $ 26,869 $ 26,685 $ 94,584 $ 79,588
MGA, net $ 371 $ 263 $ 1,083 $ 263
APP, net $ 2,260 $ 2,570 $ 12,342 $ 7,728
Revenues per tonne P2O5 $ 787 $ 903 $ 863 $ 869
Cash costs per tonne P2O5 $ 672 $ 691 $ 732 $ 659
Adjusted EBITDA $ 8,532 $ 13,592 $ 30,357 $ 43,855
For the three and nine months ended September 30, 2019 and 2018 , Itafos Conda’s business
highlights were explained as follows:
MAP production volumes were up year-over-year primarily due to a shift to incremental MAP
production as a result of SPA production constraints and shorte ned 2018 due to acquisition
timing and longer plant turnaround;
MAP sales volumes were up year-over-year despite delayed sprin g demand due to higher
MAP sales under the exclusive long-term MAP offtake agreement with Nutrien;
MAP realized prices were down year-over-year primarily due to pressure on DAP NOLA to
which the exclusive long-term MAP offtake agreement with Nutrien is linked;
MAP+ production volumes were up year-over-year due to pilot pr oduction run during Q3 2019;
SPA production volumes were fla t year-over-year primarily due to production constraints
during 2019 and shortened 2018 due to acquisition timing and longer plant turnaround;
SPA sales volumes were up year-o ver-year primarily due to greater demand for liquid products
during 2019;
SPA realized prices were up year -over-year primarily due to favorable SPA market conditions
relative to dry fertilizers;
revenues per tonne P 2O5 were down year-over-year primarily due to lower MAP realized prices
during 2019, which were partially offset by higher SPA realized prices during 2019; and
cash costs per tonne P 2O5 were up year-over-year primarily due to higher input costs in 2019.
Itafos Arraias Highlights
In July 2017, the Company complet ed the recommissioning of Itafos Arraias. On July 3, 2018, Itafos
Arraias achieved commercial produ ction. Despite having achieved commercial production, Itafos
Arraias experienced operational challenges post declaration of commercial production resulting in
lower than optimal levels of capac ity utilization. During Q3 20 18, the Company developed and
implemented an efficiency improvement plan (the “ Efficiency Improvement Plan ”) to address the
technical issues underlying the operational challenges and to return Itafos Arraias to optimal levels of
capacity utilization by year end 2019. While certain of the ope rational challenges were resolved and
the business improved, the Efficiency Improvement Plan did not achieve the results expected.
During 2019, the Company implemen ted the Repurpose Plan at Itaf os Arraias in order to optimize
Itafos Arraias’ finished fertilizer production with a multi-pro duct portfolio of higher grade SSP, SSP+
and premium PK compounds. The Repurpose Plan at Itafos Arraias aimed to enhance Itafos Arraias’
competitive positioning and profitability wh ile reducing its op erational and environmental risk profile.
To enable the Repurpose Plan, Itafos Arraias has been purchasin g, receiving and processing higher
grade phosphate rock from third parties during 2019, including entering into a multi-year phosphate
rock supply agreement to purc hase higher grade phosphate rock f rom the OCP Group. In addition,
the Company has advanced other aspects of the Repurpose Plan, including production and sales of
higher grade SSP and SSP+ and prem ium PK compounds, implementat ion of an efficient logistics
process related to third party phosphate rock, reorganization o f the site and commissioning of
equipment. Also in connection with advancing implementation of the Repurpose Plan, during Q2 2019,
the Company idled Itafos Arraias’ existing mines, tailings dam and the beneficiation plant.
In November 2019, the Company a nnounced its decision to idle It afos Arraias and to suspend the
previously announced Repurpose Plan at Itafos Arraias as part o f a disciplined approach to capital
allocation considering the cont inued downward pressure on globa l fertilizer prices. Notwithstanding
the idling of Itafos Arraias, Itafos Arraias has and will conti nue to maintain all licenses and permits in
good standing and compliance with existing regulations.
For the three and nine months end ed September 30, 2019, Itafos Arraias launched its new line of
premium products following the co mpletion of initial production and sales of higher grade SSP and
SSP+ and premium PK compounds. Brazilian buyers continued to cu rtail purchases of locally
produced SSP in favor of imported MAP product, taking advantage of global MAP oversupply. Despite
lower MAP CFR Brazil prices during 2019, Itafos Arraias’ realized prices of SSP and SSP+ remained
strong, largely driven by the shift in selling of higher grade SSP and a strong premium for sulfur-based
products.
For the three and nine months ended September 30, 2018, Itafos Arraias’ business highlights consider
that Itafos Arraias had not achieved commercial production during H1 2018.
For the three and nine months ended September 30, 2019 and 2018 , Itafos Arraias’ business
highlights were as follows:
(unaudited in thousands of US Dollars
For the three months ended
September 30,
For the nine months ended
September 30,
except for volumes, prices and costs) 2019 2018 2019 2018
Production volumes (t)
SSP 34,502 50,135 61,013 50,135
SSP+ 17,431 15,756 58,077 15,756
PK compounds 3,229 — 3,229 —
Excess sulfuric acid 16,248 24,142 35,642 24,142
Sales volumes (t)
SSP 29,039 89,695 51,089 89,695
SSP+ 21,064 — 54,277 —
PK compounds 119 — 119 —
Excess sulfuric acid 16,248 24,142 35,642 24,142
Realized price ($/t)
SSP $ 193 $ 161 $ 197 $ 161
SSP+ $ 288 $ — $ 263 $ —
PK compounds $ 412 $ — $ 412 $ —
Excess sulfuric acid $ 98 $ 144 $ 116 $ 144
Revenues ($)
SSP, net $ 5,591 $ 14,484 $ 10,055 $ 14,484
SSP+, net $ 6,073 $ — $ 14,249 $ —
PK compounds $ 49 $ — $ 49 $ —
Excess sulfuric acid, net $ 1,588 $ 3,471 $ 4,136 $ 3,471
Revenues per tonne P2O5 $ 1,485 $ 1,178 $ 1,498 $ 1,178
Cash costs per tonne P2O5 $ 1,594 $ 1,370 $ 2,021 $ 1,181
Adjusted EBITDA $ (3,000) $ (5,277) $ (17,738 ) $ (9,346)
For the three and nine months ended September 30, 2019, Itafos Arraias’ business highlights were as
follows:
SSP and SSP+ production and sales volumes were down year-over-year primarily due to the
implementation of the Efficienc y Improvement Plan and subsequen t implementation of the
Repurpose Plan during 2019;
SSP and SSP+ realized prices were up year-over-year primarily due to the shift in selling of
higher grade products during 2019;
excess sulfuric acid producti on and sales volumes were down year-over-year primarily due to
a planned sulfuric acid plant turnaround during Q1 2019 and an oversupplied market that
limited sales opportunities during 2019;
excess sulfuric acid realized prices were down year-over-year due to an oversupplied market
during 2019;
revenues per tonne P 2O5 were up year-over-year primarily due to the shift in selling o f higher
grade products during 2019; and
cash costs per tonne P 2O5 were up year-over-year primarily due to lower than expected
production and sales volumes as well as higher input costs due to the shift in selling of higher
grade products during 2019.
Outlook
The Company is executing its strategy by focusing on:
extending Itafos Conda’s current mine life through advancing p ermitting and development of
H1/NDR;
optimizing Itafos Conda’s EBITDA generation potential;
idling Itafos Arraias and evalua ting strategic alternatives for the business;
finalizing permitting, negotiati ng offtake agreements, finaliz ing works contractors and
procurement packages and securing project financing for Itafos Farim;
maintaining the integrity of t he concessions and evaluating st rategic alternatives for Itafos
Paris Hills, Itafos Santana, Itafos Mantaro and Itafos Araxá;
implementing aggressive corporat e wide cost saving initiative; and
advancing capital raising initiatives.
About Itafos
The Company is a vertically integrated phosphate fertilizers and specialty products company with
an attractive portfolio of long-term strategic businesses and p rojects located in key fertilizer
markets worldwide.
The Company owns, operates and is developing the following businesses and projects:
Itafos Conda – a vertically integrated phosphate mine and fert ilizer business with
production and sales capacity of approximately 550kt per year o f monoammonium
phosphate (“MAP”), MAP with micronutrients (“ MAP+”), superphosphoric acid (“ SPA”),
merchant grade phosphoric acid (“ MGA”) and specialty products including ammonium
polyphosphate (“APP”) located in Idaho, US;
Itafos Arraias – a phosphate fertilizer business with producti on and sales capacity of
approximately 500kt per year of single superphosphate (“ SSP”), SSP with micronutrients
(“SSP+”), premium PK compounds and approximately 40kt per year of exc ess sulfuric
acid located in Tocantins, Brazil;
Itafos Farim – a high-grade phosphate mine project located in Farim, Guinea-Bissau;
Itafos Paris Hills – a high-grade phosphate mine project locat ed in Idaho, US;
Itafos Santana – a vertically integrated high-grade phosphate mine and fertilizer plant
project located in Pará, Brazil;
Itafos Mantaro – a large phosphate mine project located in Jun in, Peru; and
Itafos Araxá – a vertically integrated rare earth elements and niobium mine and extraction
plant project located in Minas Gerais, Brazil.
For more information, or to join the Company’s mailing list to receive notification of future news
releases, please visit the Company’s website, www.itafos.com.
Non-IFRS Financial Measures
The Company considers both IFRS and certain non-IFRS measures t o assess performance. Non-
IFRS measures are a numerical measure of a company’s performance, that either include or exclude
amounts that are not normally included or excluded from the most directly comparable IFRS measures.
In evaluating non-IFRS measures, investors, analysts, lenders and others should consider that non-
IFRS measures do not have any standardized meaning under IFRS and that the methodology applied
by the Company in calculating such non-IFRS measures may differ among companies and analysts.
The Company believes the non-IFRS measures provide useful supplemental information to investors,
analysts, lenders and others in or der to evaluate the Company’s operational and financial
performance. These non-IFRS fi nancial measures should not be co nsidered as a substitute for, nor
superior to, measures of financial performance prepared in accordance with IFRS.
The Company defines:
“ EBITDA” as earnings before interest, taxes, depreciation, depletion and amortization;
“ Adjusted EBITDA” as EBITDA adjusted for non-cash, extraordinary, non-recurring and other
items unrelated to the Company’s core operating activities;
“ Total capex” as additions to property, pl ant and equipment and mineral pro perties adjusted
for additions to asset retirement obligations, additions to rig ht of use assets and capitalized
interest;
“ Maintenance capex ” as that portion of total capex relating to maintenance of ong oing
operations of the Company;
“ Growth capex” as that portion of total capex relating to development of growth opportunities
of the Company;
“ Net debt ” as debt and debentures less cash and cash equivalents and sho rt-term
investments;
“ Realized price” as revenues, net divided by sales volumes;
“ Revenues per tonne P 2O5” as revenues, net divided by s ales volumes presented on P 2O5
basis;
“ Cash costs ” as cost of goods sold less net r ealizable value adjustments, depreciation,
depletion and amortization; and
“ Cash cost per tonne P2O5” as cash costs divided by sales volumes presented on P2O5 basis.
Forward Looking Information
Certain information contained in this news release constitutes forward looking information. All
information other than information of historical fact is forward looking information. The use of any
of the words “intend”, “anticipate”, “plan”, “continue”, “estim ate”, “expect”, “may”, “will”, “project”,
“should”, “would”, “believe”, “predict” and “potential” and sim ilar expressions are intended to
identify forward looking information. This information involves known and unknown risks,
uncertainties and other factors that may cause actual results o r events to differ materially from
those anticipated in such forward looking information. No assur ance can be given that this
information will prove to be correct and such forward looking i nformation included in this news
release should not be unduly relied upon.