Joc O'Rourke
President and Chief Executive Officer at Mosaic
Good morning. Thank you for joining our first quarter 2022 earnings discussion. I hope you've had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday. I will provide some additional context before we respond to questions we received last night and then we'll conclude with a live Q&A session.
Mosaic delivered first quarter net income of $1.2 billion and earnings per share of $3.19. Adjusted EPS was $2.41 and adjusted EBITDA was $1.45 billion. Our results continue to highlight the positive evolution of our business, which reflect the contribution from Brazil, the additional production from the restart of Colonsay and the transition to K3, one of the largest and most efficient potash mines in the world.
Phosphate segment adjusted EBITDA totaled $632 million, reflecting the impact of strong pricing, which more than offset higher input costs. Potash also benefited from higher prices, as well as the transition to Esterhazy K3, and the elimination of brine inflow management costs. As a result, segment adjusted EBITDA totaled $651 million. In Brazil, Mosaic Fertilizantes generated first quarter adjusted EBITDA of $233 million, as the team capitalized on a strong market environment and its inventory position, particularly towards the end of the quarter, as seasonal demand began to pick-up. Looking forward, we continue to see agricultural market strength extending well beyond 2022. The year began with a tight agricultural market and elevated prices reflecting at 20-year low in global grain and oil seed stock to use ratios.
The conflict between Russia and Ukraine has exacerbated the situation and pushed soft commodity prices even higher. Together, these two countries account for 16% of global grain and oil seed export market. With Ukraine's planting season now at risk in the coming year and Russian crop export potentially also being constrained, the market is grappling with the potential of reduced supply of a number of key crops, which includes wheat and corn, but also oil seeds like soybeans, sunflowers and their respective oil. This situation has amplified food security concerns and is resulting in protectionist government policies that will likely drive commodity prices even higher. As an example, last week, Indonesia placed a temporary ban on exports of palm oil, one of the most commonly used cooking oils in the world to ensure domestic supply. All of this suggests elevated crop prices are likely to persist for the remainder of 2022 and beyond.
The strength in crop prices, combined with global fertilizer industry supply constraints, have pushed nutrient prices higher. In potash, sanctions against Belarus and uncertainty over Russian exports are having an impact on supply. Global prices have pushed higher as buyers look to secure adequate volumes. The global phosphate market has also priced an uncertainty around Russian supply of both finished products and inputs like ammonia and sulfur. But we are seeing some movement of Russian phosphates today.
In addition, China's export restrictions remain in place. While we expect an easing of China's restrictions, we believe phosphate exports will drift lower over-time as secular demand trends continue to grow, especially on the industrial side from chemicals and electric vehicle, lithium iron phosphate batteries. On the demand side, we expect global shipments of potash and phosphate to be down from 2021. But the cause of this is availability, not affordability. Consumption will be forced to adjust to available supply.
In North America, weather is indicating the possibility of a compressed application season, but growers remain incentivized to maximize yield. Today's crop prices more than offset input cost, which suggests that farmer profitability in 2022 will be at the second highest level in more than a decade.
Similarly, grower economics have also improved in Brazil, thanks to rising soybean prices. In India, farmer demand for nutrients remains very strong, thanks to another good monsoon season and strong global grain prices, but availability is still lagging. In response to stronger grower demand and historically low domestic inventories last week, the government increased fertilizer subsidies. We see this as a positive development that should help to meet some, though likely not all of India's significant pent-up demand.
As we look at our business in the context of today's global markets, we remain very optimistic. In potash. K3s ramp-up to the initially targeted 5.5 million tonnes per year is now complete. Logistical constraints and winter weather impacted first quarter shipments and production, but these issues appear to be largely behind us. In addition, Colonsay, which was down in March as rail constraints forced temporary curtailment is now back online and operating at an expanded run rate of 1.3 million tonnes over our initial target of 1 million tonnes. In the second quarter, we expect sales volumes of 2.4 million tonnes to 2.6 million tonnes. Realized prices in the second quarter are expected to be $40 per tonne to $60 per tonne higher than realized prices in the first quarter.
In phosphates, we expect a recovery in volumes in 2022. Raw material costs have escalated, but we are well supplied to meet our production targets. In ammonia, we continue to benefit from a significant cost advantage, thanks to our internal production at Faustina, and our supply agreement with CF Industries. In the first quarter, 80% of our ammonia needs were met by tonnes linked directly to Henry Hub [Technical Issues] and shielded from the price swings in the global ammonia market. As a result, our first quarter ammonia costs were roughly half of the benchmark prices. In the second quarter, we expect phosphate sales volumes of 1.9 million tonnes to 2.1 million tonnes.
Our expected sale volumes reflect an improvement in logistics delays somewhat offset by inventories well below historic levels. Second quarter phosphate prices on an fob basis are expected to be $140 per tonne to $160 per tonne higher than first quarter prices. Price increases in the quarter are expected to significantly outpace the impact of higher raw material prices on our cost structure.
For Mosaic Fertilizantes, we expect the business to continue reflecting the favorable market backdrop and our transformational efforts over the last two years. Seasonal demand began picking up late in the first quarter and should continue through the softer season. We expect to benefit as potash inventories, which were built during the fourth quarter begin shipping to customers. We are seeing inflation affect our cost structure, but believe ongoing optimization should offset much of the impact.
Given the direction of our business, we anticipate generating significant earnings and free cash flow in 2022. Returning capital to shareholders remains a key part of our strategy. We continue to expect returning up to 75% of our free cash to shareholders through a combination of share repurchases and dividends, including the $463 million returned in the first quarter of 2022. We completed the $400 million accelerated share repurchase program announced last quarter and continue to repurchase shares through our existing authorization. As a reminder, last quarter our Board also approved a new $1 billion authorization.
In the area of balance sheet strength, we remain committed to reducing long-term debt by $1 billion. Part of that target was met with the retirement of $450 million last year and we expect to reach the finish line later this year when another $550 million of long-term debt reaches maturity.
Given our outlook for the year, we expect will also be able to continue investing wisely and efficiently in our business. We seek out high returning, modest investments in areas like enlarging our footprint in Brazil, expansion of MicroEssentials and investments in soil health and biologics. With recent disruptions to fertilizer supply, a situation we believe could extend for some time, we are also actively exploring de-bottlenecking opportunities to increase our fertilizer production as quickly as possible. In potash, we've already raised Colonsay's annual run rate to 1.3 million tonnes, up from our initial restart target of 1 million tonnes and we see a path to reach 1.8 million tonnes to 2 million tonnes in the second half of 2023 through the restart of Colonsay's second mill.
At Esterhazy, we are exploring the de-bottlenecking of the mills, which could add several hundred thousand tonnes by the second half of next year. In total, these initiatives could add roughly 1.5 million tonnes of potash production by the end of 2023. The cost for all these projects is expected to be less than $100 million. In North American phosphates, we expect production to be roughly 1 million tonnes higher than the 2021 production total of 7.3 million tonnes. As headwinds experience last year addressed, and our assets run at more normal rates, in Brazil we are pushing for improved recovery from our phosphate mines, and we're exploring the expansion of our Taquari mine that increases production and extends its life.
In total when one considers our footprint in North America, our production in Brazil and our allocation of [Indecipherable] finished product, by the end of 2023, we have the potential to see operating rates close to 25 million tonnes of total finished product well above our 2021 production total of 19.7 million tonnes. We take our mission of helping the world grow the food it needs very seriously. We believe that geopolitical issues that have impacted global supply during the first quarter will not be reversed any time soon. As a result, we are pulling every lever we have to efficiently raise our production rates to help offset the supply shortages from other sources in ways that also creates value for shareholders.
With that, let's move on to the Q&A portion of the call.
