The Mosaic Company (MOS) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us today at the first of 4 company-hosted presentations. Each of these chapters was created to provide you with better insight into our strategy and operational focus areas. When complete, we hope that you have a clear understanding about Mosaic's path forward, including the actions we will take to drive superior shareholder value. Before we begin, please review the safe harbor and familiarize yourself with our conference capabilities, especially the Q&A box on your screen. You may enter questions at any time and we will address them at the end of the presentation. It was 5 years ago that I was appointed CEO of Mosaic. Since then, we have made exceptional progress by establishing transformational performance expectations across the enterprise that have significantly improved Mosaic's competitiveness. Operating costs are down, and productivity is up. Our functions have become more efficient and better aligned to the needs of the business. Our financial foundation has strengthened. We have expanded and fortified our position in key agricultural regions around the world, and we have stayed true to our mission, which is to help the world grow the food it needs in ways that recognize and embrace our social responsibilities. We have proven year after year that we are capable of driving operational and financial improvements that have the potential to deliver long-term positive outcomes for our shareholders. These improvements are the direct result of a unified leadership team and the efforts of over 13,000 employees that are focused on organizational-wide strategic priorities. I'm sure many of you have already familiar with our 6 strategic priorities, which we refreshed and introduced earlier this year. These priorities are built under a value-first framework that enables us to deliver the next step change in performance needed over the next 5 years. In short, my goal is to run the business in a way that balances the short-term needs of our stakeholders with our ability to deliver the value they expect over the long term. Now one note before we move on, what you don't see called out specifically under any one priority is technology and innovation. That's because you'll see these used as accelerators or enablers where appropriate across the entire organization. Which brings us back to today and the series of strategic chapters we have scheduled for the months ahead. We will be taking a deeper look into 2 of our strategies today, the North American transformation and our drive for functional efficiency and collaboration. Earlier this year, we announced our intent to combine the company's potash and phosphate operations under one management team, which became effective April 1. This week, we shared our plans to further integrate and transform our North American business by bringing all customer-facing roles into the business in a way that mirrors our very successful setup in Brazil. So we won't be discussing these changes in detail today, but you can expect to hear additional details during our Q3 earnings call in November. Instead, what I want you to focus on today is $500 million. This is the EBITDA growth we expect to generate annually over the next 5 years using 2019 as a base year from the North American transformational initiatives, Karen and Bruce will discuss today. In November, we'll focus on Mosaic Fertilizantes and our South American growth engine strategic priority. Here, you will hear details about the additional $200 million we expect to generate from that business per year over the next 5 years. In December, we'll shift to sustainability in our act responsibly and grow and strengthen our product portfolio strategic priorities. We'll talk about our product portfolio, highlighting our performance products and the 13 new ESG targets we rolled out this summer. In each of these presentations, we will cover how we expect to reach our updated 2023 targets. And in the final chapter, we will address our optimized operating assets and capital management priority. By reviewing the combined financial implications based on where we were at the end of fiscal 2020. So let's shift and take a look at these updated targets, which were built upon the targets we established in 2019 with 2 key modifications. First, in phosphates, we've modified our cash cost of conversions to show ARO cash spending separately. This shift will give you more transparency into the cost and drivers as we move forward. And secondly, we are expanding our prior MicroEssentials target to include more of our performance products, including Susterra, which is a new product we announced 2 weeks ago. We are committed to helping the world grow the food it needs in a sustainable way through improvements in soil health and increased yield. The 2023 performance product targets include MicroEssentials plus other products. We'll talk more about these in our December strategic priorities session. In addition, we've included updated targets for Mosaic Fertilizantes as well as SG&A. In our November session on Mosaic Fertilizantes, you will hear more about our plans to meet these targets along with the adjusted EBITDA impact that they bring with them. Then, during our wrap up session next February, we'll provide additional insight into SG&A. This target reflects our belief that we can continue to offset growth and technology investments as well as inflation and minimally hold SG&A flat for the next 3 years. Altogether, we believe these targets reflect our drive to continuously improve Mosaic's cost position while positioning us to improve margins across the fertilizer segment. Setting aggressive targets and driving cost improvements is not new to Mosaic. Over the past 5 years, we have paired transformational thinking with formal transformation processes to everything we do. We view transformation as a systematic approach to identifying, planning and tracking operational improvements. We leverage the knowledge and innovation we have with the organization to drive continuous improvement with minimal capital investment. The savings can be seen in maintenance costs, contractor expenses and increasing recovery rates across the business, and we maintain robust internal protocols to validate our savings. Collectively, this work has already generated an impressive $1 billion in improvements over the last 5 years throughout our global businesses. These efforts have proven that transformation is more than a buzzword. At Mosaic, it is real. It is adding tremendous value, and it is here to stay. One last point before we shift the conversation to our 2 North American-focused strategic priorities today. As one of the largest fertilizer producers, Mosaic's earnings are impacted by market conditions. And while we will provide more color on our current markets during our earnings call, I want to briefly address and set aside one frequently expressed market concern. The recent New Orleans price increase for phosphates have not made fertilizer unaffordable to the U.S. farmer. We expect strong fall and spring demand in North America. In fact, the overall cost of fertilizer for an acre of corn or an acre of beans is down compared to the last 2 fall seasons. In addition, we've seen material price increases for corn and for beans, boosting expected farmer revenues from their 2021 harvest. This is the crop, farmers are fertilizing for this month -- this fall. Prices for 2020 have also increased. And combined with government payments, U.S. net farm income is forecast to hit $102.7 billion in 2020, up $19 billion from 2019 according to the most recent projection from the U.S. Department of Agriculture's Economic Research Service. With that, I'd like to pass the meeting over to Karen Swager, our Senior Vice President of Supply Chain. Karen will take a deeper look at a number of initiatives under our drive functional collaboration and efficiency strategic priority. The benefit of these actions support our cost targets, and they enhance our delivered cost-curve positioning through lower transportation costs, better netback optimization and improved raw material sourcing. Karen?

Thank you, Joc, and good morning, everyone. Our drive functional collaboration and efficiency strategic priority sets an important tone at Mosaic, which is that our functions are here to serve the business and that they are a critical enabler of both operational and financial success. This priority covers many areas at Mosaic. But for today, I'll focus on our key initiatives that are aligned to and very closely connected with our North America transformation, which includes supply chain optimization and the creation of a North America Shared Services Centers. This combined opportunity in these 2 initiatives is over $100 million in annual benefits by 2023. About half of the benefits are embedded in the 2023 business unit and SG&A cost targets. The remaining benefit will improve our delevered cost position and our ability to optimize netback prices. Let's start with the supply chain. Over the past 5 months, I have spent significant time learning more about supply chain, and I'm impressed by what I've seen. The team is talented, highly engaged and focused on what counts, keeping our operations running smoothly, effectively and safely. As you can see on the screen, Mosaic's North American supply chain, which include shipments of K-Mag and phosphates to international destinations, is equivalent to a stand-alone company. It is the critical connection point for raw materials coming into our operations. And on the flip side, it completes the mine-to-market delivery of Mosaic's finished products. These supply chain operations represent over $1 billion in annual expenditures, which are reported in rate, raw material costs and other components of COGS. I am also responsible for our procurement organization, including raw materials, which accounts for an additional $2.7 billion in annual spend. Each of these areas also has additional transformative opportunities beyond what we'll discuss today. Looking deeper at supply chain. The focus here is to build on the progress we've made and take actions that continue to improve an already efficient operations. Innovative digital solutions will play a central role as we move forward. However, I believe the real value comes when we partner people with technology in ways that best serve our internal and external customers. This approach to supply chain optimization has 3 phases: The first phase is to create increased visibility across every reasonable step in the process using IoT-enabled assets. Here, we are adapting proven in-place technologies to connect the unconnected, which will allow us to view and monitor performance across the system. You can see 3 examples of projects underway during this phase on your screen. Second, we will use the data, analytics and insight from Phase 1 to further optimize our transportation assets and to make decisions that improve our short-term agility and long-term cost structure. And finally, the third phase is full integration and where possible, automation. At the end of the 3 phases, we expect our supply chain operations to be fully integrated with visibility across all aspects of the network from a centralized control center. The benefits to Mosaic are significant. We expect to improve efficiency, reduce both cost and risk, and better serve our operations and our customers through better insight and decision-making. What's important to note here is that the project is self-funding from 2021 on with investments made from operating expenses, not capital. This vision for supply chain is unique to Mosaic. In fact, you'll hear more about how we are applying the same strategic thought process across the enterprise as we move through each of the presentation chapters with you in the coming months. A second key initiative under our drive functional collaboration and efficiency strategic priority is the creation of a shared services center, or SSC for short, in North America. Using our successful Brazilian solution center as a model, we believe a dual-center environment can deliver substantial value for Mosaic. The SSC will consolidate our North America functional service centers into a single organization with unified governance clearly defined service level commitments and an established methodology for continuous improvement. It will provide an aligned service support platform between North and South America, that gives Mosaic flexibility to deliver services efficiently and effectively; a scalable platform to support future business growth; improved service levels through a combination of automated processes and well-trained, highly-capable professionals; and a lower cost service delivery model. The SSC will begin operations late this year and should be complete by mid-2021. As I said earlier, we have many additional opportunities in play to improve the efficiency of our functions beyond what I've highlighted today, including several projects in our procurement organization, such as better leveraging our global spend, revisiting our energy strategy and leveraging technology to improve contractor management. But to keep our eye on the time together today, we'll shift to our next strategic priority, North America transformation with Bruce Bodine. Bruce, over to you.

Thanks, Karen. Our North America business unit was formed earlier this year with the merger and integration of our potash and phosphate businesses, and includes our 3 potash mines in Saskatchewan, Canada; our phosphate mines and conversion plants in Central Florida; our Louisiana operations; and our Peruvian phosphate mine. We also have a facility in Carlsbad, New Mexico that produces K-Mag, one of our performance products. The integration is expected to generate approximately $30 million in annual savings by 2022, and is included in our assessment of controllable EBITDA growth. Aside from integration, EBITDA growth is expected to come from 2 additional primary sources: traditional transformation initiatives and our NextGen technology projects. First off, I'd like to distinguish between 2 very different kinds of initiatives we have as a company. We have continuous and evolutionary shifts to our operations that have succeeded in making real impacts to our cost structure. Our transformation work in North America integration are good examples of this. As Joc touched on, transformation is a systematic approach to identifying, planning and tracking operational progress. We leverage the talent we have within the organization to drive continuous improvement at various levels across our operations and address all buckets of controllable spending. Today, our business has over 700 improvement initiatives underway. In addition to the integration benefits previously mentioned, these transformational projects are expected to add over $105 million in EBITDA per year by 2023, with only marginal incremental investment. We have only to look at the work done in Mosaic Fertilizantes to know that our team excels at this sort of ground-up approach to value capture, and it's no different in North America. In addition to these evolutionary changes, we have revolutionary projects that are dramatically changing the landscape of our business. K3 and NextGen fall into this bucket. NextGen reflects technology-driven changes that will revolutionize how we operate. So they require investment. By 2023, these initiatives are expected to drive over $95 million in annual EBITDA benefits, all for a cumulative investment of around $75 million across the North America business unit. As you can see, that's a payback period of just under 1 year. For the remainder of my presentation, I'm going to cover each business segment separately. Combined with Karen's 2 initiatives, we expect to deliver $480 million of EBITDA growth in 2023 from our 2019 base. Let's start with our Potash business. We are targeting slightly below $50 per tonne cash cost in 2023 based on the elimination of brine management spending at Esterhazy, asset optimization for the shifting of production from Colonsay to our low-cost Esterhazy and Belle Plaine facilities. And finally, employing new technology in our operations. Productivity will increase from 2019 to 2023 by 70% due to shifting production to lower cost facilities and the benefits of the various improvement initiatives. It is worth noting that capacity reductions through asset optimization have largely been replaced as expansion capacity comes online. On the new technology front, increased use of autonomous miners has allowed improvements like mining higher ore grade. Another benefit is increased minor utilization, eliminating dead time during shift changes and breaks. We've improved safety by taking employees away from the mining phase, resulting in needing less people, but ones who are more highly skilled. Combined, these initiatives are detected to generate $225 million in EBITDA in 2023 and require total capital spending in the 3 years shown from 2021 through 2023 of $345 million, $325 million of which is for the K3 project. There's expected capital spending to complete the K3 infrastructure after we've shifted all mining over to the K3 shafts in 2022. Of course, one of our biggest revolutionary projects our company has seen is K3. K3 is truly a mine of the future. The efficiencies and innovation we're incorporating into K3 have never been seen in a potash mine before, dramatically increasing efficiency and have contributed to our accelerated time line. When we announced our time line in 2018, we expect it to be fully operational at the end of 2023. However, today's time line, which has been accelerated, has K3 fully operational by mid-2022. In 2021, we will have reduced cash brine cost to under $55 million a year, by focusing on pumping and eliminating preventative maintenance, down from the $85 million we previously communicated. As a reminder, brine management costs peaked at over $180 million a year in 2013 and will be completely eliminated in 2023. We continue to make progress on the K3 project time line. In fact, 2 weeks ago, we hit an exciting milestone when we finished our South Shaft headframe a few days earlier than planned. We have executed this almost decade-long project on target and ahead of schedule. As you know, these types of megaprojects are incredibly complex and come with a lot of uncertainty. Being so close to completion, significantly ahead of schedule is a big accomplishment for the team. K3 will shift our cost position and change the risk profile of the Potash business, making Esterhazy, the lowest cost potash mine in North America. While we often discuss our cash cost per tonne as a significant target, sales and volumes are drivers of that metric. So it's important to look at some of the gains we've made in controlling these costs regardless of external market conditions. This depiction is intended to give you a better sense of our overall cost structure and to aid you in making your own projections based on your volume assumptions. If you take away the impact of price and volume, our success in changing our cost structure is clearly visible. Next, let's shift to the Phosphate business. For the phosphate business, we've laid out targets related to both mining and conversion costs. In mining, we're continuing to focus on our cash cost of Florida mined rock. But we are also improving the EBITDA generated from our Miski Mayo mine. By 2023, we expect to have added an incremental $75 million in annual EBITDA across our Florida and Peruvian mining assets. Our targeted cash cost of Florida rock in 2023 is $34 per tonne, driven by both transformational benefits and NextGen initiatives. Over the next few years, will be investing in expanding South Fort Meade mine reserves. We found quality adjacent reserves that will significantly extend the life of this facility, acquiring and mining these reserves at substantially higher returns than permitting and developing a greenfield mine and beneficiation plant further south in Florida. Today, a greenfield project is estimated to cost well over $1 billion. I'd now like to share with you one of the major technological advances that NextGen has allowed for a phosphate mining operations. The first phase of our NextGen mining work is an integrated operation center, or IOC, located at our Fish Hawk, Florida office. The IOC will be fully built out and operational by the end of the year, and will be serving as mining operations mission control. It will help us make database, proactive decisions in as real-time as possible, allowing our team to work safer, be more efficient and create the greatest possible overall value. You can see an architectural rendering on the slide here. The monitors shown are used to measure dragline effectiveness. The chairs are remote operation stations for our pit operators, the crew that blast up the matrix or the dragline so that it can be piped to the beneficiation plant. The next phase will include operator stations for our remote dozers. Development of the IOC will limit significant risk when extracting ore, provide an integrated planning system that will enable real-time diagnostics, process trends and optimization that collectively result in significant improvements in operational performance. Now let's move to concentrates. As Joc mentioned earlier, our conversion target calculation has been modified to exclude asset retirement obligation costs. And we'll provide that cash cost for operating facilities in a new separate disclosure. By separating these costs, you will give better insight into the company's total cost position as well as the factors impacting it. Our 2023 target of cash conversion cost per tonne is $51, and like potash, is dependent upon assumptions for sales and volumes. For phosphates, this volume assumption is further complicated by product mix. This chart shows the impact product mix can have on production volumes. On the right, we provided the fixed and variable cost assumptions as well as the denominator, dry tonnes, embedded in our 2023 phosphate cash conversion target. We're also providing phosphoric acid tonnes or P2O5 as an alternative denominator. P2O5 is a straight commodity, and we push for the lowest cost possible, then allocate our P2O5 production into our suite of products based on market demand. This product mix, including commodity products and MicroEssentials can drive a wide variation of the amount of dry tonnes we produce. For each tonne of P2O5 we make, we can produce either 3 tonnes of granulated MicroEssentials S15 or 1.9x of MAP. As you can see, that difference is significant on our finished product production in any given reporting period. We believe adding the additional disclosure of cash cost of conversion per P2O5 tonne will be helpful by showing cost trends without the impact of product mix. Before I pass it back to Joc for some concluding remarks, let me summarize our North America business unit plans. We are pulling a variety of levers to deliver maximum value, increase competitiveness and set the North America business up for success regardless of market dynamics. As our business has evolved, initiatives like transformation and the integration of our North American business have driven significant cost synergies. We also have projects that are more capital intensive but will completely revolutionize our business's cost structure in K3 and NextGen. Now let me toss it back to Joc to recap today's presentation. Joc?

Thanks, Bruce. As you heard today, we are taking a number of strategic steps that will improve Mosaic's competitiveness and that are expected to deliver long-term value to you, our shareholders. In North America, we continue to execute our transformational programs, including the K3 project, generating $305 million in annual EBITDA improvements. We also expect to deliver $95 million of annual benefits from NextGen initiatives, along with $30 million of annual EBITDA improvement from our North American integration by 2023. In addition, our delivered cost position is expected to benefit from the $50 million in expected transportation savings through our supply chain optimization. Altogether, the investments we're making to grow the business over the next 3 generation of $400 million are expected to generate incremental EBITDA of $480 million by 2023, which provides a very attractive payback period. Now I'd like to move forward and take your questions.

Thanks, Joc. As Joc said at the beginning of the presentation, please look at the box on your window for the Q&A box to enter questions. [Operator Instructions] Joc, our first question comes from Mark Connelly from Stephens, who asks, Mosaic's old operational excellence program that was in place when you were part of the operating team rather than CEO, never really delivered on its goals, at least as far as he could see. Can you talk about what makes this program different? And why you are confident that this new approach will be more successful than that one was and where the accountability will lie?

Thank you, Mark. As we said in our opening comments, I think our first phase was extremely effective. If you look at our potash cost curves, you can see, we've gone down from over $100 million or $100 per tonne of potash down to over -- under $70 per tonne. And so with the elimination of brine, we'll continue to drive those costs down well into the second and first quartile. So we think that project has been pretty effective. And we believe that what we're doing today is going to continue that. If I look at phosphates, where we've held our mining costs flat or down over a 10-year time frame against an ever-increasing distance and an inflationary environment, we believe we've done very well on that. And the next-generation work really continues that and takes the next step, which is applying technology to that whole thing. And if we look at Brazil, of course, one would have to look at our $300 million plus of the results there in terms of integration as being a lot of that operational improvement. So we think we've done pretty darn well. And we think we've certainly prove that over time, we can achieve that again.

Our next question comes from PJ Juvekar from Citi. He asks, your automation in mining and tele remote operations will save you $95 million in potash. How much of that is from headcount reduction versus increased productivity? Also, do any of your competitors have this level of automation, including new mines in Canada and Russia? And what about other North American competitors?

Thank you. Let's start -- I'm going to hand this to Bruce, but I just want to say, we started working on automation for the Potash business, trapping for K3, some 5 years ago, 6 years ago now. So I think -- I can't speak to what others have done and what others are going to do, but I think we have a good first-mover advantage in this. I was at Esterhazy operation actually the day before yesterday, and really impressed with the -- with some of the automation and even the little things like putting in the conveyor supports automatically saves us a great amount of time. Our people there are talking about a productivity improvement of probably as much as 50% for those miners. So we're pretty excited about where that's going. Bruce, do you want to talk about the specifics of that?

Well yes. And PJ just to clarify, the $95 million is across both Phosphates and Potash on NextGen projects, so that's not just in Potash. But in Potash specifically, the majority of the cost reductions are structural on a fixed basis. And those come in a variety of ways. I mean, we talked about brine inflow elimination. We've also talked about the idling of Colonsay, where we've actually taken out that entire fixed load basis in Saskatchewan and transferred the production to much lower incremental cost at Esterhazy and Belle Plaine. And remember, substantial part of the cost basis in our Potash operations are fixed costs. And you can see on that slide that we had a substantial change in fixed cost over the time horizon shown. And -- so the majority of the cost reductions in both Potash and Phosphates, quite honestly, is in fixed cost reduction. But no doubt, there is some uplift on volume to the 2019 base given that, particularly in Phosphates, that there was some impacts with idling of Louisiana at the end of the year and things like that, that we don't anticipate going forward.

Jonas Oxgaard from Bernstein asks, once Esterhazy is completed, what is the next major strategic priority for Mosaic?

Yes. Thanks, Jonas. If we go forward past that and we're going to talk a lot more about it, but our -- if you think about our long-term strategy, and we've talked about the North American transformation, those are very important. But the one that really, probably, looks forward beyond that is what we call our South American growth engine. And probably, between that and the expansion of our specialty products or our performance products, those will probably make up the base of where the next phase of growth or at least the next phase of organic growth will come from.

Joel Jackson from BMO asks, 18 months ago, Mosaic projected $2.8 to $3 billion of EBITDA for '21. The consensus for '21 is currently $1.7 billion. Can you talk about the discrepancy and how these changes might impact forecasting?

Yes. Thanks, Joel. I guess I can probably hand part of this over to you, Clint. But at the same time, I will say, based on the operating performance, we are right on target for that. The differences are mostly in terms of price and volume expected, which are market-based. Clint, do you want to highlight the key points?

Yes. And I think that the thing that you just mentioned, Joc, I think is important to note is that based on CRU pricing at the time, that's what the adjusted EBITDA target was based on as well as related volumes. And I think on that slide, we also provided a sensitivity so that people could track the impact of changing prices on that number. So I think that's one of the big drivers. When we look at the things that we control, particularly around costs, around the synergies that we delivered down in Brazil, I think we are ahead of schedule on those items. As an example, beyond the synergy program in Brazil, I think that number only included $70 million of incremental benefit by 2021 from additional transformation initiatives. As you know, we've already announced a $200 million program for additional transformation down in Brazil, achieved $40 million of that in the first half of this year and so we're well ahead of schedule on that. So I think on the items that are around our transformation initiatives and cost initiatives around the business, I think we are at least on target, if not ahead of schedule. But one thing you may want to go back and look at is the sensitivity and the pricing that was embedded in that number.

Steve Burton of Citi asks, are there any plans to expand MicroEssentials' capacity and/or develop other specialty fertilizers?

Yes. Thanks, Steve. Again, I've just mentioned Susterra, which is a -- our next product that we're introducing. In terms of MicroEssentials and we continue to look at products that can improve yield. We look at products that can help the farmer, that can add value to our commodity products. So we continue to look at that. And as a company, we are likely the leading supplier of performance fertilizers well beyond, I think, any of our competitors. And we continue to look at it. In terms of MicroEssentials, our next step in MicroEssentials will probably be when we run up against our production limitations here in Florida and Louisiana. At that point, it's a great deal if we can be looking at the next phase of expansion. And today, we're looking at that next phase and asking ourselves where the right place to expand that is. Is it right to do it down in Brazil? Or should we continue to expand in the U.S.? And those are the kind of questions we're asking, but no question in our mind with the return on MicroEssentials. We believe that, that investment will probably be a good one and likely continue to grow that product.

Our next question comes about Chris Parkinson at Crédit Suisse. He asks, given your long-term cost per tonne targets into potash, how should we think about mine mix? And how Colonsay plays into your goals? What are your latest thoughts on demand dynamics in 2021 through 2023?

Yes. Thanks, Chris. I'm going to hand part of this over to Bruce to talk about a little bit. But let me say, look, we run -- we've said this a lot, we run for value, not for volume. So what we want to do before we look at restarting Colonsay is do we have long-term sustainable demand? And do we have long-term sustainable demand at a price that justifies running a, let's call it, a third quartile operation as opposed to our 2 big -- our first quartile or low second quartile operations of Esterhazy and Belle Plaine? So that decision is not based on 1 or 2 factors. You really have to understand the whole market, how the market is growing and do we have long-term sustainable demand for. Bruce, do you want talk a little bit about that? Or what our decision process would be?

Well you highlighted that well, Joc, returning to potential restart of Colonsay, what is the long-term sustainable demand and what's the price to support that given the cost structure. Yes, the one thing I just want to highlight for people is the journey that K3 is allowing us and the improvements we're making in general on our cost structure that affect Belle Plaine as well have us solidly below $50 per tonne with just those 2 facilities with an operational 10,000 capacity that we mentioned of 9 million tonnes. And our job first is to optimize that productivity through the NextGen and transformation work that we're doing. When we get above a solid demand, to Joc's point, then maybe we'll look at that. But in 2023, both facilities are below $50 cash cost per tonne at Belle Plaine and Esterhazy. And we see continued improvement through our transformation efforts to continue to drive those incrementally down even further. So again, 2 solid arguably first quartile cost producers in Saskatchewan, which is a great place to be, and we want to fully leverage that first.

Our next question comes from Vincent Andrews of Morgan Stanley. He asks, can you clarify, total cash cost to achieve goals? And how you account for it? When will adjusted earnings no longer be needed?

Okay. Thanks, Vincent. Let me highlight, I guess, adjusted earnings will probably always be part of the game on the basis that there's onetime costs and onetime benefits that don't come into our overall calculation. And we're trying to highlight in terms of earnings, the same thing as what you do in your models, which is what really is driving the value of the company. So things like mark-to-market pricing on hedges really aren't part of the true drivers of the company and there are accounting issues. So we try to correct for that, if you will, or allow for that so that you can better understand our cost structures. But of course, they're all listed -- both are listed. And so any analyst has a choice to use or not use those. In terms of the cost to achieve, Karen and Bruce have both laid them out, but let me say, the cost to achieve, you have the Esterhazy K3 cost, which is the completion of the construction. You have cost to achieve, which are in actual COGS and supply chain, which I think are about $30 million. And then you have cost to achieve in the NextGen mining and these other transformation work, which some fall into capital, some fall into operation. But overall, what we've tried to look at is overall cost, whether -- however it's categorized, and what the return is on that. And as I think both Bruce and Karen highlighted, these projects are not only fantastic returns, but they're self-funding after probably the first year. So they're all pretty attractive projects. Obviously, K3 a little different than that, but the ongoing projects are all self-funding. So that's pretty good stuff.

John Roberts from UBS asks 2 questions. First, what's the outlook for total asset retirement obligations through 2023? And second, how much mix improvement in phosphates are you planning for through 2023?

Those are detailed enough that I'm going to hand it straight over to Clint and Bruce. Clint, do you want to talk about ARO in the next few years, or Bruce?

Yes. I'll take the ARO. So AROs this year are roughly $180 million. That includes -- it's a little higher than normal because we've included some work at Plant City and included that as part of the program. Typically, as we go forward, that would be in the range of, call it, $100 million, $125 million a year. And again, just based on the body of work that would need to happen, that can fluctuate from year-to-year. But that tends to be, at least over the next 2 to 3 years, kind of the right ZIP code to be in for ARO cash spend.

And Paul, sorry, on the second part of the question, Bruce?

Yes, product mix question. You can see from the slides and our targets for performance products, and let's use that titling, as we call it now, $5.2 million by 2023. And that includes us continuing to push growth, as Joc mentioned, up to the capacity within North America for MicroEssentials, and that's our plan to do that. As well as we've included Aspire, which has been a very successful performance product for us. We continue to see growth there, and we will continue to push growth on that product. Susterra, which is the new product that Joc talked about is where we're pushing our P2O5 into that kind of higher-margin product as well. And then K-Mag is the last one, which is our performance product within potash that we make out of Carlsbad, New Mexico. So again, we're going to continue to maximize the output of our capabilities within those performance products. And then the rest of P2O5 would be allocated based on market demand in the more commodity type DAP/MAP products.

Andrew Wong from RBC asks a follow-up on the MicroEssentials question. He asks, what impact on EBITDA could we see from selling more performance products like MicroEssentials?

Okay. Thanks, Paul. I'll take the -- sorry, Andrew. I'll take the first piece of this and hand it to Clint and Bruce again. But look, on average, we probably get a margin and -- let me highlight something Bruce said that helps you with this. If you look at the amount of P2O5 going into a tonne of dry product for MicroEssentials, you make 3 tonnes of drug product for every tonne of P2O5. Whereas MAP, you make just under 2 tonnes for every tonne of P2O5. So you can see by that ratio that a cost of making a tonne of S15, which was the example, from a P2O5 and resource use perspective is much more efficient. And that, that can then give a better result to the farmer and demand a premium really means that the margin is good on both sides, both the cost and the revenue side. And so what we've seen on average for our MicroEssentials has been about a $40 incremental margin. And so from both the cost and revenue side has amounted to $40. And that we see continuing. So any tonne that we can move at that incremental margin is going to be helpful to us. Clint, is there anything on that?