Joc O'Rourke
President and Chief Executive Officer at Mosaic
Good morning. Thank you for joining our second 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 more additional context before we respond to questions we received last night, and then we'll conclude with a live Q&A session.
Mosaic delivered second quarter net income of $1 billion and earnings per share of $2.85. Adjusted earnings per share were $3.64, and adjusted EBITDA was $2 billion. Free cash flow totaled $794 million, allowing us to return $667 million to shareholders during the second quarter, including $612 million of share repurchases, bringing the year-to-date buyback total through June 30 to over $1 billion.
We've continued to buy back shares aggressively through July because we believe our portfolio positions us to continue driving strong results and generating significant cash flow through the rest of the year and into 2023. As such, Mosaic's Board of Directors has approved a new $2 billion share repurchase authorization to begin once the current one is exhausted later this year. Before digging deeper into our business, let's discuss the broader agricultural markets. There are several issues threatening global food security. The war in Ukraine continues to create uncertainty around food supply from one of the world's most important crop producers.
In addition, Europe and U.S. have experienced very high temperatures, while Southern Brazil is showing signs of drought conditions. And all of this is happening at a time of lower overall nutrient applications because of constrained supply. Each of these issues alone can have a material effect on global crop production. But together, the risk to food security is significant. This suggests global stock-to-use ratios, which are already near 20-year lows, will remain under pressure. Because of this, we see a tight supply and demand scenario for global grains and oilseeds continuing through 2022 and into 2023. As we focus on the potash and phosphate fertilizer markets, the fundamentals remain quite strong.
In potash, we continue to expect Belarusian exports to be down eight million tonnes this year. Some of that will be mitigated by incremental supply from producers like Mosaic over the next 18 months. But that will not be enough to erase the deficit that we see lasting well into 2023 at least. In phosphates, China has continued to restrict exports as it prioritizes domestic industrial and agricultural demand. We now believe full year phosphate exports from China could be down as much as five million tonnes from the prior year total of 11.5 million tonnes. Shifting focus, we believe global fertilizer demand in the first half of 2022 was down about 10% from the same period last year, which aligns with the shortfall we've seen in supply. Grower sentiment has grown more cautious.
But supply constraints are supporting global prices and margins well above historical levels, a situation we believe will continue at least through the rest of the year. North America and Brazil have been well supplied thus far in '22, but much of the rest of the world is continuing to see unfilled demand of both phosphates and potash as a result of limited supply. In North America, a compressed planting season, macroeconomic headwinds and volatile crop prices impact spring season consumption. First half applications were down from the record year in 2021 but remained in line with historic levels.Looking forward, we expect normal demand leading up to fall application.
In Brazil, we saw first half demand in line with historic levels. Channel inventories were built in country by importers driven by concerns over supply availabilities stemming from geopolitical events. Significant customer prepays, though, indicate farmer demand will ramp up as the softer season gets underway. In India, we've begun to see importers enter the market and take advantage of the recent price pullback in phosphates. India's phosphate inventories are low and concerns over availability persist. Farmer demand for nutrients remains very strong, and the government continues to indicate it will ensure adequate supply for domestic consumption.
In China, port inventories of potash sit below two million tonnes. And in Southeast Asia, shipments of potash appear below historic levels. We see these dynamics impacting demand beyond 2022 as reduced application this year will require a catch-up in future years when supply availability improves. As we look at our business in the context of today's global markets, we remain optimistic. The investments we've made over the last decade have positioned us well for today's environment. In Brazil, our 2018 acquisition of the Fertilizantes business has driven significant shareholder value. We've seen EBITDA grow from less than $70 million in pro forma 2017 to $1.2 billion over the last 12 months. And we've completely recapitalized the business, having now bought back all of the shares issued and repaid all of the borrowing to fund that deal.
Looking forward, Mosaic Fertilizantes will continue to benefit from its market position as the country's largest producer and second-largest distributor. We are seeing inflation in our cost structure but believe ongoing optimization should offset much of the impact. In potash, we are realizing the benefits of K3, one of the world's most efficient potash mines, and we're actively working to optimize that asset. We've reached our initial operating run rate target of 5.5 million tonnes per year at the end of the first quarter and plan to continue our optimization of the complex with the addition of three new underground miners over the next year, resulting in an incremental one million tonnes of production capacity.
At Colonsay, we've begun the process of restarting the second mill, which should expand output to two million tonnes per year by the second half of 2023. In phosphates, we continue to benefit from our advantaged position in ammonia, and we're now seeing an improvement in sulfur costs that should begin to flow through to our production costs later this year. We've seen prices moderate down to levels we believe are sustainable for the rest of the year. As a result, we expect our stripping margins will remain well above historic levels.
Given the outlook for our business and the free cash flow we expect to generate, capital allocation remains a key focus for us. First, we continue to invest in our business. For 2022, total capital expenditures remain unchanged at $1.3 billion. We remain open to modest, high-returning projects and small bolt-on acquisitions, especially in Brazil, but we are not interested in large-scale greenfield projects. Second, we're committed to ensuring a strong balance sheet and plan to retire $550 million of long-term debt in the second half of 2022, after which, we see no need to further deleverage. The third pillar of our strategy is returning capital to shareholders. Year-to-date, we returned $1.1 billion to shareholders through buybacks and dividends. And we expect that pace to continue, if not accelerate, as the year progresses.
In total, we expect to return essentially 100% of our free cash flow after the commitments to the business and the balance sheet we've discussed. Because we're approaching the end of our current authorization, our Board of Directors approved a new authorization of $2 billion that begins once we've exhausted the current authorization. At today's valuation, buying back our own shares provides better economics than any other use of cash. So we expect to take advantage of this as long as the opportunity remains. We may also consider supplementing share repurchases with special dividends over time depending on market conditions. As we've said in the past, we will not build cash on the balance sheet just for the sake of it.
Before going into Q&A, allow me to summarize. Mosaic delivered very strong results in the second quarter, and we expect favorable dynamics as we continue through the year and into 2023. We're continuing to help the world grow the food it needs by ensuring customer demands are met, and we're returning significant capital to shareholders while still investing in the business and strengthening our balance sheet.
Now with that, I would like to move on to the Q&A portion of the call.
