CMP - NYSE

Good morning, ladies and gentlemen. Welcome to the Compass Minerals Fiscal Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please be advised that this call is being recorded. [Operator Instructions] Now, at this time, I would like to turn the call over to Mr. Brent Collins, Vice President, Investor Relations. Please go ahead, Mr. Collins.

Thank you, operator. Good morning, and welcome to the Compass Minerals fiscal 2023 second quarter earnings conference call. Today we will discuss our recent results and update our outlook for the remainder of 2023. We will begin with prepared remarks from our President and CEO, Kevin Crutchfield; and our CFO, Lorin Crenshaw. Joining in for the question-and-answer portion of the call will be George Schuller, our Chief Operations Officer; Jamie Standen, our Chief Commercial Officer; and Chris Yandell, our Head of Lithium. Before we get started, I will remind everyone that the remarks we make today reflect financial and operational outlooks as of today's date, May 10, 2023. These outlooks entail assumptions and expectations that involve risks and uncertainties that could cause the company's actual results to differ materially. The discussion of these risks can be found in our SEC filings located online at investors.compassminerals.com. Our remarks today also include certain non-GAAP financial measures. You can find reconciliations of these items in our earnings release or in our presentation, both of which are also available online. The results and our earnings release issued last night and presented during this call reflect only continuing operations of the business, other than amounts pertaining to the condensed consolidated statements of cash flows, or unless noted otherwise. I'll now turn the call over to Kevin.

Thanks, Brent. Good morning, everyone, and thank you for joining us on our call today. Before beginning the call, I wanted to welcome Jill Gardiner to our Board of Directors. Jill joined the Board last week and brings a wealth of financial and extractive industry experience to our Board. We're looking forward to her contributions and insights. Now, halfway through our fiscal year, we continue to push forward in our pursuit to create value for you, our shareholders, seizing opportunities and mitigating challenges when either arise. To guide us in this pursuit, we focus our efforts around 6 strategic objectives that we set for the organization in fiscal '23. You've heard me outline these objectives on past calls, and I'll take a few minutes to provide an update on each of those areas. I'll then comment briefly on the quarter before turning the call over to Lorin to discuss our financial performance in more detail. Safety, and specifically our drive towards zero harm, will always be a key area of focus for our company. We owe it to our employees and their families to foster an environment where employees know they will go home to their families at the end of the shift in the same condition as when they left. Safety performance is also often a leading indicator of operational performance. The safest mines in the world are also the most productive. We make safety a priority because it's the right thing to do for our people and it's the right thing to do for our business. Last year was an outstanding year for safety performance, and I'm proud to say that year to date we're performing even better with our [ track safety ] metrics than we did in fiscal 2022. Achieving zero harm is a high bar, particularly in the complex operating environment that we operate in. However, several of our sites have proven it's possible, and we'll continue to pursue that goal each and every day. With respect to our Salt business, our objective for 2023 was to improve the profitability of that segment to levels that we've historically delivered. Specifically, we've talked about restoring profitability to around $20 of EBITDA per ton for the segment for fiscal '23. As I've outlined previously, we approached the '23 bidding season with a disciplined pricing strategy and focus on securing sales commitments in markets that are geographically advantageous and relatively efficient to serve. For the second quarter, we saw the average gross sales price for the Salt segment increase 12% to approximately $82 per ton, driven by improved pricing in highway deicing salt from the comparable period last year. Favorable pricing dynamics, combined with essentially flat distribution and cash operating costs, resulted in EBITDA per ton increasing 64% to just over $20 per ton, up nearly $8 from roughly $12 per ton last year. Although the year is not over, I'm pleased with the progress the team has made to restore profitability following the extremely challenging inflationary environment we experienced in 2022. Charting a path to improve the reliability and sustainability of our SOP production was another strategic objective for this year, though we continue to face significant headwinds on this front. One thing I do want to make clear is the reduced sales volumes year over year that we've experienced during our second quarter are not a function of production issues. Operationally, we've been ready to service customer demand. However, ongoing precipitation challenges in our key California market have continued to delay the application season for growers. Again, when those challenges abate for our customers, we stand ready to respond. From a longer term perspective, however, our focus with respect to this part of our business remains optimizing sustainable production levels of our Ogden pond complex across a variety of weather scenarios. Progress continues to be made in that regard, and we'll provide a more detailed update on this initiative when appropriate. The next objective I wanted to touch upon involves the advancement of our battery-grade lithium development at Ogden. As indicated in our release yesterday, we were engaged in what turned out to be a particularly busy legislative session in Utah this past quarter for those of us who share in the overall goal of maintaining a healthy Great Salt Lake while at the same time balancing the needs of its many diverse stakeholders, including the mineral extraction industry. Specifically, legislation promulgated as a part of this recent Utah state legislative session introduced new regulatory and cost elements into the framework that will govern the development of lithium on the Great Salt Lake. And certain of these provisions relating to severance taxes, royalty agreements, leasing rights and berm management have created some near-term uncertainty until regulatory rulemaking can be completed in the coming months. Our operations at Ogden were founded over 50 years ago with the original intent to extract lithium. Unfortunately, at that time, a commercially viable technology wasn't available. Today, with our technology provider, Energy Source Minerals, we have a commercially viable technology that allows us to extract a fourth mineral from our existing operating stream and recycle the brine back into our pond system. Lithium development is new for the state, and we fully appreciate its desire to receive fair value from the development of that resource. However, we'll continue to pursue this opportunity only if 2 critical criteria are met: #1, that it makes economic sense for our shareholders from a risk-adjusted financial return perspective; and 2, predictability of the regulatory regime in Utah. These criteria are true in any mining jurisdiction or project, and Utah can be no exception. Historically, Utah has long been considered an attractive operating environment due to their historic understanding of the economic and social value our industry creates. And based on preliminary discussions, we expect this mindset to continue. As we've previously announced, the full development of Phases 1 and 2 of our lithium project would represent an approximate $1 billion investment on the Great Salt Lake. Clearly, to justify that investment, we must have clarity and certainty on the evolving regulatory framework we would be working under to assess the potential impacts on our project. Therefore, as we continue advancing the demonstration unit presently under construction and proceeding with developing an FEL-2 engineering estimate with all deliberate speed, and an abundance of caution, we'll defer publicly sharing the updated disclosure of any project-related economic and engineering estimates until we have such clarity. Again, we've been a responsible and productive operator on the Great Salt Lake for over 50 years. We've been an important contributor to the Utah economy for decades, and this project has the potential to bring Utah to the forefront as part of the domestic supply chain for critical minerals. I'm cautiously optimistic that as we've done time and again with regard to our other mineral resources on the Great Salt Lake, we will reach a favorable accord with the State of Utah on a path forward for our planned lithium development that serves the best interest of all stakeholders. Moving on to our other commercial growth pillar. Yesterday we announced that we had acquired the outstanding 55% interest in Fortress North America, bringing our ownership stake to 100% for upfront consideration of approximately $26 million in cash, contingent milestone consideration in cash or stock valued at approximately $28 million, and an earnout of $0.30 per gallon of product sold over the next decade. For those of you who are not familiar with Fortress, it's a next-gen fire retardant company that utilizes our magnesium chloride and other salt production as the key ingredients in its formulations of aerial and ground fire retardants. The aerial fire retardant industry has essentially been a monopoly for over 2 decades. Bob Burnham and his team are entrepreneurs as well as fire, aviation, chemistry, and government contract experts who saw an opportunity to develop a suite of products that were more effective and better for the environment than the incumbent products being used. Our relationship with Fortress began in early 2020, initially as a supplier of magnesium chloride, which we produced out of our Ogden facility. Through the years, we had the opportunity to work closely with Bob and his team. And as we learned more about their business, we ultimately made a strategic investment in their company. In December 2022, Fortress became the first new company in over 2 decades to have long-term aerial fire retardants added to the U.S. Forest Service Qualified Products List, or QPL, after meeting or exceeding rigorous testing across a number of categories in evaluation. Being added to the QPL was a significant step toward full commercialization of Fortress products as it provides the preapproval to government agencies around the world who use the U.S. Forest Service QPL as the chief qualifier for purchasing and which allows them to procure and use the company's product. Then, early this month, Fortress reached an agreement with the U.S. Forest Service that will result in Fortress supporting up to 5 mobile deployed airbases with product and associated services in the upcoming 2023 fire season utilizing Fortress new state-of-the-art mobile and fixed retardant mixing units. The U.S. government recognizes that competition in the market is preferable to sole sourcing for essential products and services, and accordingly, there are programs that provide on-ramps into the retardant market where it would like to see competition occur. Under a framework used by U.S. government agencies, including the U.S. Forest Service, to boost competition in critical sectors where government is the primary buyer, a substantial portion of Fortress activity will be contracted by the U.S. Forest Service in fiscal '23. We anticipate operating under a similar framework in 2024 as well and then moving into more open competition in 2025. In the simplest terms, this program establishes a glidepath for new competitors like Fortress to attain critical mass for their products and services in the first couple of years of commercial operation and encourages Fortress to build additional scale. The combination of Fortress products being added to the QPL and the recent agreement with the U.S. Forest Service granting the company its first [ tranche of bases ] provides sufficient visibility to the growth potential of this business to give us confidence to exercise our right to acquire the outstanding stake in Fortress. Fortress business model has always aimed at achieving at least a 50% share in the market, and we believe progress towards that goal can be accelerated as a result of this transaction. There's a meaningful value creation opportunity to realize by fully integrating Fortress into our company, thereby taking full advantage of our deep logistical and production capabilities. I'm thrilled that Bob and his highly experienced leadership team will be staying on to run the Fortress business and joining the Compass Minerals family. Enhancing our financial position was the final strategic objective that we set for fiscal '23. A strategic equity investment by Koch in October of 2022 was a critical step in achieving that goal as it provides a substantial amount of nondebt related funding to pursue Phase 1 of our lithium development. Another important element to achieving this objective was addressing the near-term maturity of the $250 million in notes that were set to mature in July of '24. In recent days, we've issued $200 million in Term Loan A notes and expanded our credit facility to allow us to fund the redemption of the July 2024 notes. In doing so, the maturity of our revolving credit facility has been pushed out 3 years to 2028, and our closest significant maturity is now 4 years away with our $500 million senior notes due in '27. Obviously, the credit markets have been somewhat fragile in recent months, given the recent banking sector turmoil. So I want to acknowledge Lorin and his team for successfully navigating that process against a very challenging macro backdrop. We expect to see a strengthening of our credit profile in the near-term and over time with improved Salt segment profitability and the incremental financial contribution from Fortress driving deleveraging in the shorter term and eventually contributions from lithium longer term. Both of these new business ventures are expected to enhance our long range credit profile from a growth business diversification and scale perspective. In early April, we announced via an 8-K that we had taken the initial steps to rationalize the cost structure of our company with the express goal of improving and maximizing the profitability of our Salt and Plant Nutrition businesses. The first phase of that effort began with headcount reductions equivalent to approximately 16% of our corporate workforce, which combined with elimination of certain consulting services and other overhead costs is expected to benefit our operating earnings and adjusted EBITDA by approximately $17 million to $18 million per year beginning in fiscal '24 year over year, all else being equal. Phase 2 of our cost rationalization exercise will be completed in the second half of the year and will be focused on reducing costs at our production and packaging sites. These types of actions are never easy, but we're committed to improving the profitability of those core businesses. And this initiative is a proactive, important step toward achieving that goal. Now, before I turn the call over to Lorin, I want to make a couple of comments about the quarter. Regarding Salt, I'm pleased that we were able to improve operating earnings and EBITDA for Salt on both an absolute and per unit basis. Volumes in the highway deicing business were down 19% year over year with a portion of this decrease due to the moderate weather that we experienced during the second quarter and a portion of it relating to our decision last bid season to focus on value over volume. We deliberately chose not to pursue certain business last year so that we can improve our profitability. It goes without saying that it's hard to grow volumes when you're reducing the areas you plan to service. As I mentioned earlier, restoring Salt profitability was an important goal for us this year and I'm pleased that we were able to make a substantial improvement in that regard in the second quarter. Our focus for the Salt segment is centered on managing costs and maximizing profitability through optimizing our customer and geographic sales mix. As we approach the upcoming bidding season, we intend to pursue full value for the Salt products we provide in our served markets. As I noted in my earlier comments, Plant Nutrition unfortunately continues to be impacted by exceptionally difficult weather in California that is hindering our sales efforts in that important market. The amount of precipitation that California has received this year is frankly amazing, ranking as the 7th wettest year over the last 129 years. As an immediate consequence of all this rain and snow is that the growers simply cannot access their fields and orchards, and as a result they're not able to make applications that we would normally expect to see in our second fiscal quarter. The good news is we don't see any structural changes with respect to use and demand of SOP in California. Fortunately, pricing for SOP continues to be strong, with the average selling price increasing approximately 8% year over year. Per unit distribution costs increased primarily due to changes in regional sales mix. The increase we saw all-in product cost per ton reflects operational measures taken to mitigate the impact of the below-average 2022 evaporation season and the impact of the temporary natural gas spike that we had in the first quarter. We also had a small belt fire at our Ogden facility during the quarter and the related repairs added some incremental operating costs in the quarter. We were able to quickly implement a temporary system that allowed us to have minimal downtime. Kudos to George and his team for how they responded to that incident. As a result of these puts and takes, we saw adjusted EBITDA for Plant Nutrition decrease to $8 million in the second quarter. Reflecting on where we stand at midyear, I think we've done a good job addressing the things that are within our control. Salt is performing well and the Fortress acquisition is an exciting new avenue for growth. We'll continue to work on optimizing the Plant Nutrition business so that we're primed to take advantage of opportunities as weather conditions normalize. Regarding lithium, I'm guardedly optimistic that we'll come to an agreement with the state regarding essential agreements, particularly the royalty structure, and operating parameters that are prudent economically, enable us to confidently advance [ both ] phases of our project. Our lithium vision remains serving as the critical input enabler toward the creation of a robust North American advanced battery supply chain. With that, I'll now turn the call over to Lorin to provide more detail on the quarter.

Thank you, Kevin. On a consolidated basis, revenue was $411 million for the first quarter, down 8% year-over-year. Second quarter consolidated operating earnings improved to $47.9 million, up 140% year-over-year, while adjusted EBITDA from continuing operations was $77.4 million, up 19% year-over-year. A key takeaway is that despite revenue declining due to lower volumes, we substantially improved our profitability year-over-year. Beginning with our Salt segment. Salt revenue totaled $361 million for the quarter, down 8% year-over-year, driven by 17% lower sales volumes, offset by a 12% increase in average gross selling price. The highway deicing business experienced 12% higher pricing year-over-year to just shy of $70 per ton, while sales volumes were down 19% year-over-year, reflecting a combination of our value over volume commercial strategy and a second quarter that was below average from a weather perspective within the markets that we serve. Looking at the 11 representative cities we've discussed in the past, there were 83 snow events reported during the second quarter, down 27% year-over-year and down 23% from the 10-year average of approximately 108 snow events. With this year's deicing season behind us, the winter, as measured by snow days in our core markets, was roughly 80% of the historical 10-year average for snow days, so not a normal winter, but not an exceptionally poor 1 either. Specifically, for the winter to-date period through April, we had 127 snow events, which is lower than last year's 152 and below the 10-year average of 159. Within our C&I business, volumes declined 5% year-over-year, driven by below average winter activity, offset by increased sales in non-deicing product lines. Average pricing within C&I rose 1% to approximately $178 per ton. By holding total costs essentially flat year-over-year and driving through the price increases last bidding season, we were able to drive Salt segment operating earnings and adjusted EBITDA higher despite lower sales volumes on both an absolute and per ton basis. Operating earnings for the segment were $73 million in the quarter, an increase of almost 50% year-over-year. EBITDA came in at $88.9 million, an increase of 36% year-over-year. Importantly, EBITDA per ton was $20.19, which is in line with historic levels of profitability. As Kevin discussed earlier, restoring the profitability of the Salt business was a strategic objective for this year. Turning to our Plant Nutrition segment. Unusual weather developments in some of our most important markets continue to weigh on our sales efforts in the second quarter. Sales volumes were down 19% year-over-year. As I'm sure most of you are aware, California has seen an incredible amount of precipitation over the last several months, and it has wreaked havoc on the agricultural community out there. The rain and snow they have received has made even the most basic tasks, like growers accessing their fields and orchards, difficult to do due to mud. This, in turn, impacted their ability to apply fertilizer, resulting in lower volumes year-over-year. On a positive note, prices were up 8% year-over-year to $796 per ton. The net impact to revenue during the quarter was a decrease of around $7 million, or 12%, year-over-year. Distribution costs on a per ton basis were up 12% year-over-year due primarily to changes in regional sales mix. All-in product costs per ton were up 19% year-over-year. Operational steps that we took following the subpar '22 evaporation season, including the use of KCl to bolster production yields and the impact of the natural gas spike from last quarter on our standard cost pushed all-in product costs higher. While these items were known and included in our last outlook, the fire Kevin mentioned, obviously, was not. That added approximately $2 million in costs in the second quarter. At quarter end, we had liquidity of $536 million, comprised of roughly $250 million of cash and revolver capacity of around $286 million, while net leverage stood at 3.5x. Also, as Kevin indicated earlier, we were pleased to successfully execute a refinancing of our notes due in July '24, despite the current banking sector backdrop. We approached the refinancing with 4 objectives in mind: refinancing on reasonable pricing terms; pushing out our debt maturity profile; bolstering our liquidity; and creating flexibility within the credit agreement to accommodate a wide range of potential nondebt financing sources to fund our lithium efforts in the coming years. We achieved each of these objectives as part of the refinancing with pricing up only 25 basis points at the current portion of the pricing grid, our next closest meaningful maturity now not occurring until 2027, an increase in our revolver by $75 million, and reduction in term debt outstanding by $50 million, and a credit agreement that now contemplates the prospect of a wide range of potential nondebt lithium funding sources, ranging from government grants to streaming to equity at the Ogden asset level. A supportive bank group is essential on our journey to accelerate growth and reduce weather sensitivity by expanding into the adjacent markets of lithium and next-generation fire retardants. We are thankful to have a long-term-oriented, supportive bank group on our transformation journey. Turning to our outlook for the rest of the year, I'll begin with Salt. The performance guidance for the Salt segment across various weather scenarios remains unchanged from the guidance we provided last quarter. We expect that results are likely to come in within the range of $215 million to $255 million of EBITDA. Our full year outlook for Plant Nutrition remains unchanged from our prior guidance with profitability outcomes ranging from $30 million to $60 million of EBITDA, which reflects the heightened uncertainty regarding SOP, fertilizer pricing, and sales; higher production costs; and extraordinary weather in several core markets, including California. During our last earnings call, we laid out 3 scenarios that frame the range of guidance that we have provided. Currently, we are tracking most closely to the midpoint of the range. Turning to Fortress. This acquisition changes our financial disclosure some going forward. We will now fully consolidate its results rather than just picking up our proportionate share of its net income. As a result of this transaction, whereas our prior guidance assumed Fortress would incur operating losses throughout fiscal '23, we are now reducing our guidance for corporate and other expenses by approximately $10 million at the midpoint to a range of $65 million to $70 million, down from our prior range of $75 million to $80 million, reflecting our now positive expectation of the profit contribution from Fortress this fiscal year. As we noted in our press release yesterday, we expect Fortress to generate revenue of $20 million to $25 million in fiscal '23, with operating earnings and EBITDA expected to be in the low double-digit millions of dollars. Fortress aspires to win 50% market share over time and has a business strategy to achieve that goal. While we are pleased with a contribution this fiscal year to EBITDA in the low-double-digit millions of dollars, we certainly didn't buy Fortress for its year 1 financial contribution. Its earnings power is much higher than that and quite substantial in our view. We see a path for the company to grow earnings meaningfully through sizable market share gains, and at scale, expected to enjoy profitability levels as good as, and we think likely better than, what the market incumbent currently generates. We estimate the addressable North America market for aerial fire retardants to be roughly 70 million gallons or between $200 million and $250 million in revenue. If we are successful at gaining market share at attractive margins, as we expect, the implied multiple that we are paying for Fortress will prove to have been quite reasonable. Turning to our CapEx guidance. We have lowered our projected total CapEx for fiscal '23 by $30 million at the midpoint to a range of $150 million to $175 million. This is comprised of lithium development CapEx in the range of $60 million to $75 million funded by proceeds from the Koch transaction and sustaining CapEx in the range of $90 million to $100 million, which is unchanged from our prior estimate. The $30 million reduction in projected lithium-related spending reflects 2 drivers: further refinement in the project's engineering, which has resulted in a lower estimate of project cost for the demonstration unit and adjustments in the timing of select long lead time items. We continue to advance the construction of the commercial scale DLE unit, which remains on track for mechanical completion by the end of this calendar year and for commissioning and startup to occur around this time next year. Finally, from an interest expense perspective, we have raised our projection for fiscal '23 slightly to a range of $55 million to $60 million, up approximately $5 million at the midpoint from our prior range, reflecting the increase in our pricing grid by 25 basis points as part of the recent refinancing. With that, I will turn it back to the operator to open the lines for Q&A. Operator?

[Operator Instructions] We'll take our first question this morning from Joel Jackson of BMO Capital Markets.

So maybe a few questions for me. I think it's confusing, to be honest, some of your guidance around Salt. So you say the Compass indicates that it's the same guidance as last February for Salt when you said that you'd be below the midpoint of guidance, so below $235 million, and now you're saying you're going [ to be ] in the range. So what is the -- are you saying that you're going to be below the midpoint of guidance still for this year? And also for volume, too, please for the -- excuse me to interrupt -- the highway deicing volume.

No, appreciate the question. Our financial guidance of $215 million to $255 million for salt is unchanged. Directionally, we now do believe that we've got a path towards the midpoint of that range, but the $215 million to $255 million is unchanged. But directionally, we do feel more comfortable with the middle part of that range, which reflects some positive dynamics, that Jamie can elaborate on, whereby despite an 80% winter, several of our markets have tracked much higher than that in terms of our budget, but Jamie, maybe you can elaborate.

Yes. I think that while on balance the winter was pretty mild, there were areas of strength. And in those areas, such as Wisconsin, Minnesota, we have higher than average margins there. So while the volumes are down, we were able to sell higher-margin tons, which helps us get into the middle of that guidance range, even though volumes are lower than normal -- than average.

Okay. That's helpful. Then couple questions more on Fortress. So can you talk about if you think about fiscal '24, what are some realistic bull, bear, and base cases for the kinds of volume, type of gallons you might be able to do, type of earnings you might be able to do, however you want to talk about it, like a reasonable bear case -- as I said, bear case, base case, bull case.

Yes, I would start and then let Jamie elaborate -- this is Lorin -- by saying, as we think about this business, we think about the long term and think what I should share with you is what we think the earnings power of this business is. These founders, who we salute today, have a case to establish 50% market share. And if we're successful, we think this business has earnings power in the $40 million to $50 million of EBITDA range, $40 million to $50 million. We're just getting started and are thrilled to have this first tranche [ of bases ], but are not in a position or comfortable talking about 2024 but thrilled to reach this milestone, and we'll share more in the coming quarters. Jamie, anything you want to share?

No, I just think that under this construct, we're currently working with the U.S. Forest Service on what 2024 looks like. So we don't want to talk about that yet. And like Lorin said, we'll give more information in due time.

Okay. And then just finally, it's early, but what are your views right now on bid season? So what are channel inventories like in different regions? You've got a lot of things volatile, up and down, but what's your view on how bid season [indiscernible]? Should we use the average winter, typical 2%, 3% growth, or do we have to use some other base case here?

I would say that obviously supplier inventories are a bit elevated because the winter was below average. It varies in pockets. I already mentioned the strength we saw in the Upper Miss. The Ohio River was pretty weak, but suppl is pretty tight in the South, which is in our south region, that Ohio River Valley. You also have to consider inflation is still a factor to the market and competitor supply, there is some activity there. So some mines being down absorbed some of that winter weather weakness, and we feel good about extracting value -- optimal value through this bid season that's well underway now.

And Joel, this is Kevin. And to be perfectly clear, we plan to continue this value-over-volume approach. And to Jamie's point, there's a mine that fell out of the mix. There's 1 that's producing way less than it used to because it's on strike. So nothing is unfolding thus far that we would consider surprising, and we continue to approach the season from a value-over-volume standpoint to extract fair value for our products.

We go next now to Vincent Anderson of Stifel.

So to follow on that Fortress line of questioning, I guess just when we think about 2023 guidance then is that an appropriate per base run rate of revenue or does that include some amount of upfront equipment sales to the bases?

This is -- it's going to ramp up through the season. We don't know what the revenue exactly is going to look like in 2024. So it wouldn't be appropriate to just use average run rates and some growth mechanism. We're just not ready to talk about 2024 yet. We believe we'll sell more gallons to the U.S. Forest Service in 2024 as this ramps up, but we're just not ready to talk about that on a per unit basis.

And I would say, I know that folks would want us to share a 5-year view of market share. I would just reiterate, we think the earnings power of this business is $40 million to $50 million. We would discount that back to determine how long it takes us to achieve that at some reasonable discount rate, and we'll provide more perspective. But that's the earnings power, and we think it's quite an attractive transaction.

All right. Fair enough. Maybe I'll shift gears then a little bit. So will the acres that deploy your product this year, assuming it's required, will those receive some active monitoring to continue to compare and contrast with the competitive product...

Anchors that -- are you still talking about fire retardants?

Yes, on Fortress. Yes. This was studied...

Yes, I'm not quite -- yes, I'm not sure I understand. Can you ask that again? Sorry.

Yes. You're going to be deployed this year in the field officially, and will there be active monitoring of how your product performs?

Yes. No, so the product efficacy is defined, established, and that's actually what gets us on the QPL, as well as the environmental benefits, et cetera. So there is not -- this is a process where we are ramping up 5 mobile retardant bases through the summer to various locations where we're currently working on that operational plan now with the expectation that the first base deploys in June and then ramps up through the season. And it'll be working -- the bases will be in similar locations to the incumbent and able to operate at the same time at the same places throughout the season.

Okay, got it. I'll switch to something simpler really quick here. Mineral rights, so on the Utah legislation, I believe your current royalty rate at Ogden is around 5%. There's a new severance tax that needs to be better defined, but it's like 2.6% on something. But on that base 5% royalty rate, does the new legislation explicitly change that or encourage regulators to capture greater change? Or is the number not really the big question mark and it's more around omitting the berm consideration? But from an economic perspective, is that number really subject to much change?

Vincent, this is Kevin. Number of considerations there. First thing I would want to say is we've been on the Great Salt Lake for a long time and have a good reputation out there, and we're working very -- what I would consider to be very collaboratively with the state legislature out there across a variety of fronts as it relates to rule making tied to House Bill 513. Yes, 1 of the issues is clarification around royalty because we've been very clear with the state. To the extent you want to have discussions about that, we need to know ahead of time because we're deploying a lot of capital here, and we can't deploy capital if the royalty rate is going to be some sort of variable structure. So it's very clear we're going to have a severance tax and having discussions with royalties as we speak along with leasing rights, the berm management issues as it relates to Lake Health, et cetera. But we're confident that we're going to be able to work closely with the state towards viable outcomes here that are not going to jeopardize this project over the long term. Anything you would want to add to that, Chris?

Kevin, this is Chris. The project remains an incredible and exciting opportunity for growth for Compass. The thing that we talked about earlier as well is the synergy aspect that you see with the 4th mineral. And as you talked about mineral rights, just a reminder of what makes up the mineral rights. There's 6 pieces to that: 1 is that the lake bed leases, the upland leases, water rights, mineral extraction rights, lake bed construction and maintenance, and finally the mineral royalties. And so with regards to lithium, what we're doing now and what we've been working on for the past months is really coming to a conclusion on the lithium royalties. And as Kevin talked about, there is some uncertainty as to what that will be, and so that's currently being negotiated with the state right now. But we feel comfortable that we'll land in the right place.

[Operator Instructions] We'll go next now to Seth Goldstein of Morningstar.

If we assume normal weather in Plant Nutrition end markets next year, operationally, what would be your path to volumes and is there a plan to get operating cost down to restore profits?

Couple of things I'll hit, and I'll let George add some color. Good question. We do believe a restoration of normal -- back to more normal weather patterns given the precipitation that's occurred out there along with a way above average snowpack. Is going to alleviate some of the production issues that we've been having there as it relates to the pond system, and we have every belief that we can restore volumes consistent with what we've experienced in the past. And then as we said in our prepared remarks, we have Phase 2 of a program we're running internally to look at the costs across the entire platform of Compass and that does not exclude Ogden. So ensuring that we maintain our costs under control, and given the high fixed cost nature of some of our assets, Ogden being 1, the volume effect is a big deal as it relates costs. Anything you'd want to add to that, George.

Look, maybe -- it's George Schuller -- just a couple comments there, Kevin, in regards to -- Seth, we have 2 distinct goals, 1 of those being to increase our pond-based SOP production first and foremost. And the second piece of that is really bolstering our pond complex resiliency for the long term. When you look at some of the costs that we had that hit us here in 2023, I will call them somewhat one-off. We got our spike in natural gas price for this year around $3 million. And then also in regards to that, we had a small fire out of Ogden in our belt tube that goes up to the load out, really minimal impact there. But again, it did impact the cost about $2 million. We had some KCl usage. But going forward to address the questions around future production, we can control the KCl as we do that -- as we go forward, so we'll add that when it's strategic to do so. But in addition, as Kevin highlighted, we will control our costs. One of the things that we're absolutely doing is addressing our total manufacturing costs, not only at Ogden but all our sites across platform, as we've talked about in our next step. And probably the third thing I'd mention there is really when you look at where we are, and we've talked a lot about drought in the past and the impacts of drought and the weather conditions. We've had incredible year in snowpack. That bodes well for us in our pond production and our ability to have mineral returns. So that sets us up for really several years going forward. So we do have a lot of confidence in what we've been working on for the last 1 year to 1.5 year, and I think we're starting to see some real progress in regards to that.

Okay. That's great. And to follow up on the long-term companywide cost optimization, can you share an update on the Goderich long-term improvement plan?

Yes, probably not a whole lot to update on relative to last quarter, but we continue to drive those new gate roads to the north, northeast, and that's progressing nicely. George can comment on how much that is. Probably we're at least halfway done. But that's the linchpin to implementing the new mine plan, is getting those new long-term roadways connected up between the active area of the mine and the shaft bottom. And that progress continues nicely which, as we've discussed, that will allow us to abandon that old section of the mine and stop spending money on it with regard to ventilation, roof control, et cetera. And that'll begin to demonstrate levels of productivity improvement over the course of time. So all of this is occurring invisible from an external perspective because it's all captured in cost of goods sold. But there's a big development project underway, and we still remain very excited, very confident about what Goderich in the future is going to look like. Anything you'd want to add to that, George?

Yes. Seth, again, this is George. It probably gives me an opportunity to just recognize Goderich is really performing extremely well from a production point of view. As Kevin highlighted, we're over halfway across the new [ mains ] development, going extremely well. I do think that bodes well as we go forward from our -- from Goderich mine perspective, looking at where we'll continue to improve our cost and improve our productivity at Goderich. So that's all I'll add.

[Operator Instructions] And gentlemen, it appears we have no further questions this morning. Crutchfield, I'd like to turn the conference back to. You for any closing comments.

We thank you for taking time to participate in our call this morning. Look forward to keeping you updated. In the interim and to the. Extent you have any. Questions or whatever, please feel free to call Brent and look forward. To updating you again next quarter.