MOSAIC BUSINESS
General
Mosaic is a Delaware corporation which was formed under the name Global
Nutrition Solutions, Inc. on January 23, 2004 for the purpose of effecting the
combination of IMC's businesses with the Cargill Fertilizer Businesses. Mosaic's
corporate name was changed to The Mosaic Company on June 17, 2004. As a result
of the completion of the Cargill transactions on October 22, 2004, Mosaic now
owns, through its subsidiaries, the Cargill Fertilizer Businesses and the
businesses of IMC. The Mosaic Company is one of the world's leading producers
and marketers of concentrated phosphate and potash crop nutrients. For the
global agriculture industry, Mosaic is a single source for phosphates, potash,
nitrogen fertilizers and feed ingredients. Based in Minnetonka, Minnesota,
Mosaic serves customers in 50 countries through phosphate production facilities
in Florida, Louisiana and international markets including Brazil and China;
potash production facilities in New Mexico, Michigan and Saskatchewan, Canada; a
joint venture interest in the Saskferco Products Inc., nitrogen production
facility; and distribution and customer service operations in 15 countries.
Mosaic is required to file annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and appropriate amendments to those
reports with the SEC. Those reports are available free of charge through
Mosaic's website (http://www.mosaicco.com) as soon as reasonably practicable
after such material is electronically filed with, or furnished to, the SEC.
For a description of the businesses of IMC, see IMC's Annual Report on Form
10-K, as amended by Amendment No. 1 on Form 10-K/A, for the year ended December
31, 2003 which is incorporated herein by reference, as well as the section
entitled "Where You Can Find More Information" for information on how to obtain
IMC's Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A.
Overview of the Cargill Fertilizer Businesses
The Cargill Fertilizer Businesses consist of multiple entities and business
divisions or operating units of Mosaic, as well as equity interests in joint
ventures. Pursuant to the merger and contribution agreement, Cargill caused the
assets, liabilities and obligations of the Cargill Fertilizer Businesses
(excluding any trade names and trademarks that incorporate the word "Cargill")
to be segregated from its non-fertilizer businesses and to be contributed into
new or existing fertilizer-related subsidiaries of Cargill. As part of the
Cargill transactions, Cargill and certain of its other subsidiaries then
contributed to Mosaic equity interests in such new or existing
fertilizer-related subsidiaries. Prior to completion of the Cargill
transactions, Cargill had categorized the various Cargill Fertilizer Businesses
into four business segments: (1) Phosphate Production; (2) Crop Nutrition; (3)
Brazil Fertilizer; and (4) Saskferco. References in this prospectus to the
Cargill Fertilizer Businesses generally refer to the fertilizer businesses
formerly owned by Cargill and now owned by Mosaic falling within these four
business segments.
The Cargill Fertilizer Businesses have established a significant presence in the
global phosphate market with large-scale and efficient Florida-based operations
that serve fertilizer and feed phosphate customers in more than two dozen
countries around the world. The Cargill Fertilizer Businesses also own minority
equity stakes in phosphate operations in Brazil and China that supply these two
large and growing markets. In addition, the Cargill Fertilizer Businesses serve
as the exclusive international marketing agent for a phosphate producer in
Australia.
The Cargill Fertilizer Businesses have more regional interests in the nitrogen
market. The Cargill Fertilizer Businesses own a 50% equity stake in Saskferco
Products, Inc. (Saskferco), a world-scale and energy-efficient nitrogen plant
located in Belle Plaine, Saskatchewan. The Cargill Fertilizer
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Businesses act as the exclusive marketing agent for Saskferco and supply mostly
urea and, beginning in March 2004, urea ammonium nitrate (UAN) solutions to
retail dealers in western Canada and the northern tier of the United States. The
Cargill Fertilizer Businesses also own a minority equity interest in Ultrafertil
S.A., one of the largest nitrogen producers in Brazil, from which a portion of
their nitrogen requirements are sourced for local blending and distribution
operations. Unlike IMC, the Cargill Fertilizer Businesses do not produce potash,
but do source potash and market it together with the other essential crop
nutrients in its worldwide distribution system.
The Cargill Fertilizer Businesses distribute fertilizer in most of the large
nutrient markets around the globe. Mosaic's distribution businesses not only
serve as the marketing arm for its production operations, but also function as
businesses offering additional crop nutrients and value-added services to
customers. Distribution operations move product further down the value chain and
help Mosaic understand customer requirements as well as maintain quality
control. These activities, for example, have driven the development of
MicroEssentials™, a line of innovative specialty fertilizers, as well as the
creation of a strong brand identity in important international markets such as
China and Brazil. In addition, Mosaic's large global distribution pipeline
enables it to manage seasonal swings in phosphate and nitrogen inventories and
to operate plants at consistent rates.
Mosaic operates port terminals, warehouses and blending and bagging facilities
in nine countries, and presently maintains a sales presence in six more
countries in North and South America, Europe and Asia. Distribution operations
differ by country and range from selling bagged product at an import terminal to
marketing custom blends from an inland warehouse and blend plant. The Cargill
Fertilizer Businesses have developed bulk-blending operations worldwide,
adapting a successful North American model to South America during the early
1990s and then to Asia in the late 1990s.
As of May 31, 2004, the Cargill Fertilizer Businesses employed approximately
3,509 persons worldwide, not including approximately 140 employees of Saskferco
Products, Inc. Employment, particularly at distribution facilities, varies
slightly throughout the year due to seasonal factors.
The table below chronicles the development and historical milestones of the
Cargill Fertilizer Businesses over the past 20 years:
Early 1960s Begins U.S. fertilizer trading and distribution as a grain backhaul
opportunity
Dec 1985 Purchases 80% of Gardinier, Inc. (includes Fort Meade phosphate rock
mine and Riverview, Florida phosphate facility)
Jan 1986 Creates a Fertilizer Division and names Fredric W. "Fritz" Corrigan
as President
Jun 1987 Commences fertilizer business in Argentina, distributing imported
fertilizer using leased warehouse space at a port in Buenos Aires
Jun 1988 Purchases the remaining 20% of Gardinier, Inc. from minority
shareholders
Feb 1990 Gives final approval for the construction of Saskferco Products,
Inc.
Jan 1991 Christens the Alafia molten sulfur barge (completes maiden voyage
from Galveston to Tampa)
Jun 1991 Opens a warehouse and bulk blend plant in Conception Bay (Cosmito),
Chile
Aug 1992 Commissions Saskferco Products, Inc. at Belle Plaine, Saskatchewan
May 1993 Acquires Seminole Fertilizer Corp. (includes Hookers Prairie
phosphate rock mine and Bartow, Florida phosphate facility)
Jun 1993 Cargill Agricola, S.A., parent company of Cargill Fertilizantes,
S.A., constructs a liquid fertilizer blending plant and warehouse
located at Monte Alto, Brazil
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Dec 1995 Forms South Ft. Meade Partnership, L.P. and acquires the South Fort
Meade phosphate rock mine and beneficiation plant, immediately
expanding capacity from 3.2 million tonnes to 4.6 million tonnes per
year
Jan 1996 Commissions first feed phosphate plant at Riverview, Florida
phosphate facility
Aug 1996 Opens a warehouse and bulk blending plant in Tianjin, China
Apr 1997 Completes a warehouse and bulk blending plant in Sriracha, Thailand
Aug 1997 Begins a warehouse and bulk blending operation in San Antonio, Chile
Aug 1997 Opens a warehouse and bulk blending plant in Donetsk, Ukraine
Sep 1997 Completes expansion of Saskferco Products, Inc. to 1,860 tonnes per
day of ammonia and 2,850 tonnes per day of urea
May 1998 Completes a series of expansions that increase capacity at both the
Riverview and Bartow phosphate facilities to 860,000 tonnes of P2O5
per year
Aug 1998 Opens a new port facility and 60,000 tonne warehouse in Quebracho,
Argentina
Aug 1998 Discharges first panamax vessel at the new anchorage and lightering
port facility in Rozy, India
Jul 1999 Purchases a 72% equity stake in Solorrico, S.A., a Brazilian
fertilizer producer and distributor
Jul 2000 Dedicates an E-Crane barge discharge system and high speed truck
load-outs at Port Cargill in Savage, Minnesota
Aug 2000 Opens a warehouse and bulk blending facility in Yantai, China
Oct 2000 Acquires an 80% equity stake in Fertiza, S.A., a Brazilian
fertilizer producer and distributor
Dec 2000 Acquires a 35% equity stake in a Chinese joint venture to construct
a 600,000 tonne DAP plant in Haikou, China
Mar 2001 Completes the construction of a second 60,000 tonne warehouse at
Quebracho, Argentina
May 2001 Installs an E-Crane barge/vessel discharge system and high speed
truck load-outs at Channelview, Texas
Jun 2001 Saskferco Products, Inc. opens a new 80,000 tonne warehouse in
Carmen, Manitoba
Nov 2001 Launches commercial production of a line of specialty products
branded MicroEssentials™
Jan 2002 Opens a new liquid sulfur terminal at Channelview, Texas
Jun 2002 Opens a second bulk blending line at the facility in Donetsk,
Ukraine
Jul 2002 Purchases sulfuric acid assets formerly operated by Mulberry
Phosphates, Inc. near Bartow, Florida and agrees with the Florida
Department of Environmental Protection (FDEP) to manage the closure
of two gypsum stacks at the site
Aug 2002 Commissions DAP granulation plant at the Haikou, China plant
Nov 2002 Acquires Farmland Hydro L.P.'s Green Bay, Florida phosphate facility
and rock reserves
Nov 2002 Commissions a second feed phosphate plant at Riverview, Florida
Apr 2003 Buys a 60% equity stake in a 170,000 tonne NPK plant at Yangzhong
City, China
Jun 2003 Approves the construction of a second molten sulfur barge
Sep 2003 Completes the purchase of publicly traded minority shares of Cargill
Fertilizantes, S.A. (the Brazilian company that merged the Solorrico
and Fertiza businesses)
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Oct 2003 Begins the expansion of the South Fort Meade mine from 4.6 to 5.9
million tonnes per year
Nov 2003 Saskferco Products, Inc. adds 50,000 tonnes of MicroGran™ feed
urea production at Belle Plaine, Saskatchewan
Jan 2004 Signs a definitive agreement to combine the Cargill Fertilizer
Businesses with IMC, subject to regulatory and shareholder
approvals
Mar 2004 Begins the planned conversion of the Tampa GTSP plant to more
value-added MicroEssentials™ production
Mar 2004 Saskferco commissions 230,000 tonne 28% UAN solution plant at
Belle Plaine
Mar 2004 Acquires the Wingate Creek phosphate rock mine and phosphate
reserves from Nu-Gulf Wingate Holdings, LLC
October 2004 Combines with IMC to form Mosaic
Operating Segments
Historically, Cargill reported the financial results of the Cargill Fertilizer
Businesses in the following four business segments: (1) Phosphate Production;
(2) Crop Nutrition; (3) Brazil Fertilizer; and (4) Saskferco.
Phosphate Production
The Phosphate Production segment primarily operates mines and processing plants
in Florida, which produce phosphate fertilizer and feed phosphate products. This
segment also holds a 35% equity stake in a recently constructed DAP granulation
plant near Haikou, China in the Yunnan province.
Net sales to external customers for Phosphate Production were $296 million, $943
million, $618 million and $524 million for the three months ended August 31,
2004 and for the fiscal years ended May 31, 2004, 2003 and 2002, respectively.
Gross profit for Phosphate Production was $27 million, $61 million, $35 million
and $64 million for the three months ended August 31, 2004 and for the fiscal
years ended May 31, 2004, 2003 and 2002, respectively.
Total assets for Phosphate Production were $1,123 million, $1,107 million, $968
million and $729 million at August 31, 2004, May 31, 2004, 2003 and 2002,
respectively.
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The following tables detail phosphate rock production volume and grade for each
of the Cargill Fertilizer Businesses' active mines in Florida during the last
three fiscal years. The standard industry term used to grade the quality of
phosphate rock is BPL, or bone phosphate of lime.
South Fort Meade Mine Production
Pebble Concentrate Total Product
Year ending May 31 Tonnes % BPL % P2O5 Tonnes % BPL % P2O5 Tonnes % BPL % P2O5
2002 2,382,495 62.3 28.5 2,189,582 69.4 31.8 4,572,076 65.7 30.1
2003 2,402,226 62.3 28.5 2,046,519 68.4 31.3 4,448,745 65.1 29.8
2004 2,717,291 63.6 29.1 2,509,818 68.0 31.1 5,227,109 65.7 30.1
Total 7,502,012 62.8 28.7 6,745,919 68.6 31.4 14,247,931 65.5 30.0
Hookers Prairie Mine Production
Pebble Concentrate Total Product
Year ending May 31 Tonnes % BPL % P2O5 Tonnes % BPL % P2O5 Tonnes % BPL % P2O5
2002 1,050,430 62.7 28.7 588,899 68.4 31.3 1,639,329 64.8 29.6
2003 1,114,613 61.8 28.3 680,207 67.2 30.7 1,794,820 63.8 29.2
2004 1,161,151 63.8 29.2 930,091 66.0 30.2 2,091,242 64.8 29.7
Total 3,326,194 62.8 28.7 2,199,197 67.0 30.7 5,525,391 64.5 29.5
Principal Products
The principal products of the Phosphate Production segment are described below:
Diammonium Phosphate (DAP): DAP is the most widely used high-analysis phosphate
fertilizer worldwide. DAP is produced by first combining phosphoric acid with
anhydrous ammonia in a reaction vessel. This initial reaction creates a slurry
that is then pumped into a granulation plant where it is reacted with additional
ammonia to produce DAP. DAP can be blended with other solid fertilizer products
such as urea and potassium chloride or used as a direct application material.
Monoammonium Phosphate (MAP). MAP is the second most widely used high-analysis
phosphate fertilizer and the fastest growing phosphate product worldwide. MAP
also is produced by first combining phosphoric acid with anhydrous ammonia in a
reaction vessel. The resulting slurry is then pumped into the granulation plant
where it is reacted with additional phosphoric acid to produce MAP. Some
facilities can switch from DAP to MAP production simply by replacing an ammonia
sparger with a phosphoric acid sparger in the granulation plant. MAP, like DAP,
can be blended with other solid fertilizer products or applied directly to
soils.
MicroEssentials™. MicroEssentials™ is a value-added DAP or MAP product that
features a patented process which creates very thin platelets of sulfur on the
product. Over time, these sulfur platelets break down in the soil and are
absorbed by plants. This unique process enables the formation of a granule, that
when halved, resembles the layers of a "sliced onion," but allows a slow release
of the nutrients into the soil. In addition, micronutrients such as boron,
copper, manganese, and zinc can be added in separate but parallel processes.
Calcium Phosphate Feed. Calcium phosphate feed products are produced by
neutralizing de-fluorinated phosphoric acid with limestone. The first step in
the process is to reduce the fluorine-to-phosphorous ratio of the phosphoric
acid to less than a 1:100. This result typically is achieved by adding
diatomaceous earth (or activated silica) to phosphoric acid in order to "strip"
fluorine from the acid. This de-fluorinated acid is then neutralized with
different quantities of limestone to produce the
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two most widely use phosphate feed products - dicalcium phosphate (Dical) and
monocalcium phosphate (Monocal). Dical contains 18.5% phosphorus or 42.4%
phosphorus pentoxcide (P2O5). Monocal contains 21.0% phosphorous or 48.1% P2O5.
Production and Properties: Florida Operations
Overview
The phosphate mining operations and related holdings of the Cargill Fertilizer
Businesses are located in Central Florida in Polk, Hardee and Manatee counties.
The general geologic setting of the phosphate deposits of Florida are of
sedimentary origin and are reported to be of the Miocene age. The active mines
are located in what is known as the Bone Valley Member of the Peace River
Formation, with the material mined from this area known locally as "matrix."
This sedimentary deposit varies in thickness throughout the extent of Mosaic's
land holdings and is essentially a continuous deposit in this region of Florida.
The map below shows the location of each phosphate rock mine included in the
Cargill Fertilizer Businesses.
[[Image Removed: LOGO]]
Cargill entered the world phosphate market with the acquisition of approximately
80% of Gardinier, Inc. in December 1985. Since then, the Phosphate Production
segment has grown its U.S. based operations primarily through acquisitions
during cyclical downturns in the phosphate market. Since entering into the
business of phosphate production nearly two decades ago, Cargill consistently
re-invested cash flow to maintain assets, enhance efficiencies and expand
capacities to improve and modernize its mines and production facilities.
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The Phosphate Production segment currently has five properties designated as
current or future mining locations, all of which are owned entirely by Mosaic,
except for the South Fort Meade site, whose ownership structure is described
below. The Hookers Prairie and South Fort Meade mines are active and producing
phosphate rock. The Fort Meade mine is not actively mining and has been idle
since January 1997. The Wingate Creek mine was acquired by Cargill in March 2004
and is undergoing permit transfer and renewal efforts with a targeted start-up
date in late 2004. The Pioneer mine site is a future mining site with limited
ongoing permitting activity, although portions of the site were permitted for
mining in the 1980s.
Each active mine site is supported by the required infrastructure in terms of
electrical power, mining equipment, beneficiation plant, rail and shipping
facilities, offices, shops and ancillary equipment. The Hookers Prairie mine has
a rated capacity of 2.1 million tonnes per year, while the South Fort Meade mine
has a rated capacity in excess of 5.9 million tonnes per year. The major
electrical power providers for the mining operations are Tampa Electric (Hookers
Prairie), Progress Energy (Fort Meade, South Fort Meade, Pioneer) and Florida
Power & Light (Wingate Creek). These regional utilities serve our mining
properties with electrical power on an interruptible basis. Water is provided on
site by the use of company-owned deep wells permitted by the regional water
management district.
The active mines utilize large surface mining machines known as "draglines" as
the primary earthmoving equipment. Currently, Hookers Prairie operates with
three draglines and South Fort Meade has four operating draglines. Additionally,
the Fort Meade mine has three draglines, which have been "mothballed" due to the
shut down status of this operation.
A typical central Florida phosphate operation uses a single dragline to remove
the overburden and phosphate ore. The dragline will typically strip a ten to
fifty foot layer of sandy overburden from the mining area, casting it into the
adjacent mined out area. A typical mining cut width is from 250 to 300 feet,
depending upon the site geology and digging characteristics of the dragline.
Once stripping is accomplished within the digging radius of the dragline, the
area is then mined. The mining of the matrix involves digging the matrix from
the previously stripped area and dumping it into a shallow pit or excavation
where it is slurried with high-pressure water and pumped in slurry form to the
beneficiation plant for further processing. Once the dragline has mined out the
matrix within reach of the machine it will in effect "step back" and begin the
process again. The slurry pits or wells are relocated accordingly as the mining
progresses along the cut.
The Wingate Creek operation utilizes dredges to strip the overburden and to mine
the underlying matrix. Wingate Creek utilizes two Ellicott cutter-suction
dredges for mining: Gulf I, a 280 foot long dredge for mining overburden, and
Gulf II, a 230 foot long dredge for mining matrix. Digging depths for Gulf I and
Gulf II are 55 feet and 98 feet, respectively. The mining dredge will mine the
matrix and pump it in slurry form to the existing beneficiation plant for
further processing. The Wingate Creek mine, which resumed operations in November
2004, has the capacity to produce 1.1 million tonnes of phosphate rock per year.
At this time, Mosaic cannot quantify the amount of future costs that will be
required in connection with future development and expansion of mines.
Presently, there are no significant planned future costs that Mosaic believes
will be incurred with any certainty. Costs also will be affected by the results
of the permitting process with respect to Mosaic's mines. Mosaic management is
working to determine how to operate and develop the mines of the combined
operations, taking into account any possible synergies, including cost savings
that may be achieved given the proximity of the Cargill Fertilizer Businesses
and IMC mines in Florida. Therefore, at this time, Mosaic cannot reasonably
estimate the amount of costs that might be spent in the future with respect to
its Florida phosphate mining operations.
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Reserves
The table below shows the estimated reserves, as of March 1, 2004, associated
with the Florida mining operations of the Cargill Fertilizer Businesses. The
reserves are listed as recoverable tonnes. Also reflected in the table is the
grade of the reserves, expressed as a percentage of BPL or P2O5. Finally, the
table also reflects the average values of the following material contaminants
contained in the reserves: ferrous oxide (Fe2O3), aluminum oxide (Al2O3) and
magnesium oxide (MgO).
PROVEN RESERVES (1)
MINE PLAN DATA (recovery factors applied)
Tonnes (2) % BPL % P2O5 % Fe2O3 + Al2O3 % MgO
Hookers Prairie 8,094,606 63.69 29.15 2.05 0.42
South Fort Meade 89,199,353 63.80 29.20 2.25 0.64
Fort Meade 17,520,627 63.69 29.15 2.39 0.54
Pioneer 76,926,404 66.80 30.57 2.48 0.78
Wingate Creek 6,860,649 66.79 30.57 3.22 0.46
Total 198,601,639 65.05 29.77 2.38 0.67
(1) The minimum drill hole density for the proven reserves classification of the
Cargill Fertilizer Businesses is 1 hole per 20 acres
(2) The reserve estimates provided above have been developed by the Cargill
Fertilizer Businesses in accordance with Industry Guide 7 promulgated by the
U.S. Securities and Exchange Commission
Independent third parties have not reviewed the reserves of the Cargill
Fertilizer Businesses during the past three years. From time to time, as part of
Cargill's due diligence assessment of mining properties and phosphate reserves
(for example, in connection with Cargill's Farmland-Hydro (Pioneer) and Wingate
Creek acquisitions described below), Cargill retained consultants to conduct
analyses of these properties, which Cargill then took into account in developing
its own calculation of reserves.
Under current mining plans, to the extent any reserves are leased by the Cargill
Fertilizer Businesses, all reported reserves regarding those leased reserves
will be mined out within the time period of existing mineral leases. The South
Fort Meade reserves described below are the only reported reserves leased by the
Cargill Fertilizer Businesses.
Fort Meade
The Gardinier acquisition in 1985 included the Fort Meade phosphate rock mine
and processing plants in Riverview, Florida. Gardinier was the sixth largest
U.S. phosphate producer at the time of its acquisition, with phosphoric acid
capacity of approximately 725,000 tonnes of P205 per year at the Riverview
facility. Cargill subsequently acquired the remaining minority shares of
Gardinier in 1988 and invested significant funds during the first few years of
operations to enhance both operational efficiencies as well as the environmental
safety of the facilities.
The Fort Meade mine started its initial mining in 1967 and continued until early
1997. Mining activity ceased at the Fort Meade mine when the expansion of the
South Fort Meade mine created excess mine production capacity. The Fort Meade
mine is approximately 18,500 acres in area. The mine has approximately eight
years of life remaining, based on its pre-closure operating rate, once a
decision is made to restart the mine. Mining has taken place in Polk and Hardee
counties with the bulk of the remaining reserves lying in Hardee County.
Although the site has been fully permitted, once a decision is made to restart
the mine, modifications and amendments will be required to the operating
permits. As this mine has an operational history and many of the approvals
currently are in existence, Mosaic has a high level of assurance that the Fort
Meade mine will be able to continue production once a decision is made to
restart mining operations.
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While the Fort Meade mine has been in an idle state, Cargill and Mosaic have has
continued to reclaim lands which are available for reclamation. Other lands such
as clay settling areas, the beneficiation plant site and infrastructure areas
are not available for reclamation, as they will be needed when the mine restarts
in the future. Cargill had a variance for the delay in reclamation with the
State of Florida and posted financial responsibility in the form of a letter of
credit for the lands not reclaimed. Once these areas are put into operational
use in the future, the variance and corresponding surety will no longer be
needed.
Hookers Prairie
Cargill's second major acquisition was the purchase of the phosphate mining and
processing assets of Seminole Fertilizer Corporation in May 1993. The
acquisition included the Hookers Prairie phosphate rock mine and processing
plants at Bartow, Florida. The Hookers Prairie mine has been in operation since
1976.
This 14,530-acre mine site is fully permitted and is expected to mine out at
current rates in 2008. There are limited opportunities for the extension of the
Hookers Prairie mine as most of the adjacent reserve properties have been mined
or are unavailable for mining.
Mining is progressing at the Hookers Prairie mine with some 310 acres mined in
2003. Site prep and the advancement of mining is proceeding as planned.
Reclamation of all lands mined after July 1, 1975 and lands used in certain
mining operations after July 1984 are subject to mandatory reclamation
requirements established by the State of Florida. Spending for reclamation at
Hookers Prairie totaled $2.2 million in 2003.
The acquisition of the mining and processing assets of Seminole Fertilizer
Corporation closed just as the phosphate market began a strong and sustained
up-turn during the last half of the 1990s. Cargill re-invested a large share of
cash flow back into the phosphate business in order to upgrade and expand both
the Riverview and Bartow facilities during this period. These investments
improved product quality, enhanced efficiencies and expanded plant capacity.
Phosphoric acid capacity at Bartow was approximately 660,000 tonnes of P205per
year at the time of purchase, or slightly less than the Riverview capacity.
Through Cargill's reinvestment activities, the phosphoric acid capacity at each
facility was expanded to more than 860,000 tonnes of P205 by mid-1998.
Subsequent investments have boosted current capacity at Bartow to more than
950,000 tonnes of P205.
South Fort Meade
Cargill acquired the brand-new South Fort Meade phosphate rock mine and
state-of-the-art beneficiation plant in December 1995. The South Fort Meade
acquisition included 27,000 acres of land in Polk and Hardee counties, as well
as a new beneficiation plant, two clay settling areas, draglines and other
mining assets. Cargill expanded the nominal capacity of the South Fort Meade
mine from 3.2 million tonnes to approximately 4.6 million tonnes and idled the
Fort Meade mine shortly after the South Fort Meade acquisition in order to
reduce mining costs. Currently, mining operations are taking place on the
approximately 17,270-acre Polk county portion of the mine site. The Polk county
portion of the South Fort Meade mine is fully permitted for mining.
The South Fort Meade mine also has reserves property located immediately south
of the Polk County site in Hardee County. This property is being permitted as an
extension to the existing South Fort Meade mine. Permitting is underway for this
approximately 12,000-acre tract, with permits currently expected to be submitted
in late 2004 or early 2005. Current plans show mining operations beginning in
the Hardee County extension in late 2008. As the Hardee county tract is similar
to the Polk county portion, Mosaic has a high level of assurance that the
permits required for mining the site will be issued. The reserve base, however,
could be affected by permit negotiations and therefore
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could be subject to revision. The South Fort Meade mine, including the Hardee
county extension, will be in operation until sometime in 2018 or 2019, at
currently planned production rates.
Cargill purchased the above ground assets of the South Fort Meade mine,
including the beneficiation plant, rail track and initial clay settling areas. A
limited partnership-the South Ft. Meade Partnership, L.P. (SFMP)-purchased the
land and mineral rights at the South Fort Meade mine. The Cargill Fertilizer
Businesses own additional lands covering approximately 505 acres in Hardee
County that are not owned by the partnership.
SFMP capital was comprised of approximately 35% equity and 65% debt. The Cargill
Fertilizer Businesses own 35% of the SFMP equity with financial investors owning
the remaining 65%. In addition to the equity, several financial investors
purchased $76 million of debt instruments issued by SFMP to fund the acquisition
of the land and mineral reserves. A third entity-South Ft. Meade Land
Management, Inc. (SFMLM)-owns and manages orange groves and other agricultural
assets on the land. SFMLM is a wholly owned subsidiary of Mosaic. SFMLM also has
entered into an agricultural lease with SFMP and pays SFMP rental income for the
land that it uses for agricultural purposes or subleases to local farmers or
ranchers.
Cargill entered into a long-term mineral lease with SFMP, which represents the
only significant phosphate reserves leased by the Cargill Fertilizer Businesses.
This lease expires on December 31, 2025 or such date that the Cargill Fertilizer
Businesses have completed mining and reclamation obligations associated with the
leased property. Lease provisions include royalty payments and a commitment from
the Cargill Fertilizer Businesses to give mining priority to the South Fort
Meade phosphate reserves. The Cargill Fertilizer Businesses pay the partnership
a royalty on each tonne mined and shipped from the South Fort Meade mine, with
the exception of tonnage mined from the U. S. Department of the Interior, Bureau
of Land Management (BLM) leases, for which the Cargill Fertilizer Businesses pay
a royalty directly to the BLM, and tonnage from land owned directly by the
Cargill Fertilizer Businesses, which are currently scheduled to be mined near
the end of the mine life. Since December 1995, total royalties paid to SFMP as a
result of mining at the South Fort Meade mine are approximately $109 million.
Royalty payments to SFMP total approximately $15 million annually at current
production rates. Through its arrangements with the Cargill Fertilizer
Businesses and SFMLM, SFMP earns income from mineral lease payments,
agricultural lease payments and interest income and uses those proceeds to
service debt and pay dividends to its equity owners.
The BLM owns mineral rights to approximately 882 acres at the South Fort Meade
mine. The Cargill Fertilizer Businesses have received mining plan approval
regarding two of the leases in Polk County which total approximately 321 acres.
Two other leases in Hardee County total approximately 561 acres. Royalty
payments on the approved leases equal approximately 5% of the six-month rolling
average mining cost of production when mining in the BLM reserves. The tonnage
is based on phosphate rock recoveries from actual pit take-up surveys and rock
book recoveries. Phosphate rock tonnage produced within the BLM lease area to
date is approximately 654,000 tonnes with a corresponding royalty to date of
approximately $742,000.
In 2003, approximately 779 acres were mined at the South Fort Meade mine. Major
projects currently underway include the construction of a new clay settling area
which is scheduled for completion in late 2004. The Cargill Fertilizer
Businesses acquired an additional 65 cubic yard dragline for use at the South
Fort Meade mine in 2003. This machine is currently being erected on site and
scheduled to begin operation in early 2005 as part of a planned production rate
increase to 5.9 million tonnes per year. Additionally, beneficiation plant and
material handling improvements are being made to facilitate this increased
production rate.
Reclamation of all lands mined after July 1, 1975 and lands used in certain
mining operations after July 1984 are subject to mandatory reclamation
requirements established by the State of Florida. Spending for reclamation at
South Fort Meade totaled $2.5 million in 2003.
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Pioneer
In November 2002, Cargill continued to expand its phosphate presence through the
acquisition of the phosphate assets of Farmland Hydro, L.P. The acquisition
included the processing plants at "Green Bay," Florida (near Bartow) and
approximately 15,000 acres of land in Hardee County. Mosaic currently plans to
construct a new mine-named the Pioneer mine-to develop the reserves acquired in
the Farmland Hydro transaction. The Pioneer mine eventually will replace the
Fort Meade mine.
Prior to Cargill's ownership, the Pioneer site had undergone several periods of
regulatory review as far back as the 1970s. Predecessor owners had originally
permitted the 7,800-acre tract, then known as the Hickory Creek site, in the
mid-1980s for mining, but the prior owners never committed to construct the
mine. In the 1990s, the prior owner let the approvals lapse in favor of a
long-term phosphate rock contract with another Central Florida phosphate rock
producer, which is scheduled to expire in 2005.
The prior owners continued to acquire additional lands located adjacent to the
Hickory Creek site in what is known as the Brushy Creek area. The major activity
on the site during this time period was the development of citrus and
agricultural operations on the land and prospect drilling activities, which
continue by Mosaic today.
In 1997, in anticipation of the expiration of the phosphate rock contract in
2005, the prior owner of the Hickory Creek and Brushy Creek properties
re-initiated additional permitting activity relating to the Hickory Creek and
Brushy Creek sites. In 2002, the prior owner decided to dispose of its Florida
phosphate operations by selling them to Cargill. Upon acquisition of the site,
Cargill determined that the most effective strategy would be to delay further
permitting of the Pioneer mine site and focus on permitting the extension of the
South Fort Meade site. Mosaic intends to continue developing data relative to
the Pioneer mine site and plans to initiate permitting activities in this area
sometime prior to 2008. As the site has well-developed geologic and
environmental data, these reserves are considered to be proven reserves. The
reserve base, however, could be impacted by permit negotiations and the final
configuration of the preserved areas and therefore could be subject to revision
in the future. It is Mosaic's opinion that the site can be permitted in the
future with a sound mining and reclamation plan.
Current capacity of the Green Bay processing facility is 635,000 tonnes of
phosphoric acid and approximately 1.4 million tonnes of finished products. Upon
expiration of the phosphate rock contract in 2005, Mosaic expects to increase
operating rates at the Hookers Prairie mine and expand capacity at the South
Fort Meade mine from 4.6 million tonnes to 5.9 million tonnes in order to meet
rock requirements after the contract expires.
Wingate Creek
In March, 2004, Cargill acquired the phosphate mining assets and reserves in
Manatee County, Florida, formerly operated by Mulberry Phosphates, Inc., from
Nu-Gulf Wingate Holdings, LLC and obtained required permits to recommence mining
operations at Wingate Creek in September 2004. The assets are comprised of a
beneficiation plant, mining equipment and approximately 7,600 acres of land. The
initial 3,100 acre mining tract was permitted in the mid-1970s. Mining commenced
on the site in 1981 and continued intermittently until 1999. Mining at this site
resumed in November 2004. The original permitted mine boundary has approximately
700 acres of remaining unmined property.
The reserves associated with the original permitted footprint of the Wingate
Creek mine are expected to last for approximately five to seven years at
currently planned production rates.
The Wingate Creek site also contains approximately 4,500 acres of land to the
east, which never have been permitted or reviewed for future mining activity.
This future extension is known locally as the
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Texaco Tract. The phosphate materials associated with the Texaco Tract are not
classified as reserves due to the lack of information concerning the
environmental resources on the site. Upon approval of the necessary permits for
the existing mining operation, Mosaic currently plans to begin studies required
for the permitting of the Texaco Tract sometime in 2005. Once the proper studies
are completed and additional information is collected on the site, it is
anticipated that these materials would be able to be categorized as either
proven or probable reserves. Mosaic's current estimate of non-reserve phosphate
materials within the Texaco Tract is 27.8 million tonnes at a 30.2% P2O5 grade.
Employees
U.S. phosphate operations, including SFMLM, employ approximately 1,540 people.
Production and Properties: China
The Cargill Fertilizer Businesses have supplied DAP to China since they entered
the phosphate business in December 1985. Cargill exported from its Florida
operations on average approximately one million tonnes of DAP to China each year
since the mid-1990s. Cargill developed a strong brand identity in China by
offering a high-quality product and on-the-ground service to Chinese customers.
In 2000, Cargill expanded its presence in China by investing in a
state-of-the-art domestic phosphate granulation facility known as Yunnan Three
Circles Sinochem Cargill Fertilizers Co., Ltd. (Yunnan). Yunnan is a joint
venture owned by Cargill Fertilizer, Inc. (35%), Yunnan Three Circles Chemical
Co. (35%), China International Fertilizer Trading Corporation (25%) and Yantai
Municipal Agricultural Means of Production Co. (5%). Yunnan's phosphate
granulation project near Kunming in the Yunnan province in south central China
brings together the technical expertise of Yunnan Three Circles Chemical Co. and
Cargill, the importing and marketing capabilities of China International
Fertilizer Trading Company, the local distribution network of Yantai Municipal
Agricultural Means of Production, and the product quality and brand recognition
of Cargill.
Yunnan commenced production in August 2002, and currently has an annual DAP
production capacity of approximately 600,000 tonnes. The joint venture began
marketing DAP under the Cargill brand in February 2003.
Yunnan produces DAP for shipment to north and northwest China. Phosphoric acid
used in the production of DAP at Yunnan is purchased from Yunnan Three Circles
Chemical Co. Ammonia used in production of DAP is sourced from local producers.
China International Fertilizer Trading Corporation is among Yunnan's largest
customers. Yunnan's operation is limited by access to raw materials and railcar
supply. Improvements, however, are expected in the coming years as local
suppliers increase production capacities.
Crop Nutrition
The Crop Nutrition segment markets fertilizer products and services to
wholesalers, cooperatives, independent retailers and agents and other
agricultural customers that, in turn, market these products and services to
farmers and other end users in North and South America, Europe and Asia. In
South America, the Crop Nutrition segment also markets fertilizer products and
services directly to farmers and end users. The Crop Nutrition segment operates
fertilizer blending and bagging facilities, port terminals and warehouses in
nine countries, and maintains a sales presence in six additional countries. Past
expansions include the acquisition of a joint venture interest in an NPK
production facility in China, and the construction of port and warehouse
facilities in Argentina. Pursuant to a marketing
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agreement, the Crop Nutrition segment also markets exported phosphate products
produced by WMC Fertilizers, Ltd. in Australia. The marketing agreement with WMC
Fertilizers, Ltd. will expire by its terms on December 31, 2004. Mosaic and WMC
have not yet determined whether to enter into any new or renewed marketing
agreement after the expiration of the current agreement. The Crop Nutrition
segment also marketed phosphate products produced by Lifosa A.B. in Lithuania,
however, the parties mutually agreed to terminate the relationship in May 2004.
The principal Crop Nutrition products include straight fertilizers such as
phosphates, nitrogen and potash, as well as blended and NPK fertilizers.
Services include tailored agronomic services as well as the loading, unloading
and storage of fertilizer, grains, meal, salt and coal for both Mosaic
affiliates and third parties.
Net sales to external customers for Crop Nutrition were $231 million, $905
million, $662 million and $571 million for the three months ended August 31,
2004 and for the fiscal years ended May 31, 2004, 2003 and 2002, respectively.
Gross profit for Crop Nutrition was $19 million, $65 million, $58 million and
$53 million for the three months ended August 31, 2004 and for the fiscal years
ended May 31, 2004, 2003 and 2002, respectively.
Total assets for Crop Nutrition were $320 million, $264 million, $201 million
and $215 million at August 31, 2004, May 31, 2004, 2003 and 2002, respectively.
Crop Nutrition employs approximately 751 people.
The following is a description of the principal marketing and distribution
operations and production facilities operated by the Crop Nutrition segment of
the Cargill Fertilizer Businesses.
United States
Since entering into the business in the early 1960s, the U.S. Crop Nutrition
segment has been comprised of a wholesale distribution business that has focused
on providing quality crop nutrients as well as innovative and customized
solutions to its retail dealer customers in the United States. In servicing the
needs of retail dealers, Mosaic owns and operates a network of warehouse
distribution facilities strategically located along or near the Mississippi and
Ohio Rivers as well as in other key geographic regions of the United States.
From its distribution facilities, Mosaic markets each of the three vital plant
nutrients - nitrogen (typically in the form of urea or UAN solution), phosphate
(typically in the form of DAP, MAP, MicroEssentials™ or triple superphosphate
(TSP)) and potash - to dealers who in turn resell the product to U.S. farmers.
In addition to sales of dry and liquid fertilizer products, Mosaic provides
tailored agronomic services to meet the specific needs of retail dealers and
their customers. Mosaic also leverages its distribution network by offering
warehousing and throughput services for third parties.
Distribution facilities owned by the U.S. Crop Nutrition segment include the
Port Cargill fertilizer operations in Savage, Minnesota, with approximately
104,000 tonnes of dry product storage capacity, as well as warehouse
distribution facilities in Pekin, Illinois (storage capacity of approximately
72,000 tonnes), Louisville, Kentucky (storage capacity of approximately 39,000
tonnes) and Houston, Texas (storage capacity of approximately 51,000 tonnes),
which has a deep water berth providing access to the Gulf of Mexico. In
addition, Mosaic is a 50% owner of River Bend Ag, LLC, a wholesale distribution
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joint venture located in New Madrid, Missouri with storage capacity of
approximately 25,000 tonnes for dry products and 22,000 tonnes for liquid
products, respectively. Mosaic also owns a distribution facility in Buffalo,
Iowa.
In addition to the key geographically situated facilities owned by Mosaic, the
U.S. wholesale distribution business also includes leased distribution space or
contractual throughput agreements for dry or liquid storage in California,
Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota,
Nebraska, New York, North Dakota, Ohio, Pennsylvania and Texas.
The Crop Nutrition segment acts as the exclusive marketing agent for phosphate
products sold in the United States by the Phosphate Production segment and for
nitrogen products sold in North America by Saskferco Products, Inc. (Mosaic's
50% owned joint venture which operates an ammonia, urea and UAN solution
facility in Saskatchewan, Canada). Under each arrangement, Crop Nutrition earns
agency fees for sales of the phosphate and nitrogen products.
Crop Nutrition's U.S. operations employ approximately 151 people.
Canada
The Crop Nutrition segment is also the wholesale distribution arm for the Mosaic
fertilizer businesses in Canada. Customers include independent dealers, national
accounts and Cargill "AgHorizons" in Canada, a retail fertilizer business unit
owned by Cargill that was not contributed to Mosaic. The Crop Nutrition segment
in Canada also serves as marketing agent for Saskferco Products, Inc.
Major customers in western Canada are primarily large grain companies with
integrated crop inputs businesses. In eastern Canada, major customers include
the Cargill AgHorizons retail locations in Ontario, which purchase approximately
310,000 tonnes per year, as well as other national accounts in Quebec. In total,
non-Cargill national account sales are approximately 250,000 tonnes per year,
and independent dealer sales are approximately 275,000 tonnes per year.
Crop Nutrition's Canadian operations employ approximately five people.
Argentina
Crop Nutrition's Argentina fertilizer business commenced in 1987, distributing
imported fertilizer using leased warehouse space at the port in Buenos Aires. In
1998, the Cargill Fertilizer Businesses built the Quebracho port facility and
moved their principal operations for the northern half of Argentina to this
location.
Crop Nutrition serves as a sales and marketing agent for the Phosphate
Production segment in Argentina and supplies products and services to national
accounts from the operations of the newly expanded Quebracho port facility and
warehouse. In addition, Crop Nutrition distributes approximately 230,000 tonnes
of nitrogen, phosphate and blended fertilizers to farmers through retail dealers
and sales agents.
Key assets in Argentina include the Quebracho port facility, located near
Rosario on the Parana River, with storage capacity of 120,000 tonnes. Quebracho
put-thru totals roughly 440,000 tonnes per year, of which 160,000 tonnes are for
Cargill retail dealer/sales agent customers and 280,000 tonnes are for national
accounts. Cargill Argentina also leases space at Necochea and Bahia Blanca to
serve customers in the southern region.
Crop Nutrition's operations in Argentina employ approximately 71 people.
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Chile
The Crop Nutrition segment markets bulk blended and straight fertilizer products
to retail dealers in Chile. A small percentage of sales are made directly to
farmers. Sales total approximately 250,000 tonnes per year, or 23% of the 1.1
million tonne market. Straight products such as urea, DAP, MAP and TSP account
for 55% of sales and bulk blends of the Cargill Fertilizer Businesses, tailored
to meet specific soil and crop requirements, make up the rest. Nearly all of the
product is sold in 50 kilogram bags. Most of the nitrogen products are imported
from Argentina and Venezuela. Phosphate products are sourced from the United
States and Mexico. Potash is produced locally.
Key assets include warehouse and bulk blending facilities at Conception Bay and
San Antonio. The Conception Bay facility, built in 1991, mainly serves dealers
in central Chile. Cargill leases warehouse space at the Lirquen port on
Conception Bay where straight materials are imported and bagged. The bulk
blending plant at Conception Bay (also known as Cosmito) includes a 20,000 tonne
warehouse. The San Antonio facility, built in 1997, serves retailers in northern
Chile. Cargill Crop Nutrition also leases a facility at Puerto Montt that
includes a 15,000 tonne warehouse and bulk blender as well as five satellite
warehouses to serve customers in the southern Chile.
Crop Nutrition's operations in Chile employ approximately 54 people.
China
Crop Nutrition has been executing a strategy since the early 1990s to develop a
significant fertilizer presence in the People's Republic of China. Since the
mid-1990s, Cargill developed and expanded its fertilizer distribution businesses
in the world's largest phosphate market, both by growing businesses owned solely
by Cargill, as well as through the formation of alliances with local strategic
Chinese partners who Crop Nutrition believes are well positioned to promote
business growth and service the needs of the Chinese fertilizer market.
Bonded Warehouse Program
Cargill Hong Kong Ltd., an affiliate of Cargill and a portion of whose
operations are part of the Cargill Fertilizer Businesses, began distributing DAP
as an agent for the Phosphate Production segment throughout China in 1990.
Acting as agent, Cargill Hong Kong Ltd. handles 600,000 to 800,000 tonnes of DAP
annually through bonded warehouse programs in China. Over the years, the bonded
warehouse program has become recognized as a premium customer solution offering
to the Chinese fertilizer markets.
Chinese importers, including central agencies, provincial governments and
city-level entities, are able to pull fertilizer products from strategically
located bonded warehouses at Chinese ports. The bonded warehouse program is
attractive to Chinese importers because it permits customers to purchase product
on a just-in-time basis, reducing market risks from both large vessel purchases
and long ocean voyages.
As a customer and quality assurance service, Cargill Hong Kong Ltd. handles and
manages the supply chain deliveries for fertilizer vessels until discharged in
China, and also acts as a bagging, warehousing and dispatch liaison in moving
fertilizer products onto trucks or railcars. Today, the Cargill Fertilizer
Businesses operate bonded warehouses at five ports throughout mainland China.
Since the early 1990s, Cargill built a brand presence in China, which the
Cargill Fertilizer Businesses believe has allowed them to be viewed as a premium
supplier of products in the Chinese market. During the three-year period
following the closing, Mosaic will be permitted to continue to use the Cargill
name on a royalty-free basis. The bonded warehouse program is operated by
employees of the Cargill Fertilizer Businesses from their Hong Kong and Beijing
offices.
The Hong Kong office employs approximately 10 people.
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Tianjin Cargill Fertilizer Co. Ltd.
Tianjin Cargill Fertilizer Co. Ltd. (Tianjin Cargill) is a joint venture formed
in 1996 among Cargill Asia Pacific Limited (52.5%), Cargill Investment (China)
Limited (37.5%) and Tianjin Zhongjia Agricultural Means of Production Limited
Liability Co. (10%).
Tianjin Cargill's bulk blending facility, which was commissioned in 1996,
culminated a two-year effort to develop a market for bulk blends in the region
through a series of field experiments, farmer meetings and other promotional
activities. Located in Tianjin, Tianjin Cargill's bulk blending facility has an
annual capacity of approximately 80,000 tonnes, and primarily uses granular
urea, MAP and potash as raw materials for production.
Tianjin Cargill each year sells approximately 25,000 tonnes of high analysis
blends in the north, 25,000 tonnes in the northeast, and 25,000 tonnes in the
northwest regions of China. Tianjin Cargill also provides agricultural services
to corn, wheat, vegetable and fruit farmers along the Beijing-Tianjin corridor
and in other nearby provinces.
Tianjin Cargill employs approximately 60 people in its fertilizer operations.
Cargill Fertilizer (Yantai) Co. Ltd.
In 2000, Cargill continued its in-country growth strategy when Cargill
Investments (China) Limited formed Cargill Fertilizers (Yantai) Co., Ltd.
(Yantai Cargill). Yantai Cargill owns and operates a 120,000 tonnes per year
bulk blending facility in the port of Yantai, China, which was recently upgraded
in 2004, and represents Cargill's second investment in a bulk blending operation
in China. Yantai Cargill primarily uses granular urea, DAP, MAP, single
superphosphate (SSP) and potash as raw materials to formulate blends tailored to
specific soil and crop requirements.
Yantai Cargill produces and sells bulk blend fertilizers and provides
agricultural services in the Shangdong (approximately 60,000 tonnes) and Fujian
(approximately 10,000 tonnes) provinces of China, with an increasing trend in
volume. Yantai Cargill also acts as a sales agent for other Cargill operations
in China as well as for other foreign owned fertilizer plants. Yantai Cargill's
agency volume is approximately 30,000 tonnes per year.
Yantai Cargill employs approximately 90 people in its fertilizer operations.
Jiangsu Cargill Agricultural Means of Production Co. Ltd.
In 2003, Cargill continued its investment in the interior of China by forming
Jiangsu Cargill Agricultural Means of Production Co. Ltd. (Jiangsu Cargill).
Jiangsu Cargill owns and operates a 170,000 tonne per year NPK compound
fertilizer production facility in the Jiangsu Province of China. Jiangsu Cargill
is a joint venture among Cargill Investments (China) Limited (59%), Cargill Asia
Pacific Limited (1%), Jiangsu Huantai Fertilizers Co., Ltd. (39%) and Jiangsu
Huantai Group Company (1%).
Jiangsu Cargill produces and sells NPK compounds to the seven China provinces
along the Yangtze River and to northern China through other Cargill operations.
There is an increasing trend of consumption of NPK compound fertilizer in China.
Jiangsu Cargill's plant sells its products using both Cargill and Huantai brand
names to cater to different market segments. The plant is located on the banks
of the Yangtze River where the operation is able to ship product using barges
and realize lower transportation costs.
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Jiangsu Cargill uses urea, SSP, MAP, potash and ammonium chloride and other
fertilizers in the production of its NPK compounds. The plant sources most of
the raw materials domestically from local producers.
Jiangsu Cargill employs approximately 200 people in its fertilizer operations.
India
Crop Nutrition serves as the marketing agent for the Phosphate Production
segment in India. Crop Nutrition operates a marine terminal at Rozy, Jamnagar on
the west cost of India and is the wholesale distributor of Cargill brand
fertilizers within the country.
Crop Nutrition serves three customer segments and markets approximately 320,000
tonnes of phosphate products per year in the Indian market. The first customer
segment represents national account customers who typically are large
established fertilizer producers or marketers in India. The second customer
segment is a joint marketing program with Tata Chemicals Limited. Crop Nutrition
jointly distributes fertilizer through the Tata Chemicals' retail network and
under its own brand name. The third customer segment represents in-country
distribution. Crop Nutrition supplies a line of branded fertilizers to farmers
through a network of wholesale and retail distributors in the northern and
western states of India.
In the last two years, fertilizer companies, including Cargill, have faced
challenges in India due to the uncertainty caused by the Indian government's DAP
subsidy policies. Recent policies have nearly closed the door to DAP imports and
favored domestic producers who fabricate DAP from imported raw materials or
intermediate products. As a result, domestic fabrication capacity has more than
doubled during the last five years.
Crop Nutrition's operations in India employ approximately 20 people.
Thailand
Crop Nutrition began distributing fertilizer in Thailand with the opening of a
140,000 tonne warehouse and bulk blending facility at Sriracha in April 1997.
The Sriracha plant, located approximately 60 miles south of Bangkok near the
deep-water port of Siam, operates as a business unit of Mosaic International
(Thailand) Limited, a wholly owned subsidiary of Mosaic. Crop Nutrition produces
and sells approximately 90,000 tonnes of bulk blends and distributes another
50,000 tonnes of straight fertilizers in Thailand each year.
Crop Nutrition markets bulk-blended products, ranging from standard blends to
premium brands, to various segments in the Thai market. Materials for blending
include urea, DAP, potash and ammonium sulphate. These raw materials typically
are imported from Malaysia, Australia and Canada through Crop Nutrition's Hong
Kong office.
Crop Nutrition's operations in Thailand employ approximately 38 people.
Ukraine
Crop Nutrition opened a small bulk blending plant in the Donetsk oblast of the
Ukraine in 1997. In June 2002, Crop Nutrition opened a second bulk blending line
at the Donetsk facility. The expansion nearly doubled the size of the plant,
increasing its capacity from 240 tonnes per day to 440 tonnes per day. The
facility offers a full line of tailor-made blends and also provides important
services such as soil testing and agronomic consulting. Nitrogen, phosphate and
potash raw materials are sourced from producers in Ukraine, Russia and Belarus.
Crop Nutrition's operations in the Ukraine employ approximately 11 people.
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Brazil Fertilizer
The Brazil Fertilizer segment began in 1993 when Cargill Agricola, S.A. (Cargill
Agricola), the former parent company of Mosaic Fertilizantes, S.A. (Mosaic
Fertilizantes), constructed a liquid fertilizer blending plant and warehouse
located at Monte Alto, which remains in operation today. Since the late 1990s,
Cargill expanded its fertilizer presence in Brazil through the acquisition of
majority ownership in Solorrico, S.A. (Solorrico) and Fertiza, S.A. (Fertiza),
as well as by continuing to invest in the construction and development of
additional domestic fertilizer businesses and assets. Today Mosaic Fertilizantes
is the second largest producer and distributor of blended fertilizers for
agricultural use in Brazil. Mosaic's fertilizer operations, together with its
minority investments in Brazilian fertilizer companies, give Mosaic
Fertilizantes a significant presence in the Brazilian fertilizer market.
Net sales to external customers for Brazil Fertilizer were $197 million, $526
million, $383 million and $414 million for the three months ended August 31,
2004 and for the fiscal years ended May 31, 2004, 2003 and 2002, respectively.
Gross profit for Brazil Fertilizer was $30 million, $55 million, $45 million and
$57 million for the three months ended August 31, 2004 and for the fiscal years
ended May 31, 2004, 2003 and 2002, respectively.
Total assets for Brazil Fertilizer were $506 million, $403 million, $351 million
and $410 million at August 31, 2004, May 31, 2004, 2003 and 2002, respectively.
The Brazil Fertilizer segment employs approximately 1,218 people.
Production and Properties
In July 1999, Cargill Agricola acquired approximately a 72% ownership interest
in Solorrico and in October 2000, it acquired approximately an 80% ownership
interest in Fertiza. Solorrico and Fertiza were two Brazilian fertilizer
businesses that actively operated in the Brazilian market since the 1950s. In
November 2001, Cargill Agricola merged Fertiza into Solorrico and changed the
surviving entity's name to Cargill Fertilizantes, S.A., which was the trade name
under which the combined businesses operated until completion of the Cargill
transactions. After this merger, Cargill Agricola from time to time acquired
additional outstanding shares of Cargill Fertilizantes, with the remaining
outstanding shares acquired by Cargill Agricola in September 2003, making Mosaic
Fertilizantes a wholly owned subsidiary of Cargill Agricola.
Through these acquisitions, Cargill acquired controlling interest in significant
fertilizer producers and distributors in central and southern Brazil. Today,
Mosaic Fertilizantes operates two large bulk blending plants in Cubatao and
Uberaba, a single superphosphate plant, an NPK plant and a feed phosphate plant
in Cubatao, and distributed approximately 2.4 million tonnes of fertilizer in
Brazil, accounting for 10.5% of the 22.8 million tonne market in calendar year
2003.
Cargill's acquisition of Fertiza in 2000 also included Fertiza's 62.05%
ownership interest in Fospar, S.A. (Fospar) and a 45% ownership interest in IFC,
S.A. (IFC). Fospar operates two major assets located in Paranagua, including a
single superphosphate granulation plant, which was upgraded by Fospar in 2003,
and a deep-water fertilizer import and throughput warehouse terminal facility,
both serving the state of Parana and the Cerrados Region. IFC's operations
include a blending and storage facility in Cubatao, supporting the sale of
fertilizer products in Sao Paulo, Mato Grosso and Mato Grosso de Sul states.
Since acquiring Fertiza in 2000, Mosaic Fertilizantes (including Fospar) has
invested through May 2004 approximately $52 million in improving facilities,
adding blenders and upgrading production capacity.
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The Solorrico and Fertiza acquisitions collectively provided Cargill with an
approximate one-third ownership interest in Fertifos, S.A. (Fertifos), a
Brazilian holding company that controls (i) 55.63% of Fosfertil, S.A.
(Fosfertil) the largest domestic phosphate based fertilizer manufacturer which
operates a phosphate rock mine and phosphate processing facility, and (ii)
Ultrafertil, S.A. (Ultrafertil), a significant domestic nitrogen company wholly
owned by Fosfertil which operates two nitrogen plants and a modern port facility
at Santos as well as a phosphate rock mine and two smaller phosphate processing
facilities. In addition to its equity ownership in Fosfertil, Mosaic
Fertilizantes also has an off-take agreement whereby it agrees to purchase
approximately 249,000 tonnes of phosphates and 118,000 tonnes of nitrogen from
Fosfertil each year for use by Mosaic Fertilizantes in its Brazilian
bulk-blending operations.
The diagram below illustrates the current ownership structure of Mosaic's
Brazilian fertilizer business:
[[Image Removed: LOGO]]
Saskferco
The Saskferco segment represents Mosaic's 50% ownership interest in Saskferco
Products, Inc., a world-scale and energy-efficient Saskatchewan based nitrogen
joint venture. The remaining 50% ownership interest in Saskferco is owned by
Investment Saskatchewan, Inc. (49%) and Citibank Canada (1%).
Net sales for Saskferco were $79 million, $222 million, $196 million and $173
million for the three months ended August 31, 2004 and for the fiscal years
ended May 31, 2004, 2003 and 2002, respectively.
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Equity in net earnings of Saskferco was $3 million, $12 million, $7 million and
$0.2 million for the three months ended August 31, 2004 and for the fiscal years
ended May 31, 2004, 2003 and 2002, respectively.
Total assets of Saskferco were $407 million, $386 million, $388 million and $383
million at August 31, 2004, May 31, 2004, 2003 and 2002, respectively.
Principal Products
The principal products of the Saskferco segment include the following:
Anhydrous Ammonia. Anhydrous ammonia is a high analysis nitrogen product that
is used both as a direct application fertilizer mostly in North America as well
as the building block for most other nitrogen products, such as urea. Ammonia, a
gas at normal temperatures and pressures, is stored and transported as a liquid
either under pressure or in refrigerated vessels. Farmers inject ammonia into
the soil as a gas. Ammonia is a low cost source of nitrogen in markets with
well-developed distribution infrastructures and specialized application
equipment. For example, underground pipelines connect plants in the southern
United States to terminals in the Corn Belt. The 82% nitrogen content of
anhydrous ammonia more than offsets the higher costs of storage, transportation
and application in areas near production facilities or distribution terminals.
Rapidly escalating costs for regulatory compliance and liability insurance have
diminished the advantage of ammonia over other nitrogen products during the past
few years in North America.
Urea and Feed Grade Urea. Solid urea is the most widely used nitrogen product
in the world. Urea solution first is produced by reacting anhydrous ammonia with
carbon dioxide (CO2) at high pressure. Solid urea then is formed using standard
prill-tower or granulation processes. Granular urea is larger and harder than
prilled urea and often is physically mixed with phosphate and potash products to
make blends that meet specific soil and crop requirements. Saskferco produces
high quality fertilizer grade granular urea and beginning in November 2003, a
feed grade urea marketed under the MicroGran™ brand.
Urea Ammonium Nitrate (UAN) Solution. UAN solution is the most widely used
liquid fertilizer worldwide. UAN solution is produced by combining urea
solution, ammonium nitrate solution and water. It contains between 28% and 32%
nitrogen. UAN solution is an ideal fertilizer for no-till or reduced tillage
operations as well as for some irrigation systems. UAN solution also provides an
excellent medium for the uniform application of many secondary and
micronutrients. The distribution of UAN solution requires specialized
infrastructure and equipment for the storage, transportation and application of
liquid product.
Production and Properties
Saskferco's nitrogen plant, located near Belle Plaine, Saskatchewan, has the
capacity to produce approximately 1,860 tonnes of anhydrous ammonia, 2,850
tonnes of granular urea solution, and 650 tonnes of UAN liquid fertilizer
solution per day. Saskferco produces granular urea, 28% UAN solution and
anhydrous ammonia for nitrogen fertilizer customers primarily in western Canada
and the northern tier of the United States. Saskferco's plant was commissioned
in August 1992 and began commercial operations in October 1992. Saskferco
invested CAN $47 million to expand and improve production effectiveness at its
production plant in 1997. Mosaic is the exclusive marketing agent for
Saskferco's products.
The growth in nitrogen demand in western Canada and northern tier states of the
U.S. since 1992 has enabled Saskferco to market an increasing share of its
output into core markets that are located
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within a few hundred miles of the facility. Saskferco built an 80,000 tonne urea
warehouse at Carman, Manitoba in 2001 to better serve customers in its core
market. The facility provides next-day delivery of granular urea to customers in
Manitoba, North Dakota and the Red River Valley of Minnesota. Saskferco has a
120,000 tonne urea warehouse and a 20,000 tonne anhydrous ammonia tank at Belle
Plaine.
Saskferco employs approximately 140 people at its operations in Belle Plaine and
corporate headquarters in Regina, Saskatchewan.
Seasonality
Sales of fertilizer products by the Cargill Fertilizer Businesses to
agricultural customers are typically seasonal in nature and usually result in
the Cargill Fertilizer Businesses' generating a greater amount of net sales and
operating income in the spring. However, quarterly results can vary
significantly from one year to the next due primarily to weather-related shifts
in planting schedules and purchasing patterns, as well as the relationship
between natural gas and nitrogen product prices. In addition, the seasonal
nature of the Cargill Fertilizer Businesses requires significant working capital
for inventory in advance of the spring planting season.
Competition
Because fertilizers are global commodities available from numerous sources,
fertilizer companies compete primarily on the basis of delivered price. Other
competitive factors include product quality, customer service, plant efficiency
and availability of product. As a result, markets for our products are highly
competitive. The Cargill Fertilizer Businesses compete with a broad range of
domestic and international producers, including farmer cooperatives,
subsidiaries of larger companies, integrated energy companies, and independent
fertilizer companies. Foreign competitors often have access to cheaper raw
materials or are owned or subsidized by their governments and, as a result, may
have cost advantages over domestic companies. Additionally, foreign competitors
are frequently motivated by non-market factors such as the need for hard
currency.
Compliance with Environmental Regulations
The operations of the Cargill Fertilizer Businesses are subject to foreign,
federal, state and local laws and regulations pertaining to the environment,
among which are the Clean Air Act, the Clean Water Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), the Toxic Substances Control Act, and
various other foreign, federal and state statutes. Liability under these laws
involves inherent uncertainties. Violations of environmental, health and safety
laws are subject to civil, and, in some cases, criminal sanctions. Additionally,
the facilities operated by the Cargill Fertilizer Businesses require operating
permits that are subject to review by governmental agencies.
The Cargill Fertilizer Businesses have received notices from governmental
agencies alleging that we are a potentially responsible party at certain sites
under CERCLA or other environmental cleanup laws. The Cargill Fertilizer
Businesses are aware of additional sites for which we may receive such notices
in the future. Some of these sites may require the Cargill Fertilizer Businesses
to expend significant amounts for cleanup costs. The remedial liability relating
to these sites is not expected to have a material adverse effect on the
business, financial condition or results of operations of the Cargill Fertilizer
Businesses. As more information is obtained regarding these sites and the
potentially responsible parties involved, this expectation could change.
Continued government and public emphasis on environmental issues can be expected
to result in increased future investments for environmental controls at ongoing
operations, which will be charged
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against income from future operations. Present and future environmental laws and
regulations applicable to the operations of the Cargill Fertilizer Businesses
may require substantial capital expenditures and may have a material adverse
effect on our business, financial condition and results of operations.
The Cargill Fertilizer Businesses hold numerous governmental environmental,
mining and other permits and approvals authorizing operations at many of our
facilities. A decision by a government agency to deny or delay issuing a new or
renewed permit or approval, or to revoke or substantially modify an existing
permit or approval, could have a material adverse effect on the ability of the
Cargill Fertilizer Businesses to continue operations at the affected facility.
Any future expansion of existing operations of the Cargill Fertilizer Businesses
also is predicated upon securing the necessary environmental or other permits or
approvals.
Over the next several years, the Cargill Fertilizer Businesses will be
continuing efforts to obtain permits in support of anticipated Florida mining
operations at certain properties. These properties contain significant phosphate
rock reserves. In Florida, local community participation has become an important
factor in the permitting process for mining companies. A denial of these permits
or the issuance of permits with cost-prohibitive conditions would prevent the
Cargill Fertilizer Businesses from mining at these properties and thereby have a
material adverse effect on the business, financial condition and results of
operations of the Cargill Fertilizer Businesses.
In many cases, as a condition to procuring such permits and approvals, the
Cargill Fertilizer Businesses are required to comply with financial assurance
regulatory requirements. The purpose of these requirements is to assure the
government that sufficient company funds will be available for the ultimate
closure, post-closure care and/or reclamation of the facilities of the Cargill
Fertilizer Businesses. The Cargill Fertilizer Businesses currently satisfy these
financial assurance requirements without the need for any material expenditure
of corporate funds through issuance of a financial assurance letter and
guarantee from Mosaic. The regulations governing financial assurance in Florida
are currently in the rulemaking process and there can be no guarantee that
Mosaic will comply with such regulations in the future.
Financial Information About Foreign and Domestic Sales and Operations
The amount of revenue attributable to the sales by the Cargill Fertilizer
Businesses to foreign and domestic markets over the last three fiscal years and
the carrying value of the foreign and domestic assets of the Cargill Fertilizer
Businesses is set forth under Note 13 "Segment Information" contained in the
Notes to Consolidated Financial Statements beginning on page F-23 of this
prospectus.
Legal Proceedings
In December 2003, the Mulberry and Bartow Phosphate Production facilities in
Florida were inspected by the United States Environmental Protection Agency
(USEPA). Since the inspection, USEPA has requested additional information, under
RCRA Section 3007, regarding the hazardous waste handling practices at each
facility. Both facilities have provided detailed answers to those requests.
Additionally, USEPA has provided an inspection report identifying certain
potential violations at the Mulberry facility. USEPA has not provided an
inspection report for the Bartow facility at this time. An official with the
Florida Department of Environmental Protection has informally advised the
Cargill Fertilizer Businesses that it was likely that USEPA would initiate a
regulatory enforcement action against the Cargill Fertilizer Businesses for
certain aspects of the facilities' hazardous waste handling practices.
Typically, these types of actions can result in a required modification of the
Cargill Fertilizer Businesses' waste handling procedures, the imposition of
monetary penalties, or both.
During Hurricane Frances, Mosaic's Riverview facility experienced a sudden
release of approximately 65 million gallons of partially treated process water
from its phosphogypsum stack. This
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release, which was caused in part by heavy rain and winds, ultimately flowed
into Hillsborough Bay. The Florida Department of Environmental Protection,
referred to as FDEP, has stated that it intends to impose fines through civil
enforcement actions for the release. Mosaic intends to assert any defenses that
it may have to civil enforcement and to claims for restoration of resources and
does not expect these costs to have a material effect on the business, assets,
operations, or financial condition of Mosaic.
During Hurricane Jeanne, the Bartow and Mulberry facilities experienced process
water releases. Similarly, excessive rain and loss of electric power to pumps
during Hurricane Jeanne allowed water in the toe ditch at the base of the south
phosphogypsum stack at the Mulberry facility to flow onto the adjacent road and
to an adjacent low-lying area. An unknown amount of contaminated storm water
runoff flowed toward Skin Sapling Creek but did not enter the creek. FDEP may
also seek civil penalties for these releases at Bartow and/or Mulberry. Mosaic
intends to assert all available defenses against such enforcement does not
currently expect these penalties to have a material effect on the business,
assets, operations, or financial condition of Mosaic.
On September 23, 2004, a Class Action Complaint and Demand for Jury Trial,
referred to as the Complaint, was filed against Cargill in the Circuit Court of
the Thirteenth Judicial Circuit for Hillsborough County, Florida. The Complaint,
which arises out of the release of process water from the Riverview facility,
contains four counts: Chapter 376.313 (i.e., statutory strict liability); common
law strict liability; common law public nuisance; and negligence. The strict
liability counts relate to the discharge of pollutants or hazardous substances.
Plaintiffs seek class certification and an award of damages, attorneys' fees and
costs on behalf of a class of unknown size comprising "all fishermen and those
persons engaged in the commercial catch and sale of fish, bait, and related
products in the Tampa Bay area who lost income and suffered damages because of
the pollution, contamination and discharge of hazardous substances by the
defendant Cargill." On October 18, 2004, Cargill responded to the Complaint by
filing a Motion for Summary Judgment or, in the alternative, to Dismiss on the
basis that plaintiffs had improperly named Cargill which neither owned nor
operated the subject facility, as a defendant. On the same day, Cargill was
served with an Amended Class Complaint and Demand for Jury Trial, referred to as
the Amended Complaint, by plaintiffs' counsel. Mosaic has not currently been
named in the lawsuit even though it owns and operates the Riverview facility. It
is possible that plaintiffs may eventually name Mosaic in the action or that
some neighbors, property owners or civic groups may pursue litigation against
Mosaic if material damage from the Riverview release is found to have occurred
to the environment. Mosaic believes that it would have substantial defenses to
any such claims and intends to vigorously defend against any actions that might
be filed.
The Cubatao Public Prosecution Office (Brazil), jointly with OIKOS - UNIO DOS
DEFENSORES DA TERRA (Defenders of the Earth Union), filed a suit on January 15,
1986 against several companies, including a facility operated by the Cargill
Fertilizer Businesses in the Cubatao valley in Brazil. The plaintiffs sought
redress for the companies' alleged continuous discharge of pollutants into the
atmosphere, which they assert would have caused, among other damage, degradation
and the perishing of a considerable part of the vegetation cover in the slopes
of the Serra do Mar mountain range. Review of this matter by a court-appointed
expert panel is pending with no set deadline.
The State of Paran Public Prosecution Service has prepared penal charges against
Fospar and former directors and employees of Fospar on April 10, 2003, alleging
that they caused pollution by allowing rainwater to discharge solid residues of
phosphatic rock from an outdoor storage area through a rainwater drainpipe into
a mangrove area, thus causing contamination to an environmentally protected
area. The alleged acts occurred in January 1999, prior to the Cargill Fertilizer
Businesses' acquisition of its interest in Fospar through the Fertiza
acquisition which occurred in October 2000. Although it has been named in the
charges, Fospar has not received a citation to date and is therefore not yet an
official party to the proceeding. The Cargill Fertilizer Businesses are
continuing to evaluate the matter.
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On January 30, 2004, a lawsuit was filed in the Court of Chancery for New Castle
County in Wilmington, Delaware by a common stockholder of IMC on behalf of a
purported class of all stockholders of IMC. Named as defendants in the complaint
are IMC, all members of IMC's board of directors and Cargill. The plaintiff
alleges, among other things, that the individual defendants breached their
fiduciary duties of care and loyalty to IMC's common stockholders by, among
other things, failing to conduct an auction or otherwise checking the market
value of IMC before voting to approve the merger and contribution agreement, and
that the merger consideration to be received by the IMC common stockholders is
inadequate because, among other things, it is less than the "intrinsic value" of
the IMC common stock and it does not offer a premium to the IMC common
stockholders. The lawsuit seeks, among other things, to enjoin or rescind the
Cargill transactions or, alternatively, to recover unspecified damages and
costs. The defendants have secured an extension of the time to answer or
otherwise plead to the complaint.
On February 24, 2004, a second lawsuit, similar to the lawsuit described above,
was filed in the Court of Chancery for New Castle County in Wilmington,
Delaware. On March 17, 2004, the Court of Chancery consolidated these two
lawsuits and named the complaint in the lawsuit described in the previous
paragraph as the operative complaint for the consolidated lawsuit.
On August 20, 2004, the parties reached an agreement in principle to settle the
class action litigation and subsequently executed definitive settlement
documents which have been filed with, and are subject to the approval of, the
Delaware Court of Chancery.
An action was brought against Fospar, S.A. and the Brazilian Institute for the
Environment and Renewable Natural Resources ("IBAMA") by the Parana Public
Prosecution Service in August 1999 seeking to cause Fospar to suspend any work
or activities that might result in full or partial elimination of a mangrove
swamp in the area of a proposed maritime terminal and bulk pier. The action also
sought to void the existing environmental licenses and authorizations and sought
redress of environmental damage. The court initially granted injunctive relief;
however, the injunction was later cancelled. A second action was subsequently
brought by the Parana Public Prosecution Service in October 1999 against Fospar
and IBAMA seeking to enjoin Fospar from carrying out any work or activities
relating to dredging or intervention in the marine ecosystem that could cause an
adverse environmental impact on the estuary, and to void all environmental
licenses and authorizations issued for the company in relation to the setup of
the proposed maritime terminal and bulk pier. It also sought redress of
environmental damage. No injunctive relief was granted because of the status of
the first case filed in August.
Shortly after the cases were filed in 1999, a federal judge ordered an expert
environmental investigation relating to both cases. The results of the
investigation were issued in October 2003 and were favorable to Fospar. Fospar,
therefore, expected a favorable result in both cases because, in addition to the
favorable results of the expert investigation, the injunctive relief had been
cancelled and the maritime terminal and bulk pier had been constructed in
compliance with applicable laws, licenses, and authorizations and had commenced
operations in February 2001.
In July 2004, the federal court issued a consolidated ruling unfavorable to the
defendants, including Fospar, finding that the request for canceling the
licenses and authorizations was partially valid. Fospar and IBAMA were ordered
to jointly pay R$22,800 (approximately US$7,600) plus monetary correction of
Brazilian currency and 6% interest from the date of the alleged violation.
Additionally, Fospar was ordered to pay two percent of its annual revenues for
the five year period of 2000-2004. If upheld, Fospar estimates the liability
could range from approximately US$742,000 to US$1,091,000. Fospar is appealing
the monetary aspects of the ruling and the Public Prosecution Service has filed
an appeal requesting that the maritime terminal and bulk pier built within the
mangrove area be torn down and that the licenses and authorizations previously
issued be cancelled.
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