How Mosaic Shrugged Off an $800 Million Settlement Hit

Image: Mosaic.

Tough conditions in the fertilizer industry have hit Mosaic (MOS -0.51%) stock in recent years, and challenges looking forward have some shareholders worrying about how soon the company might manage to stage a full recovery. In that light, the last thing that Mosaic investors really needed to see was a litigation-related hit to its bottom line, and so one might have expected that Mosaic's recent $800 million settlement might send the hard-hit share price slumping again. Yet for the most part, Mosaic has shrugged off any adverse impact from the settlement, and if anything, shareholders seem pleased to have put the matter to rest. Let's take a closer look at the claims that were facing Mosaic and how the company resolved them.

What Mosaic agreed to
The terms of Mosaic's settlement with the Environmental Protection Agency and state environmental regulators in Louisiana and Florida included a massive financial commitment to changing its previous ways of handling waste and improving efficiency. Mosaic agreed to invest at least $170 million in order to build in new procedures designed to recover and use resources more effectively, as well as modifying some of the practices it has used in onsite waste management. In addition, the company has agreed to close its phosphogypsum stack systems, putting $630 million into an environmental trust designed to cover any expenses related to the closures and to long-term maintenance and care of the facilities. At the state level, Mosaic will pay $8 million in penalties and commit $2.2 million toward a couple of environmental projects in the two states involved.

The settlement puts an end to a dispute that has gone on for a decade over Mosaic's practices in handling raw materials for fertilizers. In particular, the EPA claimed that Mosaic combined phosphogypsum byproducts with wastewater and certain other substances, creating a highly acidic solution that caused concerns at the agency. According to the EPA, the hazardous waste amounted to 30 million tons, and although phosphogypsum is generally not classified as hazardous waste, the agency asserted that the combination with other unapproved materials supported its allegations.

For its part, Mosaic seemed happy with the result. "We are pleased to be bringing this matter to a close," CEO Joc O'Rourke said, expressing the fact that "Mosaic is committed to meaningful environmental stewardship at all of our facilities. ... The commitments we are making through these settlements further those stewardship efforts."

Why Mosaic is looking forward
Despite the size of the settlement, getting the EPA and state regulatory issues resolved should take some of the attention away from what have been controversial practices in the past. For instance, in 2012, Florida's state water regulatory agency granted Mosaic the right to pump up to 70 million gallons of water per day from the state's aquifer system. Critics argued that the grant essentially gave Mosaic the go-ahead to use some of the water to dilute polluted waste products from inactive processing plants and then dispose of it through creeks, a practice which environmental advocates found objectionable even though it didn't violate state regulations. For its part, Mosaic didn't use all of the water it had been allotted over the course of the permit.

Yet Mosaic won't be able to put all of its environmental issues behind it. As part of the ordinary course of its business, Mosaic routinely has to deal with obtaining resources from sensitive areas, and organizations like the Sierra Club have sued Mosaic in the past to try to stop it from mining in wetland areas and other types of protected land. The fertilizer company obtains required permits on a regular basis, but nevertheless, it has to stay mindful not just of the legalities of the situation but also of its perception in the communities in which it does business.

With the fertilizer industry already facing the difficulties of low prices, Mosaic will be happy to put this episode behind it, despite the cost of resolving its federal and state environmental disputes. In the long run, Mosaic will have to remain vigilant to ensure that it doesn't run afoul of similar regulations in the future.