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PART I
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Transition Report on Form 10-KT (this “report”), including without limitation our or management’s beliefs, expectations or opinions; statements regarding future events or future financial performance; our plans, objectives and strategies; plans to develop our lithium resource, including market entry; the impact of the COVID-19 pandemic on us; our outlook, including expected sales volumes and prices; the timing and outcome of the potential sale of our Brazil chemical solutions business; the useful life of our mine properties; our expectation of extending the Goderich mineral lease; conversion of mineral resources into mineral reserves; existing or potential capital expenditures, capital projects and investments; the industry and our competition; projected sources of cash flow; potential legal liability; proposed legislation and regulatory action; the seasonal distribution of working capital requirements; our reinvestment of foreign earnings outside the United States (“U.S.”); repatriation of foreign earnings to the U.S.; payment of future dividends and ability to reinvest in our business; our ability to optimize cash accessibility and minimize tax expense; our debt service requirements; our liquidity needs; funding obligations for our United Kingdom (“U.K.”) pension plan; outcomes of matters with taxing authorities; and the seasonality of our business, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that predict or describe future events or trends and that do not relate solely to historical matters. We use words such as “may,” “would,” “could,” “should,” “will,” “likely,” “expect,” “anticipate,” “believe,” “intend,” “plan,” “forecast,” “outlook,” “project,” “estimate” and similar expressions suggesting future outcomes or events to identify forward-looking statements or forward-looking information. These statements are based on our current expectations and involve risks and uncertainties that could cause our actual results to differ materially. In evaluating these statements, you should carefully consider various risks, uncertainties and factors including, but not limited to, those listed under “Risk Factors” and elsewhere in this report. Forward-looking statements are only predictions and are subject to certain risks and uncertainties that may cause our actual results to differ materially from the forward-looking statements expressed or implied in this report as a result of factors, risks, and uncertainties, over many of which we do not have control.
Although we believe that the expectations reflected in the forward-looking statements are reasonable as of the date of this report, we cannot guarantee future results, levels of activity, performance or achievements. We do not undertake, and hereby disclaim any obligation or duty, unless otherwise required to do so by applicable laws, to update any forward-looking statement after the date of this report regardless of any new information, future events or other factors. The inclusion of any statement in this report does not constitute our admission that the events or circumstances described in such statement are material to us.
Factors that could cause actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements include, but are not limited to, the following:
•risks related to our mining and industrial operations;
•geological conditions;
•dependency on a limited number of key production and distribution facilities and critical equipment;
•weather conditions;
•uncertainties in estimating our economically recoverable reserves and resources;
•strikes, other forms of work stoppage or slowdown or other union activities;
•the inability to fund necessary capital expenditures or successfully complete capital projects;
•supply constraints or price increases for energy and raw materials used in our production processes;
•our indebtedness and inability to pay our indebtedness;
•restrictions in our debt agreements that may limit our ability to operate our business or require accelerated debt payments;
•tax liabilities;
•the inability of our customers to access credit or a default by our customers of trade credit extended by us or financing we have guaranteed;
•our payment of any dividends;
•financial assurance requirements;
•risks related to the potential phasing out of LIBOR;
•the impact of competition on the sales of our products;
•risks associated with our international operations and sales, including changes in currency exchange rates and inflation risks;
•increasing costs or a lack of availability of transportation services;
•the seasonal demand for our products;
•the impact of anticipated changes in potash product prices and customer application rates;
•conditions in the sectors where we sell products and supply and demand imbalances for competing products;
•our rights and governmental authorizations to mine and operate our properties;
•risks related to unanticipated litigation or investigations or pending litigation or investigations or other contingencies;
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•compliance with foreign and U.S. laws and regulations related to import and export requirements and anti-corruption laws;
•compliance with environmental, health and safety laws and regulations;
•environmental liabilities;
•product liability claims and product recalls;
•changes in laws, industry standards and regulatory requirements;
•misappropriation or infringement claims relating to intellectual property;
•the impact of the COVID-19 pandemic, or other outbreaks of infectious disease or similar public health threats;
•our ability to successfully implement our strategies, including the timing and outcome of the potential sale of our Brazil chemical solutions business;
•risks related to labor shortages and the loss of key personnel;
•a compromise of our computer systems, information technology or operations technology or the inability to protect confidential or proprietary data;
•climate change and related laws and regulations;
•our ability to expand our business through acquisitions and investments, realize anticipated benefits from acquisitions and investments and integrate acquired businesses;
•the impact of Brazil currency changes on the earn-out consideration we may be entitled to receive with respect to the sale of our South America specialty plant nutrition business;
•domestic and international general business and economic conditions; and
•other risk factors included in this report or reported from time to time in our filings with the Securities and Exchange Commission (the “SEC”). See “Where You Can Find More Information.”
MARKET AND INDUSTRY DATA AND FORECASTS
This report includes market share and industry data and forecasts that we obtained from publicly available information and industry publications, surveys, market research, internal company surveys and consultant surveys. Industry publications and surveys, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy and completeness of such information. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal company surveys, industry forecasts and market research, which we believe to be reliable based upon management’s knowledge of the industry, have not been verified by any independent sources. Except where otherwise noted, references to North America include only the continental U.S. and Canada, references to the U.K., include only England, Scotland and Wales, and statements as to our position relative to our competitors or as to market share refer to the most recent available data. Statements concerning (a) North American consumer and industrial salt and highway deicing salt markets are generally based on historical sales volumes, (b) U.K. highway deicing salt sales are generally based on historical sales volumes, and (c) sulfate of potash are generally based on historical sales volumes. Except where otherwise noted, all references to tons refer to “short tons” and all amounts are in U.S. dollars. One short ton equals 2,000 pounds.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with the SEC and our SEC filings are available at the SEC’s website at www.sec.gov. Copies of these documents are also available on our website, www.compassminerals.com. The information on these websites is not part of this report and is not incorporated by reference into this report. Further, our references to website URLs are intended to be inactive textual references only.
You may also request a copy of any of our filings, at no cost, by writing or telephoning:
Investor Relations
Compass Minerals International, Inc.
9900 West 109th Street, Suite 100
Overland Park, Kansas 66210
For general inquiries concerning us, please call (913) 344-9200.
Unless the context requires otherwise, references in this transition report to the “Company,” “Compass Minerals,” “CMP,” “we,” “us” and “our” refer to Compass Minerals International, Inc. (“CMI,” the parent holding company) and its consolidated subsidiaries collectively.
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COMPASS MINERALS INTERNATIONAL, INC.
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ITEM 1. BUSINESS
COMPANY OVERVIEW
Compass Minerals is a leading provider of essential minerals focused on safely delivering where and when it matters to help solve nature’s challenges for customers and communities. Our salt products help keep roadways safe during winter weather and are used in numerous other consumer, industrial and agricultural applications. Our plant nutrition products improve the quality and yield of crops, while supporting sustainable agriculture. As of September 30, 2021, we operate 15 production and packaging facilities (including 3 production facilities in South America that are part of our discontinued operations, which is discussed further below) with more than 2,000 personnel throughout the U.S., Canada, the U.K. and Brazil, including:
•The largest underground rock salt mine in the world in Goderich, Ontario, Canada;
•The largest dedicated rock salt mine in the U.K. in Winsford, Cheshire;
•A solar evaporation facility located near Ogden, Utah, which is both the largest sulfate of potash specialty fertilizer (“SOP”) production site and the largest solar salt production site in the Western Hemisphere;
•Several mechanical evaporation facilities producing consumer and industrial salt; and
•Three facilities producing specialty chemicals in Brazil.
See Item 2, “Properties,” for a discussion of our mining properties, including processing methods, facilities, production and summaries of our mineral resources and reserves, both in the aggregate and for our individual material mining properties.
Our Salt segment provides highway deicing salt to customers in North America and the U.K. as well as consumer deicing and water conditioning products, ingredients used in consumer and commercial food preparation and other salt-based products for consumer, agricultural and industrial applications in North America. In the U.K., we operate a records management business utilizing excavated areas of our Winsford salt mine with one other location in London, England.
Our Plant Nutrition segment produces and markets SOP products in various grades worldwide to distributors and retailers of crop inputs, as well as growers and for industrial uses. We market our SOP under the trade name Protassium+.
We sell our salt and plant nutrition products primarily in the U.S., Canada and the U.K. See Part II, Item 8, Note 13 to our Consolidated Financial Statements for financial information relating to our operations by geographic areas.
During fiscal 2020, we initiated an evaluation of the strategic fit of certain of our businesses. On February 16, 2021, we announced our plan to restructure our former Plant Nutrition South America segment to enable targeted and separate sales processes for each portion of the former segment, including our chemicals and specialty plant nutrition businesses along with our equity method investment in Fermavi Eletroquímica Ltda. (“Fermavi”). Concurrently, to optimize our asset base in North America, we evaluated the strategic fit of our North America micronutrient product business. On March 16, 2021, our Board of Directors approved a plan to sell our South America chemicals and specialty plant nutrition businesses, our investment in Fermavi and our North America micronutrient product business (collectively, the “Specialty Businesses”) with the goal of reducing our leverage and enabling increased focus on optimizing our core businesses.
As described further in Part II, Item 8, Note 1 and Note 3 to the Consolidated Financial Statements, on March 23, 2021, April 7, 2021 and June 28, 2021, we entered into definitive agreements to sell our South America specialty plant nutrition business, a component of our North America micronutrient business and our Fermavi investment, respectively. The South America specialty plant nutrition business sale closed on July 1, 2021, the North America micronutrient sale closed on May 4, 2021, and the sale of our Fermavi investment closed on August 20, 2021. We continue to actively pursue the sale of the South America chemicals business, and we believe this sale is probable to occur within the next twelve months. In the first quarter of 2021, we concluded that certain of our assets met the criteria for classification as held for sale and discontinued operations. As a result, we are presenting two reportable segments in continuing operations, Salt and Plant Nutrition (which was previously known as the Plant Nutrition North America segment) in this Form 10-KT. See Part II, Item 8, Note 13 to the Consolidated Financial Statements for more information. Unless otherwise indicated, the information and amounts provided in Part I of this Form 10-KT include both continuing and discontinued operations that have not yet been sold.
Our Brazil chemical solutions business serves the water treatment industry and other industrial processes and is presented as assets held for sale and discontinued operations in our Consolidated Balance Sheets and Consolidated Statements of Operations in this Form 10-KT, respectively.
Change in Fiscal Year
On June 23, 2021, our Board of Directors approved a change in our fiscal year from December 31 to September 30, effective January 1, 2021. Our results of operations, cash flows, and all transactions impacting shareholders’ equity presented in this Transition Report on Form 10-KT are for the nine months ended September 30, 2021, and our fiscal years 2020 and 2019 are for the twelve months ended December 31, 2020 and December 31, 2019 unless otherwise noted. As such, our fiscal year 2021, or fiscal 2021, refers to the period from January 1, 2021 to September 30, 2021. This Transition Report on Form 10-KT also includes an unaudited consolidated statement of operations for the comparable stub period of January 1, 2020 to September 30, 2020; see Part II, Item 8, Note 18 for additional information.
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COMPASS MINERALS INTERNATIONAL, INC.
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SALT SEGMENT
Overview
Salt is indispensable and enormously versatile with thousands of reported uses. In addition, there are no known cost-effective alternatives for most high-volume uses. Through the use of effective mining techniques and efficient production processes, we leverage our high-grade salt deposits, which are among the most extensive in the world. Further, many of our Salt segment assets are in locations that are logistically favorable to our core markets. Our strategy for this segment is to focus on driving profitability from every ton we produce through cost efficiency as well as commercial and operational execution.
Through our Salt segment, we produce, market and sell salt (sodium chloride) and magnesium chloride in North America and sodium chloride in the U.K. Our Salt products include rock salt, mechanically-evaporated salt, solar-evaporated salt, brine magnesium chloride and flake magnesium chloride. While we also purchase potassium chloride (“KCl”) and calcium chloride to sell as finished products or to blend with sodium chloride to produce specialty products, sodium chloride represents the vast majority of the products we produce, market and sell. In fiscal 2021, the Salt segment accounted for approximately 80% of our sales (see Part II, Item 8, Note 13 to our Consolidated Financial Statements for segment financial information).
Salt segment sales as a percentage of total sales from continuing operations for the nine months ended September 30, 2021 and the fiscal years ended December 31, 2020 and 2019 are as follows:
Our Salt segment products are used in a wide variety of applications, including as a deicer for roadways, consumer and professional use, as an ingredient in chemical production, for water treatment, human and animal nutrition and for a variety of other consumer and industrial uses.
Historical demand for salt has remained relatively stable during periods of rising prices and through a variety of economic cycles due to its relatively low cost and diverse number of end uses. As a result, our cash flows from our Salt segment are not materially impacted by economic cycles. However, demand for deicing salt products is primarily affected by the number and intensity of snow events and temperatures in our service territories.
Salt Industry Overview
In our primary markets, we estimate that the consumption of highway deicing rock salt in North America, including rock salt used in chemical manufacturing processes, is approximately 39 million tons per year, assuming average winter weather conditions, while the consumer and industrial market is approximately 10 million tons per year. In the U.K., we estimate that the consumption of highway deicing salt is approximately 2 million tons per year, assuming average winter weather conditions. We also estimate that salt consumption in the U.S. has increased at a historical average rate of approximately 1% per year, although there have been recent fluctuations above and below this average driven primarily by winter weather variability.
Salt prices vary according to purity, end use and variations in refining and packaging processes. Management estimates that salt prices in the U.S. have increased at a historical average rate of approximately 3% to 4% per year, although there have been recent fluctuations above and below this average. Due to salt’s relatively low production cost, transportation and handling costs tend to be a significant component of the total delivered cost, which makes logistics management and customer service key competitive factors in the industry. The high relative cost associated with transportation of salt tends to favor producers located nearest to customers.
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Products and Sales
We sell our Salt segment products through our highway deicing product line (which includes brine magnesium chloride as well as rock salt treated with this mineral) and our consumer and industrial product line (which includes salt as well as products containing magnesium chloride and calcium chloride in both pure form and blended with salt).
Highway deicing, including salt sold to chemical customers, constituted 66% of our fiscal 2021 Salt segment sales. Our principal customers are states, provinces, counties, municipalities and road maintenance contractors that purchase bulk deicing salt, both treated and untreated, for ice control on public roadways. Highway deicing salt in North America is sold primarily through an annual tendered bid contract process with governmental entities, as well as through multi-year contracts, with price, product quality and delivery capabilities as the primary competitive market factors. Some sales also occur through negotiated sales contracts with third-party customers, particularly in the U.K. Since transportation costs are a relatively large portion of the delivered cost of our products to customers, locations of salt sources and distribution networks also play a significant role in the ability of suppliers to cost-effectively serve customers. We have an extensive network of approximately 80 depots for storage and distribution of highway deicing salt in North America. The majority of these depots are located on the Great Lakes and the Mississippi River and Ohio River systems. Deicing salt product from our Ogden facility supplies customers in the Western and upper Midwest regions of the U.S. Treated rock salt, which is typically rock salt with magnesium chloride brine and organic materials that enhance the salt’s performance, is sold throughout our markets.
We believe our production capability at our Winsford mine and favorable logistics position enhance our ability to meet the U.K.’s winter demands. Due to our strong position, we are viewed as a key supplier by the U.K.’s Highways Agency. In the U.K., approximately 55% of our highway deicing customers have multi-year contracts.
Winter weather variability is the most significant factor affecting salt sales for deicing applications, because mild winters reduce the need for salt used in ice and snow control. On average, over the last three years, approximately two-thirds of our deicing product sales occurred during the North American and European winter months of November through March. The vast majority of our North American deicing sales are made in Canada and the Midwestern U.S. where inclement weather during the winter months causes dangerous road conditions. In keeping with industry practice, we stockpile salt to meet estimated requirements for the next winter season. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality” for more information on the seasonality of our Salt segment results.
Our principal chemical customers are producers of intermediate chemical products used in the production of vinyls and other chemicals, pulp and paper, as well as water treatment and a variety of other industrial uses. We typically have multi-year supply agreements with these customers. Price, service, product quality and security of supply are the major competitive market factors.
Sales of our consumer and industrial products accounted for 34% of our fiscal 2021 Salt segment sales. We are the third largest producer of consumer and industrial salt products in North America. These products include commercial and consumer applications, such as water conditioning, consumer and professional ice control, food processing, agricultural applications, table salt and a variety of industrial applications. We believe we are among the largest private-label producers of water conditioning salt in North America and of table salt in Canada. Our Sifto brand encompasses a full line of salt products, which are well recognized in Canada.
Our consumer and industrial business has broad product lines with both private-label and Company brands. Our consumer and industrial product line is distributed through many channels, including retail, agricultural, industrial, janitorial and sanitation, and resellers. These consumer and industrial products are channeled from our plants and third-party warehouses to our customers using a combination of direct sales personnel, contract personnel and a network of brokers or manufacturers’ representatives.
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COMPASS MINERALS INTERNATIONAL, INC.
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The chart below shows our annual sales volumes of Salt segment products for the nine months ended September 30, 2021, and the fiscal years ended December 31, 2020 and 2019:
Competition
We face strong competition in each of the markets in which we operate. In North America, other large, nationally and internationally recognized companies compete with our Salt segment products. In addition, there are also several smaller regional producers of salt. There are several importers of salt into North America, which mostly impact the East Coast and West Coast of the U.S. where we have minimal market presence. Two competitors serve the highway deicing salt market in the U.K., one in Northern England and one in Northern Ireland. Typically, there are not significant imports of highway deicing salt into the U.K.
Salt is a commodity, which limits the potential for product differentiation and increases competition. Additionally, low barriers to entry in the consumer and industrial markets increase competition. Our advantageous geographical locations, superior assets and distribution network strengthen our competitive position.
PLANT NUTRITION SEGMENT (FORMERLY PLANT NUTRITION NORTH AMERICA)
Industry Overview
Fertilizers are critical for efficient crop production using the limited arable land resources available around the world. The nutrients needed to ensure plant health can be divided into three categories:
•macro nutrients - the traditional NPK fertilizers (nitrogen (N), phosphorus (P) and potassium (K));
•secondary nutrients - calcium, magnesium and sulfur; and
•specialty plant nutrients - trace elements of iron, manganese, copper, boron, zinc, molybdenum, chlorine and nickel.
Factors influencing the plant nutrition market include world grain and food supply, currency fluctuations, weather and climate change, grower incomes, changes in consumer diets, general levels of economic activity, government food programs, governmental agriculture and energy policies in the U.S. and around the world, and the amount or type of crop grown in certain locations, or the type or amount of fertilizer product used. In addition, our Plant Nutrition segment results can be impacted by seasonality (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality” for more information).
Our Plant Nutrition segment currently generates most of its sales and earnings through the production and sale of SOP. There are two major forms of potassium-based fertilizer, SOP, a specialty form of potassium which also provides plant-ready sulfur, and muriate of potash (“MOP” or “KCl”). Based on management’s estimates, the average annual worldwide consumption of all potash fertilizers is approximately 92 million tons, with MOP accounting for over 85% of all potash used in fertilizer production. SOP represents approximately 9% of all potash production. The remainder of potash is supplied in forms containing varying concentrations of potassium (expressed as potassium oxide) along with different combinations of co-nutrients. SOP, which contains the equivalent of approximately 50% potassium oxide, maintains a price premium over MOP due to the fact that it contains the secondary nutrient, sulfur, does not contain chlorides and is more expensive to produce than MOP. Additionally, many high-value or chloride-sensitive crops experience improved yields and quality when SOP is applied instead of MOP. SOP is also a more cost-effective alternative to other forms of specialty potash.
Our SOP sales are concentrated in the Western and Southeastern U.S. where the crops and soil conditions favor the use of low-chloride potassium nutrients. Consequently, weather patterns and field conditions in these locations can impact Plant Nutrition sales volumes.
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COMPASS MINERALS INTERNATIONAL, INC.
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While long-term global consumption of potash has increased in response to growing populations and the need for additional food supplies, the market for commodity potash has been challenged over the last few years due to a downturn in the broader crop market which has pressured grower incomes. However, recently improved economics for row crops has led to an improved commodity potash market. Additionally, demand for our SOP products has been resilient despite the challenges facing the global potash market.
We expect the long-term demand for potassium nutrients to continue to grow as arable land per capita decreases, thereby encouraging improved crop yield efficiencies. We expect our future growth to stem from the conversion of certain commodity potassium applications into higher yield SOP applications.
Approximately 91% of our Plant Nutrition segment sales in fiscal 2021 were made to U.S. customers, who include retail fertilizer dealers and distributors of agricultural products as well as professional turf care customers. In some cases, these dealers and distributors combine or blend our Plant Nutrition segment products with other fertilizers and minerals to produce fertilizer blends tailored to individual requirements.
Products and Sales
We currently generate our sales and earnings in our Plant Nutrition segment through the production and sale of SOP. Our SOP is sold in various grades under our Protassium+ brand. Our Protassium+ product line consists of different grades sized for use in broadcast spreaders, direct application and liquid fertilizer solutions. Our turf product line consists of grades sized for use by the turf and ornamental markets and for blends used on golf course greens. We also provide an organic product line with grades sized for a wide range of applications.
Our Protassium+ product line is generally sold to crop input distributors and dealers who may blend our products with other fertilizer products to sell to farmers and growers, or it may be sold as the final product. Our commercial efforts focus on educating and selling the agronomic benefits of SOP as a source of potassium nutrients.
Competition
SOP is marketed globally, with approximately 65% of the world’s 13 million tons of estimated capacity located in China. Management estimates global SOP capacity to be as follows:
We are the leading SOP producer and marketer in North America and we also market SOP products internationally, depending on market conditions. Our major competition for SOP sales in North America includes imports from the European Union. Fluctuations in the values of foreign currencies in relation to the U.S. dollar coupled with Baltic freight rates impact the level of international competition we face. As the only SOP producer with production facilities in North America, and as a result of our logistically favorable production site near Ogden, Utah, we estimate that our share of the North American market is sizable. In addition to imported SOP, there is functional competition between SOP and other forms of potassium crop nutrients, such as MOP. The specialty plant nutrient market is highly fragmented. Commodity and specialty crops require specialty plant nutrients in varying degrees depending on the crop and soil conditions.
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COMPASS MINERALS INTERNATIONAL, INC.
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DISCONTINUED OPERATIONS
Our Brazil chemical solutions business is presented as assets held for sale and discontinued operations in our Consolidated Balance Sheets and Consolidated Statements of Operations in this Form 10-KT, respectively. For more information, see Part II, Item 8, Note 1 and Note 3 to the Consolidated Financial Statements.
Industry Overview
Our Brazil chemical solutions business produces water and wastewater treatment chemicals in Brazil for cleaning, decontaminating and purifying water as well as process chemicals for industrial use. This business benefits from the rapidly expanding focus on, and increased investment in, improving standards for drinking water purification and wastewater treatment. Our water treatment customers include state and municipal entities, wastewater treatment companies and manufacturing companies that treat their own wastewater. Our Brazil chemical solutions business also benefits from growth in Brazilian industrial sectors that use our products, including the oil and gas exploration, mining, pulp and paper production and ethanol production industries.
Operations and Facilities
Our Brazil chemical solutions business operates at three production facilities located in the Southeast and Northeast parts of Brazil, which are our Suzano I, Igarassu and Reluz Nordeste properties. Our Brazil chemical solutions products are produced through a series of chemical and physical transformations in automated reactors, granulators, grinders and mixers. Our equipment is capable of processing both primary and secondary sources of raw materials, thus enabling us to rapidly remodel our production process to deal with variations in element concentration in raw material feeds. This also allows us flexibility with regard to raw material purchasing opportunities, allowing us to purchase products that are less expensive on a percentage-contained-metal-basis.
Products and Sales
As of September 30, 2021, our Brazil chemical solutions portfolio consisted of approximately 225 products. Through our Brazil chemical solutions business, we manufacture, market and supply water treatment products and chemicals for industrial processes. Our water treatment products have many different uses, including algae control, alkalinity control, disinfection control, odor and corrosion control, water filtration and water clarification.
Competition
We believe we are one of the largest manufacturers of water treatment chemicals in Brazil. We have a strong presence in the Northeast and Southeast regions of Brazil, which allows us to take advantage of efficient logistics due to proximity to raw materials and customers. We estimate that there are approximately five companies that account for approximately two-thirds of the Brazilian water treatment market. However, as the water treatment market is highly regional by nature, average market shares do not reflect the actual competitive strength for each company by geography, product and customer type. Our strategy is to focus on the regions in which our production facilities are located and where our product’s attributes give us a naturally strong market position.
In the case of public customers, suppliers of water treatment chemicals compete through a pre-qualification and public bidding process. Barriers to market entry are therefore related to low cost of production (strongly influenced by access to low raw material costs, reduced logistics and large production scale), consistency of product quality and specification, existing customer relationships and previous supply experience.
We believe we are among the seven primary producers of caustic soda, chlorine and bleach in Brazil. Our market position is substantially stronger in the North and Northeast regions of Brazil where we operate facilities that produce these products.
OTHER
DeepStore is our records management business in the U.K. that utilizes portions of previously excavated space in our salt mine in Winsford, Cheshire, for secure underground document storage and one warehouse location in London, England. Currently, DeepStore does not have a significant share of the document storage market in the U.K., and it is not material in comparison to our Salt and Plant Nutrition segments.
INTELLECTUAL PROPERTY
To protect our intellectual property, we rely on a combination of patents, trademarks, copyrights, trade secret protection, employee and third-party non-disclosure agreements, license arrangements and domain name registrations. These protections are important to our business and we believe that our success is at least partly dependent on the acquisition and maintenance of
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these rights. However, we rely primarily on the innovative skills, technical competence, operational knowledge and marketing abilities required by our business in order to succeed.
We sell many of our products under a number of registered trademarks that we believe are widely recognized in the industry. Our trademarks registered pursuant to applicable intellectual property laws include COMPASS MINERALS, AMERICAN STOCKMAN, CANADIAN STOCKMAN, DUSTGARD, FREEZGARD, ICEAWAY, PROSOFT, SAFE STEP, SAFE STEP PRO, SIFTO, SURESOFT, SURE PAWS and PROTASSIUM+.
Any issued patents, trademarks or copyrights on our proprietary technology may not provide us with substantial protection or be commercially beneficial to us. The issuance of a patent is not conclusive as to its validity or its enforceability. Competitors may challenge our patent rights. If our patents are held unenforceable, our competitors could commercialize our patented technology.
With respect to proprietary know-how, we rely on trade secret protection and confidentiality agreements. Monitoring the unauthorized use of our technology is difficult, and we may not be able to prevent unauthorized use of our technology. The disclosure or misappropriation of our intellectual property could harm our ability to protect our rights and our competitive position (see “Risk Factors—Our intellectual property may be misappropriated or subject to claims of infringement” for more information).
HUMAN CAPITAL MANAGEMENT
As of September 30, 2021, we employed 2,223 employees, of which 975 were located in the U.S., 783 were located in Canada, 182 were located in the U.K. and 283 were located in Brazil. Approximately 50% of our workforce in the U.S., Canada and the U.K. and approximately 40% of our global workforce were represented by collective bargaining agreements. Of our 12 collective bargaining agreements in effect on September 30, 2021, five will expire in fiscal 2022 (including one for the Cote Blanche mine, which expires on March 31, 2022), three will expire in fiscal 2023, and one will expire in each of fiscal 2024, 2025, 2026 and 2027. In addition, trade union membership is mandatory in Brazil, where approximately 10% of our global workforce is located as of September 30, 2021.
Environmental, Health and Safety
At Compass Minerals, there is no higher priority than the health and safety of our employees, along with the commitments we have made to our shareholders, customers and communities to build and operate a sustainable company. We also focus on ongoing employee education with respect to environmental, health and safety matters, including injury prevention and reduction across all our operations.
Our Company has a comprehensive approach to workplace health and safety that nurtures a strong safety culture. To help ensure safety throughout our operations and in the communities where we are located, we have identified Top Risks that are consistently highlighted and discussed to keep them top-of-mind. One of our Company’s strategic imperatives is Zero Harm, which includes working toward a decrease in our total case incident rate (“TCIR”) as well as improving upon our environmental compliance-based metrics. For the nine months ended September 30, 2021, our TCIR is 2.26 from our continuing operations. TCIR is calculated as the number of reportable incidents per year multiplied by 200,000 hours, divided by exposure hours, using Occupational Safety and Health Administration calculating standards. It is an indicator of the number of incidents per 100 employees per year.
While the ongoing COVID-19 pandemic has disrupted global supply chains and created significant volatility and disruption of financial markets, our Company has continued to produce and safely deliver products as an essential business. To help mitigate potential pandemic-related challenges while ensuring a continued focus on Zero Harm, we created a cross-functional Crisis Management Team in fiscal 2020 that continued its work throughout fiscal 2021. This team monitors developments related to the spread and prevention of COVID-19, takes appropriate steps to protect our workforce and reviews existing business continuity protocols.
The safety and well-being of our employees was critical to maintaining continuous operations and delivering on customer needs as the COVID-19 pandemic persisted. By encouraging open communication, preemptive safety measures and ongoing employee support, our essential business experienced limited operational disruptions stemming from the pandemic.
Organizational Health
In fiscal 2021, we continued our work to improve organizational health by emphasizing our nine priority health practices that we identified in fiscal 2020. These practices help provide focus and set a compelling, clear direction for employees, encourage the generation of ideas from within our organization, and enable disciplined execution with strengthened accountability. To further align all employees and optimize the way we work, we launched an enterprise-wide Ability to Execute (“A2E”) training. The professional development series was designed to better equip employees with additional skills to work, lead and coach others in their day-to-day responsibilities. The A2E training was deployed in three formats to make it available to employees across a spectrum of levels of the Company.
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COMPASS MINERALS INTERNATIONAL, INC.
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Diversity, Belonging, Inclusion and Equity (“DBIE”)
At Compass Minerals, we believe that everyone has a voice and every voice matters. We are creating a workplace where our employees can bring their authentic self to work, where they feel safe, where they know they are valued and heard, where they can thrive and grow professionally, and where they can take pride in their work and in our Company.
We look at diversity across a broad set of dimensions. This helps us appreciate the uniqueness of all people and work to represent the full diversity present in the communities where we live and work. To help guide our DBIE strategy and its initiatives, a focus group of U.S. employees representing various ages, genders, races, ethnicities, sexual orientations and backgrounds met regularly with our Vice President, Diversity, Inclusion and Belonging, to provide input. Because one approach does not necessarily work effectively across multiple countries when it comes to DBIE, our efforts are adjusted as needed for implementation in other countries in which we operate.
Employee feedback helped build a DBIE strategy that focuses on raising awareness and educating employees, engaging employees in initiatives to create a sense of belonging, and finally, having a positive impact on our organization and in our communities by partnering with external groups working to improve DBIE.
Also in fiscal 2021, we introduced a One Voice learning journey. This training allows participants to reflect on their personal and professional experiences to better understand how their perceptions have shaped their interactions with others. Additionally, we began a partnership with the Society of Women Engineers that provides opportunities for professional development and employee engagement.
Part of our DBIE efforts include systemic impact as well. This year, we introduced the implementation of a vendor sustainability platform to guide and track direct spending with suppliers that are owned by minorities and women, and where feasible, we provided employees the opportunity for a remote or flexible work schedule.
Employee Development
Our employees have access to a robust learning management system as a resource to support personal and professional growth. The online platform offers a one-stop site for employee training and development. Employees can complete courses, read articles or books, and find resources for their development journey. There is relevant content for all levels, such as having courageous conversations, working effectively in teams, transitioning through leadership roles and managing priorities, to name a few.
Additionally, employees have opportunities for professional development through strategic partnerships with several outside organizations, including The Fertilizer Institute; U.K. Salt Association; Industrial Minerals Association – North America; Central Exchange; Society of Women Engineers; Ontario Mining Association; American Royal; and Women in Agribusiness.
Community
Beyond the success of our Company and our people, we are committed to supporting and creating value for our communities. We recognize that in many areas, we play an integral role in providing jobs and fostering local economic growth. On a larger scale, through our products, we support safety, sustainability and addressing food insecurity in communities around the world.
Compass Minerals Cares, our community engagement program, aligns with our Core Purpose to help keep people safe, feed the world and enrich lives, every day. This program focuses on Company giving and employee volunteerism to positively impact the communities where we live and work, and it helps foster a great sense of pride in our employees.
ENVIRONMENTAL, HEALTH AND SAFETY AND OTHER REGULATORY MATTERS
Environmental, Health and Safety Matters
Our operations subject us to an evolving set of federal, state, local and foreign environmental, health and safety (“EHS”) laws and regulations. These EHS laws and regulations regulate, or propose to regulate, the conduct of our mining and production operations, including safety procedures and process safety management; management and handling of raw and in-process materials and finished products; air and water quality impacts from our facilities; emissions of greenhouse gases; management of hazardous and solid wastes; remediation of contamination at our facilities; and post-mining land reclamation. Additional legislative and regulatory measures to address climate change and greenhouse gas emissions are in various phases of consideration. For further discussion of how EHS laws and regulations may impact our business, see Item 1A, “Risk Factors.”
While a number of our capital projects indirectly result in environmental improvements, we estimate that our fiscal 2021 environmental-specific capital expenditures were $0.5 million. We expect to have approximately $3.8 million of environmental capital expenditures in fiscal 2022. However, future capital expenditures are subject to a number of uncertainties, including changes to environmental laws and regulations, changes to our operations or unforeseen remediation requirements, and these expenditures could exceed our expectations.
As of September 30, 2021, we had recorded $2.0 million of accruals for environmental liabilities. We accrue for environmental liabilities when we believe it is probable that we will be responsible, in whole or in part, for environmental
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investigation or remediation activities and the expenditures for these activities are reasonably estimable. However, the extent and costs of any environmental investigation or remediation activities are uncertain and difficult to estimate and could exceed our expectations, which could materially affect our financial condition and operating results.
Operating Requirements and Impacts
Our operations require permits for extraction of salt and brine, air emissions, surface water discharges of process material and wastes, waste generation, injection of brine and wastewater in to subsurface wells and other activities. As a result, we hold numerous environmental and mineral extraction permits, water rights and other permits, licenses and approvals from governmental authorities authorizing operations at each of our facilities. These permits, licenses and approvals are typically subject to renewals and reissuances. Expansion of our operations or production capacity, or preservation of existing rights in some cases, is also predicated upon securing any necessary permits, licenses and approvals. The terms and conditions of future EHS laws and regulations, permits, licenses and approvals may be more stringent and may require increased expenditures on our part. In addition, although we do not engage in hydraulic fracturing (commonly known as “fracking”), laws and regulations targeting fracking could lead to increased permit requirements and compliance costs for non-fracking operations, including our Salt operations, which require permitted wastewater disposal wells that sometimes receive fluid waste from fracking operations as well.
Our Cote Blanche mine, an underground salt mine located in St. Mary Parish, Louisiana, is subject to regulation by the Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977, as amended (the “Mine Act”). MSHA is required to regularly inspect the Cote Blanche mine and issue a citation, or take other enforcement action, if an inspector or authorized representative believes that a violation of the Mine Act or MSHA’s standards or regulations has occurred. As required by MSHA, these operations are regularly inspected by MSHA personnel. See “Mine Safety Disclosures” and Exhibit 95 to this report for information concerning mine safety violations and other regulatory matters required by SEC rules. The cost of compliance and penalties for violations of the Mine Act have been and are expected to continue to be significant. Our underground salt mines located in Goderich, Ontario, Canada and Winsford, Cheshire, U.K. are subject to similar regulations regarding health and safety, and the cost of compliance with these regulations also have been and are expected to be significant.
We have post-closure reclamation obligations, primarily arising under our mining permits or by agreement. Many of these obligations include requirements to maintain financial surety bonds to fund reclamation and site cleanup following the ultimate closure of our mines or certain other facilities. As a result, we maintain financial surety bonds to satisfy these obligations.
We are also impacted by the U.S. Clean Air Act (the “Clean Air Act”) and other EHS laws and regulations that regulate air emissions. These regulatory programs may require us to make capital expenditures (for example, by installing expensive emissions abatement equipment), modify our operational practices, obtain additional permits or make other expenditures, which could be significant. In addition, we could incur fines or penalties for violations of the Clean Air Act or other EHS laws and regulations that regulate air emissions.
In August 2017, the Brazilian government ratified the United Nations Minamata Convention on Mercury (the “Minamata Convention”), which commits signatories to compel chlor-alkali facilities to phase out the use of mercury cell facilities by 2025, to ensure that mercury from these facilities is disposed of in an environmentally sound manner and to subject these facilities to record keeping and reporting requirements. Signatories may apply for two five-year exemptions from the Minamata Convention, which could delay implementation of those requirements until 2035. To date, Brazil has not adopted laws, rules or regulations regarding the decommissioning or retirement of chlor-alkali facilities. If the Brazilian government adopts regulations limiting the use of mercury pursuant to the Minamata Convention’s requirements or otherwise, our Igarassu, Brazil facility, which operates a mercury cell facility as part of our Brazil chemical solutions business, could be impacted. We cannot predict the timing, extent or content of the final regulations related to the Minamata Convention, or their ultimate cost to, or impact on us. To support transitioning away from mercury use at our Igarassu facility, we have invested in, and plan to continue to invest in, non-mercury technology as well as waste water and storm water treatment improvement projects.
We endeavor to conduct our operations in compliance with all applicable EHS laws, regulations, permits or approvals. However, because of extensive and comprehensive regulatory requirements, violations occur from time to time in our industry, and from time to time we have received notices from governmental agencies that we are not in compliance with certain EHS laws, regulations, permits or approvals. Upon receipt of these notices, we evaluate the matter and take all appropriate corrective actions.
Remedial Activities
Many of our past and present facilities have been in operation for decades. Operations at these facilities have historically involved the use and handling of regulated chemical substances, salt, salt byproducts and process tailings by us and our predecessors.
At many of these facilities, releases and disposal of regulated substances have occurred and could occur in the future, which could require us to investigate, undertake or pay for remediation activities under the U.S. Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and other similar EHS laws and regulations. These laws and
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regulations may impose “no fault” liability on past and present owners and operators of facilities associated with the release or disposal of hazardous substances, regardless of fault or the legality of the original actions. Additionally, one past or present owner or operator may be required to bear more than its proportional share of liability if payments cannot be obtained from other responsible parties.
In addition, third parties have alleged in the past and could allege in the future that our operations have resulted in contamination to neighboring off-site areas or third-party facilities, including third-party disposal facilities for regulated substances generated by our operations, which could result in liability for us under CERCLA or other EHS laws and regulations.
We have incurred and expect to continue to incur costs and liabilities as a result of our current and former operations and our predecessor’s operations. In the past, we have agreed to undertake or pay for investigations to determine whether remediation will be required under CERCLA or otherwise to address any contamination. In other instances, we have agreed to perform remediation activities or have undertaken voluntary remediation to address identified contamination. Ongoing investigation and remediation activities at our property in Kenosha, Wisconsin are described in Part II, Item 8, Note 12 of our Consolidated Financial Statements.
Other Regulatory Matters
As a global company, we are subject to complex and evolving laws and regulations. The most significant government regulations that impact our business, in addition to EHS laws and regulations, operating requirements and remedial activities, are discussed below. For further discussion of how government regulations may impact our business, see Item 1A, “Risk Factors.”
Taxes and Tariffs - We are subject to complex requirements of federal, state, local and foreign laws and regulations related to taxation, tariffs and import duties. See Part II, Item 8, Note 9 of our Consolidated Financial Statements for more information on taxes.
Import and Export Requirements, Anti-Corruption Laws and Related Matters - We manufacture, market and sell our products both inside and outside the U.S. and ship our products across international borders. As a result, we are required to comply with a number of U.S. and international regulations, which include fair competition (antitrust) laws, import and export requirements, customs laws and anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.K. Bribery Act, the Canadian Corruption of Foreign Public Officials Act and the Brazilian Clean Companies Act, which generally prohibit the making or offering of improper payments to foreign government officials and political figures for the purpose of obtaining or retaining business or to gain an unfair business advantage.
Employment and Labor Relations - We are also subject to numerous federal, state, local and foreign laws and regulations governing our relationships with our employees, including those relating to wages, overtime, labor matters, working conditions, hiring and firing, non-discrimination, immigration, work permits and employee benefits.
Impacts of Regulatory Matters
Costs of compliance with laws and regulations, including management effort, time and resources, have been and are expected to continue to be significant. These costs include the capital projects related to environmental improvements discussed above. New or proposed regulatory programs (including EHS regulatory programs), as well as future interpretations and enforcement of existing laws and regulations, may impact our business significantly, our ability to serve customers, preclude us from conducting business with governmental entities, require modification to our facilities, lead to substantial increases in operating costs, penalties, injunctions, civil remedies or fines or cause interruptions, modifications or a termination of operations, the extent to which we cannot predict. Anticipating future compliance obligations, implementing compliance plans and estimating future costs can be particularly challenging while laws and regulations are under development and have not been adopted. For further discussion, see Item 1A, “Risk Factors.”
SEC DISCLOSURE MODERNIZATION
Changes from Prior Periodic Reports
In November 2020, the SEC issued Release No. 33-10890, “Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information,” which became fully effective on August 9, 2021, with mandatory compliance for any annual period subsequent to the effective date of August 9, 2021. This release was adopted to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. Specifically, the SEC eliminated the requirement for selected financial data, only requiring quarterly disclosure when there are retrospective changes affecting comprehensive income, and amending the matters required to be presented under Management’s Discussion and Analysis (“MD&A”) to, among other things, eliminate the requirement of the contractual obligations table.
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As a result of this release, we have eliminated from this document the items discussed above that are no longer required. Information on our contractual obligations is still disclosed within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this report.
See Item 2, “Properties” for a discussion of the changes to our disclosure relating to our mining properties in accordance with subpart 1300 of Regulation S-K.
ITEM 1A. RISK FACTORS
We are subject to a number of risks which could have a material adverse effect on our business, financial condition, results of operations and the value of our securities. You should carefully consider the following risks and all of the information set forth in this report. The risks described below include risks relating to assets and liabilities presented as held for sale and discontinued operations in our Consolidated Balance Sheets and Consolidated Statements of Operations in this Form 10-KT and are not the only ones facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition or results of operations.
Operational Risks
Our mining and industrial operations can involve high-risk activities.
Our operations can involve or be subject to significant risks and hazards, including environmental hazards, industrial accidents and natural disasters. Our underground salt mining operations and related processing activities may be subject to industrial and mining accidents, fire, natural disasters, explosions, unusual or unexpected geological formations or movements, water intrusion and flooding. For example, MSHA considers our Cote Blanche mine to be a “gaseous mine” and, as a result, is subject to a heightened risk of explosion and fire. In addition, the types and volumes of certain chemicals manufactured by our Brazil chemical solutions business pose safety risks, including hazards related to chemical process manufacturing and the related storage, handling and transportation of raw materials, products and wastes. These potential risks include damage or impacts from pipeline and storage tank leaks and ruptures; explosions and fires; mechanical failures; earthquakes, tornadoes, hurricanes, flooding and other natural disasters; and chemical spills and other discharges or releases of toxic or hazardous substances or gases at our sites or during transportation.
These hazardous activities pose significant management challenges and could result in loss of life, a mine shutdown, damage to or destruction of our properties and surrounding properties, production facilities or equipment, production delays or business interruption. Our insurance coverage may be insufficient to cover all losses or claims associated with our operations, including these operational risks.
Geological conditions could lead to a mine shutdown, increased costs and production delays, which could adversely affect results of our operations.
Our salt mining operations involve complex processes, which are affected by the mineralogy of the mineral deposits and structural geologic conditions and are subject to related risks. For example, unexpected geological conditions could lead to significant water inflows and flooding at any of our underground mines, which could result in a mine shutdown, serious injuries, loss of life, increased operational costs, production delays, damage to our mineral deposits and equipment damage. We have minor water inflows at our Cote Blanche and Goderich salt mines that we actively monitor and manage. Underground mining also poses the potential risk of mine collapse or ceiling collapse (such as the September 2017 partial ceiling collapse at our Goderich mine) because of the mine geology and the rate and volume of minerals extracted, among other potential causes. We could also have a ceiling collapse in the brine wells used to extract salt for mechanical evaporation, which could increase costs and cause production delays.
Variations in the mineralogy of our mineral deposits could limit our ability to extract these deposits, increase our extraction costs and impact the purity and suitability of extracted minerals to create products for sale and to meet customer specifications. This could adversely impact our ability to fulfill our contracts, resulting in significant contractual penalties and loss of customers.
Our operations are conducted primarily through a limited number of key production and distribution facilities, and we are also dependent on critical equipment.
We conduct our operations through a limited number of key production and distribution facilities. These facilities include our underground salt mines, our evaporation plants, our solar evaporation ponds and facilities, certain facilities in Brazil and the distribution facilities, depots and ports owned by us and third parties. Many of our products are produced at one or two of these facilities. Any disruption of operations at one of these facilities could significantly affect production of our products, distribution of our products or our ability to fulfill our contractual obligations, which could damage our customer relationships.
For example, our two North American salt mines together constituted approximately 71% of our salt production capacity as of September 30, 2021, and supply most of the salt sold by our North American highway deicing business and significant
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portions of the salt sold by our consumer and industrial business. A production interruption at one of our salt mines could adversely affect our ability to fulfill our salt contracts and our ability to secure future contracts in affected markets or other markets. Our salt mines also have limited access ways and shafts and any inability to use these access ways and shafts could impede our ability to operate or cause a production interruption. In addition, we only have a limited number of distribution facilities in the markets in which we sell our salt products. Failure to have our salt products at a specific distribution facility when needed (for example during a snow event) could adversely impact our ability to fulfill our highway deicing sales contracts, resulting in significant contractual penalties and loss of customers.
Similarly, our plant nutrition product, SOP, is only produced at two locations: our solar evaporation ponds and facilities located adjacent to the Great Salt Lake near Ogden, Utah, and our facility near Big Quill Lake in Saskatchewan, Canada. SOP production from these facilities could be disrupted or negatively impacted by structural damage, as a result of dike failure or other factors, which could result in reduced sales. A production interruption or disruption at one or more of our facilities could result in a loss of customers, a loss in revenue or subject us to fines or penalties.
Our operations depend upon critical equipment, such as continuous miners, hoists, conveyor belts, bucket elevators, loading equipment, baghouses, compactors and dryers. This equipment could be damaged or destroyed, suffer breakdowns or failures or deteriorate due to wear and tear sooner than we estimate, and we may be unable to replace or repair the equipment in a timely manner or at a reasonable cost. If these events occur, we may incur additional maintenance and capital expenditures, our operations could be materially disrupted and we may not be able to produce and ship our products.
The results of our operations are dependent on and vary due to weather conditions. Additionally, adverse weather conditions or significant changes in weather patterns could adversely affect us.
Weather conditions, including amounts, timing and duration of wintry precipitation and snow events, excessive hot or cold temperatures, rainfall and drought, can significantly impact our sales, production, costs and operational results and impact our customers. From year to year, sales of our deicing products and profitability of the Salt segment may be affected by weather conditions in our markets. Any prolonged change in weather patterns in our markets, as a result of climate change or otherwise, could have a material impact on the results of our operations.
In addition, our ability to produce SOP, salt and magnesium chloride, as well as any future production of lithium, from our solar evaporation ponds located near Ogden, Utah, is dependent upon sufficient lake brine levels in the Great Salt Lake and hot, arid summer weather conditions. Prolonged periods of precipitation, lack of sunshine, cooler weather or increased mountain water run-off during the evaporation season could reduce mineral concentrations and evaporation rates, leading to decreases in our production levels. Similarly, drought or decreased mountain snowfall and associated fresh water run-off could change brine levels, impacting our mineral harvesting process, amount and timing. Lake level fluctuations and other factors could alter brine levels or mineral concentration levels, which may disrupt our typical two- to three-year evaporation production cycle. Similar factors could negatively impact the lake level and concentration of sulfates at the Big Quill Lake, impacting the operations at our Wynyard, Saskatchewan, Canada, facility. The occurrence of these events at the Great Salt Lake or Big Quill Lake (as a result of climate change or otherwise) could lead to decreased production levels, increased operating costs and significant additional capital expenditures.
Weather conditions have historically caused volatility in the agricultural industry (and indirectly in our results of operations) by causing crop failures or significantly reduced harvests, which can adversely affect application rates, demand for our SOP products and our customers’ creditworthiness. Weather conditions can also lead to a reduction in farmable acres, flooding, drought or wild fires, which could also adversely impact the number of acres planted, growers’ crop yields and the uptake of plant nutrients, reducing the need for application of plant nutrition products for the next planting season, which could result in lower demand for our SOP products and impact sale prices.
We face numerous uncertainties in estimating our economically recoverable reserves and resources, and inaccuracies in our estimates could result in lower than expected revenues, higher than expected costs and decreased profitability.
A mineral is economically recoverable when the price at which it can be sold exceeds the costs and expenses of mining, processing and selling the mineral. Forecasts of our future performance are based on, among other things, estimates of our mineral reserves and resources. Our mineral reserve and resource estimates of the remaining tons of minerals in our mines and other mining properties are based on many factors, including engineering, economic and geological data assembled and analyzed by our staff and third parties, which includes various engineers and geologists, the area and volume covered by our mining rights, assumptions regarding our extraction rates and duration of mining operations, and the quality of in-place reserves and resources. The reserve and resource estimates as to both quantity and quality are updated from time to time to reflect, among other matters, production of minerals from our mining properties and new mining or other data received.
There are numerous uncertainties inherent in estimating quantities and qualities of minerals and costs to mine recoverable reserves and resources, including many factors beyond our control. Estimates of mineral reserves and resources necessarily depend upon a number of variable factors and assumptions, any one of which may, if incorrect, result in an estimate that varies considerably from actual results. These factors and assumptions include:
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•geologic and mining conditions, including our ability to access certain mineral deposits as a result of the nature of the geologic formations of our salt mines or other factors, which may not be fully identified by available exploration data and may differ from our experience in areas we currently mine;
•demand for our minerals;
•current and future market prices for our minerals, contractual arrangements, operating costs and capital expenditures;
•taxes and development and reclamation costs;
•mining technology and processing improvements, including process technology for the extraction of lithium from brines;
•the effects of regulation by governmental agencies;
•the ability to obtain, maintain and renew all required permits;
•employee health and safety;
•historical production from the area compared with production from other producing areas; and
•our ability to convert all or any part of our resources, including our lithium and lithium carbonate equivalent (“LCE”) mineral resources, to economically extractable mineral reserves.
As a result, actual tonnage recovered from identified mining properties and revenues and expenditures with respect to our reserves and resources may vary materially from estimates. Thus, these estimates may not accurately reflect our actual reserves and resources. Any material inaccuracy in our estimates related to our reserves or resources could result in lower than expected revenues, higher than expected costs or decreased profitability, which could materially and adversely affect our business, results of operations, financial position and cash flows. Additionally, our reserve and resource estimates may be adversely affected in the future by interpretations of, or changes to, the SEC’s property disclosure requirements for mining companies.
Strikes, other forms of work stoppage or slowdown and other union activities could disrupt our business and negatively impact our financial results.
Approximately 50% of our workforce in the U.S., Canada and the U.K. and approximately 40% of our global workforce is represented by collective bargaining agreements. Of our 12 collective bargaining agreements in effect on September 30, 2021, five will expire in fiscal 2022 (including one for the Cote Blanche mine, which expires on March 31, 2022), three will expire in fiscal 2023, and one will expire in each of fiscal 2024, 2025, 2026 and 2027. In addition, trade union membership is mandatory in Brazil, where approximately 10% of our global workforce is located as of September 30, 2021.
Unsuccessful contract negotiations, adverse labor relations at any of our locations or other factors could result in strikes, work stoppages, work slowdowns, dissatisfied employees or other actions, which could disrupt our business and operations. These disruptions could negatively impact our business, our operations, our ability to produce or sell our products, our ability to service our customers and our ability to recruit and retain personnel, and could result in significant additional costs as well as adversely affect our reputation, financial condition and operating results. For example, we experienced a strike at our Goderich mine in fiscal 2018, which had a negative impact on our business and operations, including higher production costs, higher logistical costs and lost sales.
Our business is capital intensive, and the inability to fund necessary capital expenditures or successfully complete our capital projects could have an adverse effect on our growth and profitability.
In recent years, we have made significant expenditures on large capital projects, including a shaft relining project at our Goderich mine, implementing continuous mining at our Goderich mine and expanding our SOP processing plant at our Ogden facility. In addition, maintaining our existing facilities requires significant capital expenditures, which may fluctuate materially. We also may make significant capital expenditures in the future to expand or modify our existing operations, including projects to expand or improve our facilities (including new mine level development and mine expansion to access additional mineral deposits) or equipment and projects to improve our computer systems, information technology and operations technology. In addition, we may make significant capital expenditures in the future to expand proposed new lines of business, such as the potential development of our identified lithium brine and LCE resources at our Ogden facility and the Great Salt Lake. These activities or other capital improvement projects may require the temporary suspension of production at our facilities, which could have a material adverse effect on the results of our operations.
Any capital project we undertake involves risks, including cost overruns, delays and performance uncertainties, and could interrupt our ongoing operations. The expected benefits from any of our capital projects may not be realized in accordance with our projections. Our capital projects may also result in other unanticipated adverse consequences, such as the diversion of management’s attention from other operational matters or significant disruptions to our ongoing operations.
Although we currently finance most of our capital expenditures through cash provided by operations, we also may depend on increased borrowing or other financing arrangements to fund future capital expenditures. If we are unable to obtain suitable financing on favorable terms or at all, we may not be able to complete future capital projects and our ability to maintain or expand our operations may be limited. The occurrence of these events could have a material adverse effect on our business, financial condition and results of operations.
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Our production processes rely on the consumption of natural gas, electricity and certain other raw materials. A significant interruption in the supply or an increase in the price of any of these could adversely affect our business.
Energy costs, primarily natural gas and electricity, represent a substantial part of our total production costs. Our profitability is impacted by the price and availability of natural gas and electricity we purchase from third parties. Natural gas is a primary energy source used in the mechanically evaporated salt production process. Our contractual arrangements for the supply of natural gas have terms of up to three years, do not specify quantities and are automatically renewed unless either party elects not to do so. We do not have arrangements in place with back-up suppliers. We use natural gas derivatives to hedge some of our financial exposure to the price volatility of natural gas. A significant increase in the price of energy that is not recovered through an increase in the price of our products or covered through our hedging arrangements, or an extended interruption in the supply of natural gas or electricity to our production facilities, could have a material adverse effect on our business, financial condition and results of operations.
We use KCl in our salt and plant nutrition operations. Large price fluctuations in KCl can occur without a corresponding change in the sales price of our products sold to our customers. This could change the profitability of our products that require KCl, which could materially affect the results of our operations. In certain cases, we also source raw materials from a sole supplier and cannot guarantee that any supplier will be able to meet our requirements and any changes in their operations, including prolonged outages, could have a material adverse effect on our business.
Financial Risks
Our indebtedness and any inability to pay our indebtedness could adversely affect our business and financial condition.
We have a significant amount of indebtedness and may incur additional debt in the future. As of September 30, 2021, we had $946.0 million of outstanding indebtedness related to continuing operations, including $169.2 million of borrowings under our senior secured credit facilities, which are further described in Part II, Item 8, Note 11 of our Consolidated Financial Statements. We pay significant interest on our indebtedness, with variable interest on our borrowing under our senior secured credit facilities based on prevailing interest rates. Significant increases in interest rates will increase the interest we pay on our debt. Our indebtedness could:
•require us to agree to less favorable terms, including higher interest rates, in order to incur additional debt, and otherwise limit our ability to borrow additional money or sell our stock to fund our working capital, capital expenditures and debt service requirements;
•impact our ability to implement our business strategy and limit our flexibility in planning for, or reacting to, changes in our business as well as changes to economic, regulatory or other competitive conditions;
•place us at a competitive disadvantage compared to our competitors with greater financial resources;
•make us more vulnerable to a downturn in our business or the economy;
•require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing the availability of our cash flow for other purposes;
•restrict us from making strategic acquisitions or cause us to make non-strategic divestitures; and
•materially and adversely affect our business and financial condition if we are unable to meet our debt service requirements or obtain additional financing.
In the future, we may incur additional indebtedness or refinance our existing indebtedness. If we incur additional indebtedness or refinance, the risks that we face as a result of our leverage could increase. Financing may not be available when needed or, if available, may not be available on commercially reasonable or satisfactory terms. Any downgrades from credit rating agencies such as Moody’s or Standard & Poor’s may adversely impact our ability to obtain financing or the terms of such financing.
Our ability to make payments on our indebtedness, refinance our indebtedness and fund planned capital expenditures will depend on our ability to generate future cash flows from operations. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. There can be no assurance that our business will generate sufficient cash flows from operations or that future borrowings will be available to us under our revolving credit facility in an amount sufficient to enable us to make payments with respect to our indebtedness or to fund our other liquidity needs. If this were the case, we might need to refinance all or a portion of our indebtedness on or before maturity, sell assets, reduce or delay capital expenditures or seek additional equity financing. Our inability to obtain needed financing or generate sufficient cash flows from operations may require us to abandon or curtail capital projects, strategic initiatives or other investments, cause us to divest our business or impair our ability to make acquisitions, enter into joint ventures or engage in other activities, which could materially impact our business.
The agreements governing our indebtedness impose restrictions that may limit our ability to operate our business or require accelerated debt payments.
Our agreements governing our indebtedness contain covenants that limit our ability to:
•incur additional indebtedness or contingent obligations or grant liens;
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•pay dividends or make distributions to our stockholders;
•repurchase or redeem our stock;
•make investments or dispose of assets;
•prepay, or amend the terms of, certain junior indebtedness;
•engage in sale and leaseback transactions;
•make changes to our organizational documents or fiscal periods;
•create or permit certain liens on our assets;
•create or permit restrictions on the ability of certain subsidiaries to make certain intercompany dividends, investments or asset transfers;
•enter into new lines of business;
•enter into transactions with our stockholders and affiliates; and
•acquire the assets of, or merge or consolidate with, other companies.
The credit agreement governing our senior secured credit facilities also requires us to maintain financial ratios, including an interest coverage ratio and a total leverage ratio, which we may be unable to maintain. As of September 30, 2021, our total leverage ratio (as calculated under the terms of our credit agreement) was 3.4x (including discontinued operations), and if our leverage ratio exceeds 4.5x as of the last day of any quarter, we would be in default under our credit agreement.
Various risks, uncertainties and events beyond our control could affect our ability to comply with the covenants, financial tests and ratios required by the agreements governing our indebtedness. If we default under our agreements governing our indebtedness, our lenders could cease to make further extensions of credit, accelerate payments under our other debt instruments (including hedging instruments) that contain cross-acceleration or cross-default provisions and foreclose upon any collateral securing that debt as well as restrict our ability to make certain investments and payments, pay dividends, repurchase our stock, enter into transactions with affiliates, make acquisitions, merge and consolidate, or transfer or dispose of assets.
If our lenders were to require immediate repayment, we may need to obtain new financing to be able to repay them immediately, which may not be available or, if available, may not be available on commercially reasonable or satisfactory terms. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations.
We are subject to tax liabilities which could adversely impact our profitability, cash flow and liquidity.
We are subject to income tax in the U.S., Canada, Brazil and U.K. Our effective tax rate could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and the discovery of new information in the course of our tax return preparation process. Our effective tax rate, tax expense and cash flows could also be adversely affected by changes in tax laws. In December 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act,” which is commonly referred to as “U.S. tax reform”). The Act made broad and complex changes to the U.S. tax code. While significant guidance has been issued in the form of Treasury regulations and IRS Notices, it will take time for those items to be analyzed and their impacts fully determined. The Act may have a material impact on our financial results due to potential changes in the Act (including with respect to the regulations promulgated under the Act) or changes to its interpretation. We are also subject to audits in various jurisdictions and may be assessed additional taxes as a consequence of an audit.
Canadian provincial tax authorities have challenged our tax positions and assessed additional taxes on us, which are described in Part II, Item 8, Note 9 to our Consolidated Financial Statements. These tax assessments and future tax assessments could be material if the disputes are not resolved in our favor.
In the ordinary course of our business, there are many transactions and calculations that could be challenged by taxing authorities. This includes the values charged on the transfer of products between our subsidiaries. Although we believe our tax estimates and calculations are reasonable, they have been challenged by taxing authorities in the past. The final determination of any tax audits and litigation may take several years and be materially different from our historical income tax provisions and accruals in our consolidated financial statements. If additional taxes are assessed as a result of an audit, assessment or litigation, there could be a material adverse effect on our financial condition, income tax provision and net income in the affected periods as well as future profitability, cash flows and our ability to pay dividends and service our debt.
If our customers are unable to access credit, they may not be able to purchase our products. In addition, we extend trade credit to certain customers and guarantee financing that certain customers use to purchase our products. The results of our operations may be adversely affected if customers default on these obligations.
Some of our customers require access to credit in order to purchase our products. A lack of available credit to customers, due to global or local economic conditions or for other reasons, could adversely affect demand for our products and the sales of our products.
We extend trade credit to our customers in the U.S. and throughout the world, in some cases for extended periods of time. If these customers are unable to repay the trade credit from us or financing from their financial institutions, the results of our operations could be adversely affected. Our customers may be unable to repay the trade credit from us or financing from their financial institutions as a result of supply chain disruptions, market conditions in the agricultural sector, adverse weather
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conditions and increases in prices for other products and inputs that could increase the working capital requirements, indebtedness and other liabilities of our customers. We may not be able to limit our credit and collectability risk or avoid losses.
We may not pay cash dividends or pay smaller cash dividends on our common stock in the future.
We have declared and paid quarterly cash dividends on our common stock consistently since becoming a public company. Any future payment and the amount of any future payment of cash dividends will depend upon our financial condition, earnings, legal requirements, restrictions in our debt agreements, capital allocation strategy and other factors deemed relevant by our Board of Directors. We may not pay cash dividends or may reduce the amount of our cash dividends (as the Board of Directors did in November 2021). Although our operations are conducted through our subsidiaries, none of our subsidiaries is obligated to make funds available to pay dividends on our common stock. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and the distribution of funds from our subsidiaries. Certain agreements governing our indebtedness contain limitations on our ability to pay dividends (including regular annual dividends), as described under “—The agreements governing our indebtedness impose restrictions that may limit our ability to operate our business or require accelerated debt payments.” We cannot provide assurances that the agreements governing our current and future indebtedness will permit us to pay dividends on our common stock.
We are subject to financial assurance requirements and failure to satisfy these requirements could materially affect our business, results of our operations and our financial condition.
In connection with our dispute of tax assessments made by Canadian provincial tax authorities (described in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Investments, Liquidity and Capital Resources” and Part II, Item 8, Note 9 of our Consolidated Financial Statements), we are required to post and maintain financial performance bonds. In addition, as part of our business operations, we are required to maintain financial surety or performance bonds with certain of our North American deicing customers and to fund reclamation and site cleanup following the ultimate closure of our mines and certain other facilities. We incur costs to maintain these financial assurance bonds and failure to satisfy these financial assurance requirements could materially affect our business, the results of our operations and our financial condition.
Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR after 2021, or in certain cases, 2023, may affect the terms under which we can borrow funds.
The London Inter-bank Offered Rate (“LIBOR”) and certain other interest “benchmarks” may be subject to regulatory guidance and reform. The U.K.’s Financial Conduct Authority, which regulates LIBOR, has announced that it intends to stop encouraging or requiring banks to submit LIBOR rates after 2021, or in certain cases, 2023, and it is unclear if LIBOR will cease to exist or if new methods of calculating LIBOR will evolve. If LIBOR ceases to exist or if the methods of calculating LIBOR change from their current form, some of our rights under our senior secured credit facilities may be affected, such as our right to borrow British pounds sterling or Euros.
Competition, Sales and Pricing Risks
Our products face strong competition and if we fail to successfully attract and retain customers and invest in capital improvements, productivity, quality improvements and product development, sales of our products could be adversely affected.
We encounter strong competition in many areas of our business and our competitors may have significantly more financial resources than we do. Competition in our product lines is based on a number of factors, including product quality and performance, logistics (especially in salt distribution and Brazil chlor-alkali products), brand reputation, price and quality of customer service and support. Many of our customers attempt to reduce the number of vendors from which they purchase in order to increase their efficiency. To remain competitive, we need to invest in manufacturing, productivity, product innovation, marketing, customer service and support and our distribution networks. We may not have sufficient resources to continue to make such investments or maintain our competitive position. We may have to adjust our prices, strategy, product innovation, distribution or marketing efforts to stay competitive.
The demand for our products may be adversely affected by technological advances or the development of new or less costly competing products. For example, the development of substitutes for our plant nutrition products that can more efficiently mix with other agricultural inputs or have more efficient application methods may impact the demand for our products. Many of our products, including sodium chloride, magnesium chloride and SOP, have historically been characterized by a slow pace of technological advances. However, new production methods or sources for our products or the development of substitute or competing products could materially and adversely affect the demand and sales of our products.
Changes in competitors’ production, geographic or marketing focus could have a material impact on our business. We face global competition from new and existing competitors who have entered or may enter the markets in which we sell, particularly in our plant nutrition business. Some of our competitors may have greater financial and other resources than we do or are more
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diversified, making them less vulnerable to industry downturns and better positioned to pursue new expansion and development opportunities. Our competitive position could suffer if we are unable to expand our operations through investments in new or existing operations or through acquisitions, joint ventures or partnerships.
Risks associated with our international operations and sales and changes in economic and political environments could adversely affect our business and earnings.
We have significant operations in Canada and the U.K., as well as chemical solution operations in Brazil. Our fiscal 2021 sales outside the U.S. were 24% of our total fiscal 2021 sales. Our overall success as a global business depends on our ability to operate successfully in differing economic, political and cultural conditions. Our international operations and sales are subject to numerous risks and uncertainties, including:
•economic developments including changes in currency exchange rates, inflation risks, exchange controls, tariffs, economic sanctions, other trade protection measures and import or export licensing requirements;
•difficulties and costs associated with complying with laws, treaties and regulations, including tax, labor and data privacy laws, treaties and regulations, and changes to laws, treaties and regulations;
•restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses;
•restrictions on our ability to repatriate earnings from our non-U.S. subsidiaries to the U.S. or the imposition of withholding taxes on remittances and other payments by our subsidiaries;
•political developments (including uncertainty, labor shortages and potential trade difficulties caused by the U.K.’s exit from the EU, commonly referred to as “Brexit”), government deadlock, political instability, political activism, terrorist activities, civil unrest and international conflicts; and
•uncertain and varying enforcement of laws and regulations and weak protection of intellectual property rights.
A significant portion of our cash flow is generated in Canadian dollars, British pounds sterling and Brazilian reais and our consolidated financial results are reported in U.S. dollars. Our reported results can significantly increase or decrease based on exchange rate volatility after translation of our results into U.S. dollars. Exchange rate fluctuations could also impact our ability to meet interest and principal payments on our U.S. dollar-denominated debt. In addition, we incur currency transaction risk when we enter into a purchase or a sales transaction using a currency other than the local currency of the transacting entity. We may not be able to effectively manage our currency risks. For more information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Effects of Currency Fluctuations and Inflation,” and Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”
In addition, we may face more competition in periods when foreign currency exchange rates are favorable to our competitors. A relatively strong U.S. dollar increases the attractiveness of the U.S. market for some of our international competitors while decreasing the attractiveness of other markets to us.
Increasing costs or a lack of availability of transportation services could have an adverse effect on our ability to deliver products at competitive prices.
Transportation and handling costs are a significant component of our total delivered product cost, particularly for our salt products. The high relative cost of transportation favors producers whose mines or facilities are located near the customers they serve. We contract (directly and, from time to time, through third parties) bulk shipping vessels, barges, trucking and rail services to move our products from our production facilities to distribution outlets and customers. A reduction in the dependability or availability of transportation services, a significant increase in transportation service rates, adverse weather and changes to water levels on the waterways used for our products could impair our ability to deliver our products economically to our customers or expand our markets. For example, when the Mississippi river floods significantly (as it did during fiscal 2019), barges may be unable to traverse the river system and we may be prevented from timely delivering our salt products to our customers, which could increase costs to deliver our products and adversely impact our ability to fulfill our contracts, resulting in significant contractual penalties and loss of customers.
In addition, diesel fuel is a significant component of our transportation costs. Some of our customer contracts allow for full or partial recovery of changes in diesel fuel costs through an adjustment to the selling price. However, a significant increase in the price of diesel fuel that is not passed through to our customers could materially increase our costs and adversely affect our financial results.
Significant transportation costs relative to the cost of certain of our products, including our salt products and products sold by our Brazil chemical solutions business, limit our ability to increase our market share or serve new markets.
The demand for our products is seasonal.
The demand for our salt and plant nutrition products is seasonal, and the degree of seasonality can change significantly from year to year due to weather conditions, including the number of snow events, rainfall and other factors.
Our salt deicing business is seasonal. On average, in each of the last three years, approximately two-thirds of our deicing product sales occurred during the North American and European winter months of November through March. Winter weather events are not predictable, yet we must stand ready to deliver deicing products to local communities with little advance notice
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under the requirements of our highway deicing contracts. As a result, we attempt to stockpile our highway deicing salt throughout the year to meet estimated demand for the winter season. Failure to deliver under our highway deicing contracts may result in significant contractual penalties and loss of customers. Servicing markets typically serviced by one production facility with product from an alternative facility may add logistics and other costs and reduce profitability.
Our plant nutrition business is also seasonal. As a result, we and our customers generally build inventories during the low demand periods of the year (which are typically winter and summer, but can vary due to weather and other factors) to ensure timely product availability during the peak sales seasons (which are typically spring and autumn, but can also vary due to weather and other factors).
If seasonal demand is greater than we expect, we may experience increased costs and product shortages, and our customers may turn to our competitors for products that they would otherwise have purchased from us. If seasonal demand is less than we expect, we may have excess inventory to be stored (in which case we may incur increased storage costs) or liquidated (in which case the selling price may be below our costs). If prices for our products rapidly decrease, we may be subject to inventory write-downs. Our inventories may also become impaired through obsolescence or the quality may be impaired if our inventories are not stored properly. Low seasonal demand could also lead to increased unit costs.
Anticipated changes in potash prices and customer application rates can have a significant effect on the demand and price for our plant nutrition products.
When customers anticipate increasing potash selling prices, they tend to accumulate inventories in advance of the expected price increase. Similarly, customers tend to delay their purchases when they anticipate future selling prices for potash products will stabilize or decrease. These customer expectations can lead to a lag in our ability to realize price increases for our SOP products and adversely impact our sales volumes and selling prices.
Growers’ decisions to purchase plant nutrition products and the application rate for potash products depend on many factors, including expected grower income, crop prices, plant nutrition product prices, commodity prices, input prices and nutrient levels in the soil. Customers are more likely to decrease purchases and application rates when they expect declining agricultural economics or relatively high plant nutrition costs, other costs and soil nutrient levels. This variability can materially impact our prices and volumes sold.
Conditions in the sectors where we sell products and supply and demand imbalances for competing products can impact the price and demand for our products.
Conditions in the North American agricultural sectors can significantly impact our plant nutrition business. The agricultural sector can be affected by a number of factors, including weather conditions, field conditions (particularly during periods of traditionally high plant nutrition application), government policies, tariffs and import and export markets.
Demand for our products in the agricultural sector is affected by crop prices, crop selection, planted acreage, application rates, crop yields, product acceptance, population growth, livestock consumption and changes in dietary habits, among other things. Supply is affected by available capacity, operating rates, raw material costs and availability, feasible transportation, government policies, tariffs and global trade. In addition, the demand and price of our SOP products can be affected by factors such as plant disease.
MOP is the least expensive form of potash fertilizer and, consequently, it is the most widely used potassium source for most crops. SOP is utilized by growers for many high-value crops, especially crops for which low-chloride content fertilizers or the presence of sulfur improves quality and yield, such as almonds and other tree nuts, avocados, citrus, lettuce, tobacco, grapes, strawberries and other berries. Lower prices or demand for these crops could adversely affect demand for our products and the results of our operations.
When the demand and price of potash are high, our competitors are more likely to increase their production and invest in increased production capacity. An over-supply of MOP or SOP domestically or worldwide could unfavorably impact the prices we can charge for our SOP, as a large price disparity between potash products could cause growers to choose MOP or other less-expensive alternatives, which could adversely impact our sales volume and the results of our operations.
Similarly, conditions in the Salt sector can significantly impact our Salt segment. These conditions include weather conditions as well as import and export markets. Supply and demand imbalances can be caused by a number of factors, including weather conditions, operating rates, transportation costs and global trade.
Legal, Regulatory and Compliance Risks
Our operations depend on our rights and governmental authorizations to mine and operate our properties.
We hold numerous environmental and mineral extraction permits, water rights and other permits, licenses and approvals from governmental authorities authorizing operations at each of our facilities. A decision by a governmental agency to revoke, substantially modify, deny or delay renewal of or apply conditions to an existing permit, license or approval could have a material adverse effect on our ability to continue operations at the affected facility and result in significant costs. For example, certain indigenous groups have challenged the Canadian government’s ownership of the land under which our Goderich mine is
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operated. There can be no assurances that the Canadian government’s ownership will be upheld or that our existing mining and operating permits will not be revoked or otherwise affected. In addition, although we do not engage in fracking, laws and regulations targeting fracking could lead to increased permit requirements and compliance costs for non-fracking operations, including our salt operations, which require permitted wastewater disposal wells.
Furthermore, many of our facilities are located on land leased from governmental authorities or third parties. Our leases generally require us to continue mining in order to retain the lease, the loss of which could have a material adverse effect on our ability to continue operations at the affected facility and result in significant costs. In some instances, we have received access rights or easements from third parties which allow for a more efficient operation than would exist without the access or easement. Loss of these access rights or easements could have a material adverse effect on us. In addition, many of our facilities are located near existing and proposed third-party industrial operations that could affect our ability to fully extract, or the manner in which we extract, the mineral deposits to which we have mining rights. For example, certain neighboring operations or land uses may require setbacks that could prevent us from mining portions of our mineral reserves or resources or using certain mining methods.
Expansion of our existing operations or production capacity, or preservation of existing rights in some cases, is also predicated upon securing any necessary permits, licenses and approvals. For example, we may require additional permits, licenses and approvals to continue diverting water from the Great Salt Lake based on lake conditions or to further expand our production capacity at our Ogden facility. In addition, we may require additional permits, licenses and approvals in connection with the potential development of our identified lithium brine and LCE resources at our Ogden facility and the Great Salt Lake. We may not be granted the necessary permits, licenses and approvals. A decision by a governmental agency to deny, delay issuing or apply conditions to any new permits, licenses and approvals could adversely affect our ability to operate and the results of our operations, as well as our ability to develop our identified lithium brine and LCE resources.
Unanticipated litigation or investigations, or negative developments in pending litigation or investigations or with respect to other contingencies, could adversely affect us.
We are currently, and may in the future become, subject to litigation, arbitration or other legal proceedings with other parties. Any claim that is successfully asserted against us in these legal proceedings, or others that could be brought against us in the future, may adversely affect our financial condition, results of operations or prospects. We are also involved periodically in other reviews, inquiries, investigations and other proceedings initiated by or involving government agencies (including litigation brought by Canadian provincial tax authorities and the SEC investigation described in Part II, Item 8, Note 9 and Note 12 to the Consolidated Financial Statements), some of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In these types of matters, it is inherently difficult to determine whether any loss is probable or whether it is possible to estimate the amount of any reasonably possible loss. We cannot predict with certainty if, how or when such proceedings will be resolved or what the eventual judgment, settlement, fine, penalty or other relief, conditions or restrictions, if any, may be. Any eventual judgment, settlement, fine, penalty or other relief, conditions or restrictions could have a material impact on us. For further discussion of pending litigation and governmental proceedings and investigations, see Part II, Item 8, Note 9 and Note 12 to the Consolidated Financial Statements.
Compliance with import and export requirements, the FCPA and other applicable anti-corruption laws may increase the cost of doing business.
Our operations and activities inside and outside the U.S., as well as the shipment of our products across international borders, require us to comply with a number of federal, state, local and foreign laws and regulations, which are complex and increase our cost of doing business. These laws and regulations include import and export requirements, economic sanctions laws, customs laws, tax laws and anti-corruption laws, such as the FCPA, the U.K. Bribery Act, the Canadian Corruption of Foreign Public Officials Act and the Brazilian Clean Companies Act. We cannot predict how these laws or their interpretation, administration and enforcement will change over time. There can be no assurance that our employees, contractors, agents, distributors, customers, payment parties or third parties working on our behalf will not take actions in violation of these laws. Any violations of these laws could subject us to civil or criminal penalties, including fines or prohibitions on our ability to offer our products in one or more countries, debarment from government contracts (and termination of existing contracts) and could also materially damage our reputation, brand, international expansion efforts, business and operating results. In addition, changes to trade or anti-corruption laws and regulations could affect our operating practices or impose liability on us in a manner that could materially and adversely affect our business, financial condition and results of operations.
We are subject to EHS laws and regulations which could become more stringent and adversely affect our business.
Our operations are subject to an evolving set of federal, state, local and foreign EHS laws and regulations. New or proposed EHS regulatory programs, as well as future interpretations and enforcement of existing EHS laws and regulations, may require modification to our facilities, require substantial increases in equipment and operating costs, subject us to fines, penalties or
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lead to interruptions, modifications or a termination of operations, which could involve significant capital costs, increases in operating costs or other significant impacts.
For example, we are impacted by the Clean Air Act and other EHS laws and regulations that regulate air emissions. These regulatory programs may subject us to fines or penalties or require us to install expensive emissions abatement equipment, modify our operational practices, obtain additional permits or make other expenditures. Our Ogden facility is located in an area expected to be of continued scrutiny by the Environmental Protection Agency and Utah Air Quality Board with respect to certain air emissions and related issues under the Clean Air Act.
In addition, if new Clean Water Act regulations are adopted or increased compliance obligations are imposed on existing regulations, we could be adversely affected. For example, a significant portion of our salt products are distributed through salt depots owned and operated by third parties. If these depots are required to adopt more stringent stormwater management practices or are subject to increased compliance requirements under existing Clean Water Act regulations, these depots may pass on any increased costs to us, exit the depot business (requiring us to find new depot partners or establish Company-owned depots) or otherwise cause an adverse impact to our ability to deliver salt to our customers. Additionally, governmental agencies could restrict the use of road salt for highway deicing purposes or adopt laws and regulations to address climate change and greenhouse gases, which could have a material impact on us. See “Business—Environmental, Health and Safety and Other Regulatory Matters” for more information about EHS laws and regulations affecting us and their potential impact on us.
We could incur significant environmental liabilities with respect to our current, future or former facilities, adjacent or nearby third-party facilities or off-site disposal locations.
Risks of environmental liabilities is inherent in our current and former operations. At many of our past and present facilities, releases and disposals of regulated substances have occurred and could occur in the future, which could require us to investigate, undertake or pay for remediation activities under CERCLA and other similar EHS laws and regulations. The use, handling, disposal and remediation of hazardous substances currently or formerly used by us, or the liabilities arising from past releases of, or exposure to, hazardous substances may result in future expenditures that could materially and adversely affect our financial results, cash flows or financial condition. Our facilities are also subject to laws and regulations which require us to monitor and detect potential environmental hazards and damages. Our procedures and controls may not be sufficient to timely identify and protect against potential environmental damages and related costs.
We record accruals for contingent environmental liabilities when we believe it is probable that we will be responsible, in whole or in part, for environmental investigation or remediation activities and the expenditures for these activities are reasonably estimable. For example, we have ongoing investigation and remediation activities at our property located in Kenosha, Wisconsin, which are described in Part II, Item 8, Note 12 of our Consolidated Financial Statements. However, the extent and costs of any environmental investigation or remediation activities are inherently uncertain and difficult to estimate and could exceed our expectations, which could materially affect our financial condition and operating results.
Additionally, we previously sold a portion of our U.K. salt mine to a third party, which operates a waste management business. The third party’s business, under governmental permits, is allowed to securely dispose certain hazardous waste at the property they own and they pay us fees for engaging in this activity. We also operate a mercury cell facility at our Igarassu facility in Brazil. We could incur future expenditures to address risks related to this hazardous waste disposal and mercury use or to remediate any contamination. See “Business—Environmental, Health and Safety and Other Regulatory Matters” for more information.
We may face significant product liability claims and product recalls, which could harm our business and reputation.
We face exposure to product liability and other claims if our products cause harm, are alleged to have caused harm or have the potential to cause harm to consumers or their property. In addition, our products or products manufactured by our customers using our products could be subject to a product recall as a result of product contamination, our failure to meet product specifications or other causes. For example, our customers use our food-grade salt products in food items they produce, such as cheese and bread, which could be subject to a product recall if our products are contaminated or adulterated. Similarly, the use and application of our animal feed and plant nutrition products could result in a product recall if it were alleged that they were contaminated. Additionally, our production and sale of water treatment chemicals and other chemical solutions products in Brazil could result in contaminants entering waterways and the public water system, leading to significant liabilities and costs.
A product recall could result in significant losses due to the costs of a recall, the destruction of product inventory and production delays to identify the underlying cause of the recall. We could be held liable for costs related to our customers’ product recall if our products cause the recall or other product liability claims if our products cause harm to our customers or their property. Additionally, a significant product liability case, product recall or failure to meet product specifications could result in adverse publicity, harm to our brand and reputation and significant costs, which could have a material adverse effect on our business and financial performance.
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We are subject to costs and risk associated with a complex regulatory, compliance and legal environment, and we may be adversely affected by changes in laws, industry standards and regulatory requirements.
Our global business is subject to complex requirements of federal, state, local and foreign laws, regulations, treaties and regulatory authorities as well as industry standard-setting authorities. These requirements are subject to change. For example, the Biden administration may enact and implement new laws and enhanced regulations that could adversely and materially affect us. Changes in the standards and requirements imposed by these laws, regulations, treaties and authorities or adoption of any new laws, regulations or treaties could negatively affect our ability to serve our customers or our business. In the event that we are unable to meet any existing, new or modified standards when adopted, our business could be adversely affected. Some of the federal, state, local and foreign laws and regulations that affect us include those relating to EHS matters; taxes; antitrust and anti-competition laws; data protection and privacy; advertisement and marketing; labor and employment; import, export and anti-corruption; product liability; product registrations and labeling requirements; and intellectual property.
For example, if significant import duties were imposed on the salt we import into the U.S. from our Goderich mine, or if we were unable to include the transfer price of such salt in the cost of goods sold for tax purposes, our financial condition and operating results would be materially and adversely affected. We could also be adversely impacted by changes in tariffs imposed by countries or other trade protection measures, which could decrease our sales in markets where we sell our products. In addition, failure to comply with applicable laws, regulations or treaties or to comply with any of contracts we have with governmental entities could preclude us from conducting business with governmental entities and lead to penalties, injunctions, civil remedies or fines.
Our intellectual property may be misappropriated or subject to claims of infringement.
Intellectual property rights, including patents, trademarks, and trade secrets, are a valuable aspect of our business. We attempt to protect our intellectual property rights primarily through a combination of patent, trademark, and trade secret protection. The patent rights that we obtain may not provide meaningful protection to prevent others from selling competitive products or using similar production processes. Pending patent applications may not result in an issued patent. If we do receive an issued patent, we cannot guarantee that our patent rights will not be challenged, invalidated, circumvented, or rendered unenforceable.
We also rely on trade secret protection to guard confidential unpatented technology, manufacturing expertise, and technological innovation. Although we generally enter into confidentiality agreements with our employees, third-party consultants and advisors to protect our trade secrets, we cannot guarantee that these agreements provide meaningful protection or that adequate remedies will be available in the event of an unauthorized use or disclosure of our trade secrets.
Our brand names and the goodwill associated therewith are an important part of our business. We seek to register our brand names as trademarks where it makes business sense. Our trademark registrations may not prevent our competitors from using similar brand names. Many of our brand names are registered as trademarks in the U.S. and foreign countries. The laws in certain foreign countries in which we do business do not protect trademark rights to the same extent as U.S. law. As a result, these factors could weaken our competitive advantage with respect to our products, services and brands in foreign jurisdictions, which could adversely affect our financial performance.
Our intellectual property rights may not be upheld if challenged. Such claims, if proven, could materially and adversely affect our business and may lead to the impairment of the amounts recorded for goodwill and other intangible assets. If we are unable to maintain the proprietary nature of our technologies, we may lose any competitive advantage provided by our intellectual property. In addition, although any such claims may ultimately prove to be without merit, the necessary management attention to and legal costs associated with defending our intellectual property rights could be significant.
COVID-19, Strategic and Other Business Risks
The ongoing COVID-19 pandemic, or other outbreaks of infectious disease or similar public health threats, could materially and adversely affect our business, financial condition and results of operations.
The ongoing COVID-19 pandemic, and any other outbreaks of contagious diseases or other adverse public health developments in the U.S. or worldwide, could have a material adverse effect on our business, financial condition and results of operations. As an essential business, during fiscal 2021 we continued producing and delivering products that support critical industries such as transportation, agriculture, chemical, food, pharmaceutical and animal nutrition. However, COVID-19 has significantly impacted economic activity and markets worldwide, and it has and may continue to negatively affect our business in a number of ways. These effects include, but are not limited to:
•Disruptions or restrictions on our employees’ ability to work effectively due to illness, travel bans, quarantines, vaccination and testing mandates, shelter-in-place orders or other limitations could impact our business.
•Temporary closures or disruptions at our facilities or the facilities of our customers or suppliers could reduce demand for our products or affect our ability to timely meet our customer’s orders and negatively impact our supply chain. For
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example, we experienced lost sales in fiscal 2020 and fiscal 2021 primarily for certain customers of our non-deicing salt products due to manufacturing outages and retail disruptions related to COVID-19.
•Compliance with new governmental regulations could increase our operational costs. We have incurred, and expect to continue to incur, increased costs and disruptions related to health and safety precautions we have put in place at our facilities, such as increased sanitation of offices and common areas, additional personal protective equipment requirements, staggered shift schedules and pre-shift screenings.
•A COVID-19 outbreak at one or more of our facilities could result in a regulatory agency mandated closure or shut down until the outbreak is controlled and the regulatory authority allows the facility to reopen. COVID-19 vaccination and testing mandates impacting our employees, facilities or business could lead to labor shortages, increased costs and limit our ability to operate.
•Our mining and manufacturing facilities rely on raw materials and components provided by our suppliers. The impacts of COVID-19 could cause delays or disruptions in our supply chain and we could experience a mining or manufacturing slow-down or seek to obtain alternate sources of supply, which may not be available or may be more expensive. Disruptions to our supply chain and business operations, or to our suppliers’ or customers’ supply chains and business operations, could include disruptions from the closure of supplier and manufacturer facilities, interruptions in the supply of raw materials and components, personnel absences, or restrictions on the shipment of our or our suppliers’ or customers’ products, any of which could have adverse ripple effects on our business.
•Global health concerns, such as COVID-19, have resulted in and may continue to result in social, economic and labor instability in the countries and localities in which we or our suppliers and customers operate. Any of these uncertainties could have a material adverse effect on our business, financial condition or results of operations.
•The failure of third parties on which we rely, including our suppliers, customers, contractors, commercial banks, transportation service providers and external business partners, to meet their respective obligations to us, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties, could have an adverse impact on our business, financial condition or results of operations.
•The COVID-19 pandemic has significantly increased economic and demand uncertainty and has led to disruption and volatility in the global credit and financial markets, which increases the cost of capital and adversely impacts access to capital for both us and our customers and suppliers. Disruption and volatility in the global and financial markets or other factors may also cause adverse fluctuations in foreign currency exchange rates, particularly an increase in the value of the U.S. dollar against the Canadian dollar, the Brazilian real or the U.K. pound sterling, which could negatively affect our business, financial condition and reported results of operations.
The impact of COVID-19 may also exacerbate other risks discussed elsewhere in this section of this report, any of which could have a material adverse effect on us. The extent to which the ongoing COVID-19 pandemic, or other outbreaks of disease or similar public health threats, materially and adversely impact our business, financial condition and results of operations is highly uncertain and will depend on future developments. Such developments may include the geographic spread and duration of the virus, the severity of the disease and the actions that may be taken by various governmental authorities and other third parties in response to the outbreak. In addition, how quickly, if ever, and to what extent, pre-COVID-19 pandemic economic and operating conditions can resume cannot be predicted, and any return to pre-COVID-19 pandemic business operations may not be achieved or may be delayed or constrained by lingering effects on our suppliers, third-party service providers and customers. There is also no certainty about when the adverse impacts of the COVID-19 pandemic will end.
We may not successfully implement our strategies.
Our success depends, to a significant extent, on successful implementation of our business strategies, including our strategic priorities, our strategic evaluation of our recently identified lithium brine and LCE resources, our investment in Fortress North America, our cost savings initiatives, our enterprise optimization initiatives and any other strategies described in the “Business” section of this report. We cannot assure that we will be able to successfully implement our strategies or, if successfully implemented, we may not realize the expected benefits of our strategies.
The announcement of the potential sale of our Brazil chemical solutions business could disrupt our business in negative ways, which could adversely affect our business, financial condition or results of operations. We cannot predict the timing or outcome of the sale process for our Brazil chemical solutions businesses. We may not be successful in identifying a purchaser or purchasers or in obtaining an offer at an acceptable price and/or on acceptable terms and conditions. In addition, the potential sale may be time consuming and disruptive to our business operations, we may incur substantial expenses in connection with the potential sale and, if we are unable to effectively manage the sale process, our business, financial condition and results of operations could be adversely affected. For example, the potential sale could have an adverse impact on our relationships with our customers and other third-party business partners, and could distract our workforce and management team. We also cannot assure that any potential sale, if identified, evaluated and consummated, will provide greater value to our stockholders than that reflected in our current stock price. Any potential sale would be dependent upon a number of factors that may be beyond our control, including, among other factors, market conditions, industry trends, the interest of third parties in our Brazil chemical solutions business, approval from antitrust authorities and the availability of financing to potential buyers on reasonable terms.
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COMPASS MINERALS INTERNATIONAL, INC.
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Although we make substantial investments in product innovation, we cannot be certain that we will be able to develop, obtain or successfully implement new products or technologies on a timely basis or that they will be well-received by our customers. Moreover, our investments in new products and technologies involve certain risks and uncertainties and could disrupt our ongoing business. New investments may not generate sufficient revenue, may incur unanticipated liabilities and may divert our limited resources and distract management from our current operations. We cannot be certain that our ongoing investments in new products and technologies will be successful, will meet our expectations and will not adversely affect our reputation, financial condition and operating results.
Our business is dependent upon personnel, including highly skilled personnel. A labor shortage or the loss of key personnel may have a material adverse effect on our performance.
Our business is dependent on our ability to attract, develop and retain personnel. We may encounter difficulty recruiting sufficient numbers of personnel at acceptable wage and benefit levels due to the competitive labor market. If we are unable to attract, develop and retain the personnel necessary for the efficient operation of our business, this could result in higher costs and decreased productivity and efficiency, which may have a material adverse effect on our performance.
Our business is also dependent on the ability to attract, develop and retain highly skilled personnel. An inability to attract, develop and retain personnel with the necessary skills and experience could result in decreased productivity and efficiency, higher costs, the use of less-qualified personnel and reputational harm, which may have a material adverse effect on our performance.
To help attract, retain and motivate qualified personnel, we use stock-based incentive awards such as employee stock options, restricted stock units and performance stock units. If the value of these stock awards does not appreciate as measured by our common stock price, performance conditions in these awards are not met or if our stock-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate personnel could be weakened, which could harm our business.
The loss of certain key employees could result in the loss of vital institutional knowledge, experience and expertise, damage critical customer relationships and impact our ability to successfully operate our business and execute our business strategy. We may not be able to find qualified replacements for these key positions and the integration of replacements may be disruptive to our business. In addition, the loss of our key employees who have in-depth knowledge of our mining, manufacturing, engineering or research and development processes could lead to increased competition to the extent that those employees are hired by a competitor and are able to recreate our processes or share our confidential information.
If our computer systems, information technology or operations technology are disrupted or compromised, our ability to conduct our business will be adversely impacted.
We rely on computer systems, information technology and operations technology to conduct our business, including cash management, order entry, invoicing, plant operations, vendor payments, employee salaries and recordkeeping, inventory and asset management, shipping of products, and communication with employees and customers. We also use our systems to analyze and communicate our operating results and other data to internal and external recipients. While we maintain some of our critical computer and information technology systems, we are also dependent on third parties to provide important computer and information technology services. While we maintain some of our critical computer and information technology systems, we are also dependent on third parties to provide important computer and information technology services. We continue to make updates and improvements to our enterprise resource planning system, network and other core applications, which could impact substantially all of our key processes. Any implementation issues could have adverse effects on our ability to properly capture, process and report financial transactions, distribute our products, invoice and collect from our customers and pay our vendors and could lead to increased expenditures or operational disruptions.
We are susceptible to cyber-attacks, computer viruses and other technological disruptions, which generally continue to increase due to evolving threats and our expanding information technology footprint. We have experienced attempts by unauthorized agents to gain access to our computer systems through the internet, e-mail and other access points. To date, none have resulted in any material adverse impact to our business or operations. While we have programs, policies and procedures in place to identify, prevent and detect any unauthorized access, this does not guarantee that we will be able to detect or prevent unauthorized access to our computer systems. In addition, remote work arrangements for our employees could strain our technology resources and introduce operational risks, including heightened cybersecurity risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and other social engineering attempts. These risks could also impact the third parties on which we rely, and security measures employed by these third parties may also prove to be ineffective at countering threats.
A material failure or interruption of access to our computer systems for an extended period of time or the loss of confidential or proprietary data could adversely affect our operations, reputation and regulatory compliance. While we have mitigation and data recovery plans in place, it is possible that significant expenditures, capital investments and time may be required to correct any of these issues. Additional capital investment and expenditures needed to address, prevent, correct or respond to any of these issues may negatively impact our business, financial condition and results of operations.
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COMPASS MINERALS INTERNATIONAL, INC.
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Climate change and related laws and regulations could adversely affect us.
The potential impact of climate change on our resources, operations, product demand and the needs of our customers remains uncertain. Scientists have proposed that the impacts of climate change could include changes in rainfall patterns, water shortages, changing sea levels, changes to the water levels of lakes and other bodies of water, changing storm patterns and intensities and changing temperature levels. These changes could be severe and vary by geographic location. These changes could negatively impact customer demand for our products as well as our costs and ability to produce our products. For example, prolonged period of mild winter weather could reduce the market for deicing products. Drought conditions could similarly impact demand for our plant nutrition products. Climate change could also lead to disruptions in the production or distribution of our products due to major storm events or prolonged adverse conditions, changing temperature levels, lake level fluctuations or flooding from sea level changes. See “—The results of our operations are dependent on and vary due to weather conditions. Additionally, adverse weather conditions or significant changes in weather patterns could adversely affect us.” for more information.
In addition, legislative and regulatory measures to address climate change and greenhouse gas emissions (including carbon or emissions taxes) are in various phases of consideration at both the state and federal level, as well as internationally. If adopted, such measures could restrict our operations, require us to make capital expenditures to be compliant with these initiatives, increase our costs, impact our ability to compete or negatively impact efforts to obtain permits, licenses and other approvals for existing and new facilities. Proposed measures could also result in increased cost of fuel and other consumables used in our operations or in transporting our products. Our inability to timely respond to the risks posed by climate change and the costs of compliance with climate change laws and regulations could have a material impact on us.
We may not be able to expand our business through acquisitions and investments, and acquisitions and investments may not perform as expected. We may not successfully integrate acquired businesses and anticipated benefits may not be realized.
Our business strategy includes supplementing organic growth with acquisitions of and investments in complementary businesses. We may not have acquisition or investment opportunities because we may not identify suitable businesses to acquire or invest in, we compete with other potential buyers and investors, we may not have or be able to obtain suitable financing for an acquisition or investment and we may be hindered by competition and regulatory laws. If we cannot make acquisitions or investments, our business growth may be limited.
Acquisitions of new businesses and investments in new businesses (including our investment in Fortress North America) may not perform as expected, may not positively impact our financial performance and could increase our debt obligations. Acquisitions and investments involve significant risks and uncertainties, including diversion of management attention, greater than expected liabilities and expenses, inadequate return of capital and unidentified issues not discovered in our due diligence.
The success of any acquisition will also depend on our ability to successfully combine and integrate the acquired business. We may fail to integrate acquired businesses in a timely and efficient manner. The integration process could result in the loss of key employees, higher than expected costs, ongoing diversion of management attention from other strategic opportunities or operational matters, the disruption of our ongoing businesses or increased risk that our internal controls are found to be ineffective.
The impact of currency fluctuation or devaluation in Brazil may negatively affect the earn-out consideration we may be entitled to receive pursuant to the agreement to sell our South America specialty plant nutrition business.
The agreement to sell our South America specialty plant nutrition business provides that we may be entitled to a maximum earn-out payment of R$88 billion Brazilian reais, payable in 2022, if our former South America specialty plant nutrition business meets certain performance metrics. The exchange rate between the Brazilian real and the U.S. dollar has fluctuated and will continue to do so in the future. The volatility in this exchange rate may adversely impact our expected payment once converted to U.S. dollars at the time of payment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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COMPASS MINERALS INTERNATIONAL, INC.
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ITEM 2. PROPERTIES
SUMMARY OVERVIEW OF MINING OPERATIONS
Information concerning our mining properties in this Transition Report on Form 10-KT has been prepared in accordance with the requirements of subpart 1300 of Regulation S-K, which first became applicable to us for the fiscal year ended September 30, 2021. These requirements differ significantly from the previously applicable disclosure requirements of SEC Industry Guide 7. Among other differences, subpart 1300 of Regulation S-K requires us to disclose our mineral resources, in addition to our mineral reserves, as of the end of our most recently completed fiscal year both in the aggregate and for each of our individually material mining properties.
As used in this Transition Report on Form 10-KT, the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource,” “inferred mineral resource,” “mineral reserve,” “proven mineral reserve” and “probable mineral reserve” are defined and used in accordance with subpart 1300 of Regulation S-K. Under subpart 1300 of Regulation S-K, mineral resources may not be classified as “mineral reserves” unless the determination has been made by a qualified person that the mineral resources can be the basis of an economically viable project. You are specifically cautioned not to assume that any part or all of the mineral deposits (including any mineral resources) in these categories will ever be converted into mineral reserves, as defined by the SEC. See Item 1A, “Risk Factors.”
You are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have demonstrated economic value. Inferred mineral resources are estimates based on limited geological evidence and sampling and have a too high of a degree of uncertainty as to their existence to apply relevant technical and economic factors likely to influence the prospects of economic extraction in a manner useful for evaluation of economic viability. Estimates of inferred mineral resources may not be converted to a mineral reserve. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be the basis of an economically viable project, or that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted to mineral reserves. See Item 1A, “Risk Factors.”
The information that follows relating to the Ogden facility, the Cote Blanche mine and the Goderich mine is derived, for the most part, from, and in some instances is an extract from, the technical report summaries (“TRS’s”) relating to such properties prepared in compliance with the Item 601(b)(96) and subpart 1300 of Regulation S-K. Portions of the following information are based on assumptions, qualifications and procedures that are not fully described herein. Reference should be made to the full text of the TRS’s, incorporated herein by reference and made a part of this Transition Report on Form 10-KT.
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COMPASS MINERALS INTERNATIONAL, INC.
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The following map shows the locations of our mining properties, as of September 30, 2021:
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COMPASS MINERALS INTERNATIONAL, INC.
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As of September 30, 2021, we had ten mining properties, as summarized in the table below:
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Location
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Segment
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Use
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Stage
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United States
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Cote Blanche Island, Louisiana
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Salt
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Rock salt mine
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Production
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Lyons, Kansas
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Salt
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Evaporated salt facility
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Production
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Ogden, Utah
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Salt, Plant Nutrition
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SOP, solar salt and magnesium chloride facility
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Production
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Canada
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Amherst, Nova Scotia
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Salt
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Evaporated salt facility
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Production
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Goderich, Ontario
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Salt
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Rock salt mine
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Production
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Goderich, Ontario
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Salt
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Evaporated salt facility
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Production
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Unity, Saskatchewan
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Salt
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Evaporated salt facility
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Production
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Wynyard, Saskatchewan
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Plant Nutrition
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SOP facility
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Exploration
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United Kingdom
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Winsford, Cheshire
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Salt
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Rock salt mine
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Production
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Chile
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Atacama Desert
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Salt
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N/A
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Exploration
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We are the sole operator of each of our mining properties and we own all of the ownership interests in our mining operations. With respect to most of our mineral properties, we own the land and surface rights and have entered into lease agreements with respect to the mineral rights. Our mineral leases have varying terms. Some will expire after a set term of years, while others continue indefinitely. Many of these leases provide for a royalty payment to the lessor based on a specific amount per ton of minerals extracted or as a percentage of revenue. In addition, we own a number of properties and are party to non-mining leases that permit us to perform activities that are ancillary to our mining operations, such as surface use leases for storage at depots and warehouse leases. We believe that all of our leases were entered into at market terms.
We hold numerous environmental and mineral extraction permits, water rights and other permits, licenses and approvals from governmental authorities authorizing operations at each of our facilities. With respect to each facility at which we produce salt, brine or SOP, permits, licenses and approvals are obtained as needed in the normal course of business based on our mine plans and federal, state, provincial and local regulatory provisions regarding mine permitting and licensing. Based on our historical permitting experience, we expect to be able to continue to obtain necessary mining permits and approvals to support historical rates of production.
The three processing methods we use to produce salt and SOP at our production-stage properties are as follows:
•Underground Rock Salt Mining - We produce most of the salt we sell through underground mining. In North America, we use a combination of continuous mining and drill and blast techniques. At our Winsford, Cheshire, U.K., mine, we utilize continuous mining techniques. Mining machinery moves salt from the salt face to conveyor belts, which transport the salt to the mill center where it is crushed and screened. It is then hoisted to the surface where the processed salt is loaded onto shipping vessels, railcars or trucks. The primary power sources for each of our rock salt mines are electricity and diesel fuel. Rock salt is sold in our highway deicing product lines and for numerous applications in our consumer and industrial product lines.
•Mechanical Evaporation - Mechanical evaporation involves creating salt-saturated brine from brine wells in underground salt deposits and subjecting this salt-saturated brine to vacuum pressure and heat to precipitate and crystallize salt. The primary power sources used for this process are natural gas and electricity. The resulting product has a high purity and uniform physical shape. Mechanically-evaporated salt is primarily sold through our consumer and industrial salt product lines.
•Solar Evaporation - For a description of the solar evaporation process, see “—Ogden Facility” below.
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COMPASS MINERALS INTERNATIONAL, INC.
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Our current estimated production capacity is approximately 16.2 million tons of salt and 360,000 tons of SOP per year. The following table shows the estimated annual production capacity and type of salt or other mineral produced at each of our owned or leased processing locations as of September 30, 2021:
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Location
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Annual Production Capacity(1)
(tons)
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Product Type
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North America
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Goderich, Ontario, Mine
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8.0 million
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Rock Salt
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Cote Blanche, Louisiana, Mine
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2.9 million
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Rock Salt
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Ogden, Utah, Plant:
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Salt(2)
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1.5 million
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Solar Salt
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Magnesium Chloride(3)
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750,000
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Magnesium Chloride
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SOP(4)
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320,000
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SOP
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Lyons, Kansas, Plant
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450,000
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Mechanically-Evaporated Salt
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Unity, Saskatchewan, Plant
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140,000
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Mechanically-Evaporated Salt
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Goderich, Ontario, Plant
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140,000
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Mechanically-Evaporated Salt
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Amherst, Nova Scotia, Plant
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130,000
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Mechanically-Evaporated Salt
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Wynyard, Saskatchewan, Plant
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40,000
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SOP
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United Kingdom
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Winsford, Cheshire, Mine
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2.2 million
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Rock Salt
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(1)Annual production capacity is our estimate of the tons that could be produced based on design capacity, assuming optimization of our operations, including our facilities, equipment and workforce. Incremental equipment, labor or other costs may be required to achieve these production capacity estimates. As we continue our efforts to optimize and refine our production methods, we will update our estimates if necessary.
(2)Solar salts deposited annually substantially exceed the amount converted into finished products. The amount presented here represents an approximate average amount produced based on recent market demand.
(3)The magnesium chloride amount includes both brine and flake.
(4)Our annual SOP production capacity at our Ogden facility could be scaled up to approximately 550,000 tons, including amounts produced with both solar-pond based feedstock and supplemental KCl feedstock.
Actual annual salt, magnesium chloride and SOP production volume levels may vary from the annual production capacity shown in the table above due to a number of factors, including variations in the winter weather conditions which impact demand for highway and consumer deicing products, the quality of the reserves and the nature of the geologic formation that we are mining at a particular time, unplanned downtime due to safety concerns, incidents and mechanical failures, and other operating conditions.
The chart below shows annual Salt segment production volumes, including magnesium chloride, at our owned and leased production locations for the nine months ended September 30, 2021 and the fiscal years ended December 31, 2020 and 2019:
* Excludes solar salt harvested at our Ogden facility that is not converted into finished product and salt processed at our packaging facilities.
Our Ogden facility produced 298,564 tons of SOP in the fiscal year ended December 31, 2019, 301,309 tons of SOP in the fiscal year ended December 31, 2020, and 197,806 tons of SOP in the nine months ended September 30, 2021.
Our production facilities have access to vast mineral deposits. At all of our production locations, we estimate the recoverable reserves to last at least several more decades at current production rates and capacities, although additional capital resources and developmental spending may be required. Our rights to extract those minerals may be contractually limited by geographic
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COMPASS MINERALS INTERNATIONAL, INC.
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boundaries or time. We believe that we will be able to continue extending these agreements, as we have in the past, at commercially reasonable terms without incurring substantial costs or material modifications to the existing lease terms and conditions, thereby allowing us to fully utilize our existing mineral rights.
Our underground mines in Canada (Goderich, Ontario), the U.S. (Cote Blanche, Louisiana) and the U.K. (Winsford, Cheshire) make up 85% of our salt production capacity as of September 30, 2021. Each of these mines is operated with modern mining equipment and utilizes subsurface improvements, such as vertical shaft lift systems, milling and crushing facilities, maintenance and repair shops and extensive raw materials handling systems.
In 2012, we acquired mining rights to approximately 100 million tons of salt resources in the Chilean Atacama Desert. This resource estimate is based upon an initial assessment. We will need to complete a feasibility study before we decide whether to proceed with the development of this project to ensure the salt resources can be converted into reserves. The development of this project will require significant infrastructure to establish extraction and logistics capabilities. As of September 30, 2021, our investment in these rights totaled $8.5 million.
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COMPASS MINERALS INTERNATIONAL, INC.
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Summary of Mineral Resources and Reserves
Summaries of our mineral resources and reserves at the end of the nine months ended September 30, 2021 are set forth in Tables 1 and 2.
Table 1. Summary Mineral Resources at September 30, 2021
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Measured Mineral Resources (tons)(1)
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Indicated Mineral Resources (tons)(1)
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Measured + Indicated Mineral Resources (tons)(1)
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Inferred Mineral Resources (tons)(1)
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Salt(2)(3)
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United States
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Cote Blanche mine
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41,940,593
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629,032,729
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670,973,322
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163,767,364
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Ogden facility
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—
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2,395,665,293
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2,395,665,293
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—
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Other United States
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139,655,688
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193,979,000
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333,634,688
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—
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Total United States
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181,596,281
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3,218,677,022
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3,400,273,303
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163,767,364
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Canada
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Goderich mine
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—
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1,485,710,000
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1,485,710,000
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148,200,000
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Other Canada
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68,969,074
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703,305,280
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772,274,354
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—
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Total Canada
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68,969,074
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2,189,015,280
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2,257,984,354
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148,200,000
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United Kingdom
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Total United Kingdom
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47,670,000
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7,730,000
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55,400,000
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—
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Chile
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Total Chile
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—
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102,531,129
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102,531,129
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—
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Total Salt
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298,235,355
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5,517,953,431
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5,816,188,786
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311,967,364
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SOP(4)(5)
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United States
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Ogden facility
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—
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90,231,855
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90,231,855
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—
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Total United States
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—
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90,231,855
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90,231,855
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—
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Total SOP
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—
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90,231,855
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90,231,855
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—
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Magnesium Chloride(6)(7)
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United States
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Ogden facility
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—
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360,000,000
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360,000,000
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—
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Total United States
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—
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360,000,000
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360,000,000
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—
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Total Magnesium Chloride
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—
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360,000,000
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360,000,000
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—
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LCE(8)(9)
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United States
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Ogden facility
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—
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2,645,828
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2,645,828
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49,663
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Total United States
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—
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2,645,828
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2,645,828
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49,663
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Total LCE
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—
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2,645,828
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2,645,828
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49,663
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(1)Mineral resources are reported in situ. Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral resources will be converted into mineral reserves upon application of modifying factors.
(2)Based on an average sodium chloride grade of 97,350 milligrams per liter (“mg/L”) in the north arm of the Great Salt Lake and 46,300 mg/L in the south arm of the Great Salt Lake. Reported concentrations for the Great Salt Lake assume an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm. Grades of in-situ sodium chloride range from 75% at our Lyons facility to 98% at the Goderich mine. Although the actual sodium chloride grade at our underground mines is less than 100%, it is not considered in the resource, as the final saleable product is the in situ product, as-present after processing (i.e., the saleable product includes any impurities present in the in situ rock).
(3)There are multiple saleable products based on salt quality from the underground mining operations (rock salt for road deicing and chemical grade salt). For simplicity, all sales are assumed at the lower value (and higher tonnage) product, rock salt, and are based on pricing data based on a five-year
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COMPASS MINERALS INTERNATIONAL, INC.
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average of historical sales data for rock salt for road deicing of $60.58 per ton to $61.41 per ton. Sales prices are projected to increase to approximately $295.60 per ton to $706.49 per ton for rock salt for road deicing through the current expected end of mine life.
(4)Based on an average potassium grade of 7,320 mg/L in the north arm of the Great Salt Lake and 3,060 mg/L in the south arm of the Great Salt Lake. Reported concentrations for the Great Salt Lake assume an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm.
(5)Pricing data based on a five-year average of historical sales data for SOP of $573 per ton. Sales prices are projected to increase to approximately $8,529 per ton through the current expected end of mine life.
(6)Based on an average magnesium chloride grade of 11,150 mg/L in the north arm of the Great Salt Lake and 4,790 mg/L in the south arm of the Great Salt Lake. Reported concentrations for the Great Salt Lake assume an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm.
(7)Based on pricing data based on a five-year average of historical sales data for magnesium chloride of $46.98 per ton. Sales prices are projected to increase to approximately $736.78 per ton through the current expected end of mine life.
(8)Based on an average lithium grade of 51 mg/L in the north arm of the Great Salt Lake and 25 mg/L in the south arm of the Great Salt Lake. Reported concentrations for the Great Salt Lake assume an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm. Average grade of lithium in the solar evaporation ponds at the Ogden facility ranges from 205 mg/L to 318 mg/L.
(9)The LCE mineral resource estimate does not utilize an economic cut-off grade. This is due to the lake concentration being variable dependent upon lake surface elevation and the use of solar concentration ponds to increase lithium concentration in the process to levels appropriate for lithium processing. As no lithium cut-off grade has been applied, the resource estimate does not assume an effective lithium sales price.
Table 2. Summary Mineral Reserves at September 30, 2021
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Proven Mineral Reserves (tons)(1)
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Probable Mineral Reserves (tons)(1)
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Total Mineral Reserves (tons)(1)
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Salt(2)(3)
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United States
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Cote Blanche mine
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21,452,759
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236,547,378
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|
258,000,137
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Other United States
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—
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160,165,300
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|
160,165,300
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Total United States
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21,452,759
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|
396,712,678
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|
418,165,437
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Canada
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Goderich mine
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—
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470,030,000
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470,030,000
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Other Canada
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1,300,000
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35,291,354
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|
36,591,354
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Total Canada
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1,300,000
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|
505,321,354
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|
506,621,354
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United Kingdom
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Total United Kingdom
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22,800,000
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3,710,000
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|
26,510,000
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Total Salt
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45,552,759
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|
905,744,032
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951,296,791
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SOP(4)(5)
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United States
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Ogden facility
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—
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45,768,145
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45,768,145
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Total United States
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—
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45,768,145
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45,768,145
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Total SOP
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—
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45,768,145
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45,768,145
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Magnesium Chloride(6)(7)
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United States
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Ogden facility
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—
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7,105,000
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|
7,105,000
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Total United States
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—
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|
7,105,000
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7,105,000
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Total Magnesium Chloride
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—
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|
7,105,000
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7,105,000
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(1)Ore reserves are as recovered, saleable product.
(2)Based on an average sodium chloride grade of 97,350 mg/L in the north arm of the Great Salt Lake and 46,300 mg/L in the south arm of the Great Salt Lake. Reported concentrations for the Great Salt Lake assume an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm. Grades of in-situ sodium chloride range from 75% at our Lyons facility to 98% at the Goderich mine. Although the actual sodium chloride grade at our underground mines is less than 100%, it is not considered in the reserve, as the final saleable product is the in situ product, as-present after processing (i.e., the saleable product includes any impurities present in the in situ rock).
(3)There are multiple saleable products based on salt quality from the underground mining operations (rock salt for road deicing and chemical grade salt). For simplicity, all sales are assumed at the lower value (and higher tonnage) product, rock salt, and are based on pricing data based on a five-year average of historical sales data for rock salt for road deicing of $60.58 per ton to $61.41 per ton. Sales prices are projected to increase to approximately $295.60 per ton to $706.49 per ton for rock salt for road deicing through the current expected end of mine life.
(4)Based on an average potassium grade of 7,320 mg/L in the north arm of the Great Salt Lake and 3,060 mg/L in the south arm of the Great Salt Lake. Reported concentrations for the Great Salt Lake assume an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm.
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COMPASS MINERALS INTERNATIONAL, INC.
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(5)Pricing data based on a five-year average of historical sales data for SOP of $573 per ton. Sales prices are projected to increase to approximately $8,529 per ton through the current expected end of mine life.
(6)Based on an average magnesium chloride grade of 11,150 mg/L in the north arm of the Great Salt Lake and 4,790 mg/L in the south arm of the Great Salt Lake. Reported concentrations for the Great Salt Lake assume an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm.
(7)Based on pricing data based on a five-year average of historical sales data for magnesium chloride of $46.98 per ton. Sales prices are projected to increase to approximately $736.78 per ton through the current expected end of mine life.
Our mineral resource and reserve estimates were prepared by a qualified person (“QP”) and have a basis in periodic, historical reserve studies completed by third-party geological engineering firms. Our mineral resource and reserve estimates and the third-party reserve studies are based on many factors, including the area and volume covered by our mining rights, assumptions regarding our extraction rates based upon an expectation of operating the mines on a long-term basis and the quality of in-place reserves. Established criteria for inferred, indicated and measured resources and proven and probable reserves are primarily applicable to mining deposits of discontinuous metal, where both the presence of ore and its variable grade need to be precisely identified. However, the massive continuous nature of evaporative deposits, such as salt deposits, requires proportionately less data for the same degree of confidence in mineral resources and reserves, both in terms of quantity and quality.
The Ogden facility is a production stage property that separates and processes potassium, sodium and magnesium salts from brine sourced from the Great Salt Lake in Utah. The primary product currently produced at the Ogden facility is SOP (which is a potassium-rich salt used as plant fertilizer), with coproduct production of sodium chloride (which is used for highway deicing and chemical applications) and magnesium chloride (which is used in deicing, dust control and unpaved road surface stabilization applications). The Company has also identified lithium and lithium carbonate equivalent (“LCE”) as mineral resources at the Ogden facility and is currently investigating expanding its existing operations to add lithium and LCE extraction as a coproduct to SOP production. The Ogden facility relies upon solar evaporation to concentrate brine extracted from the north arm of the Great Salt Lake and precipitate the salts into a series of large evaporation ponds located on the east and west sides of the lake, referred to as the east ponds and the west ponds, respectively, prior to harvesting and processing at its related plant (the “Ogden plant”). Maps of the Ogden facility are shown in Figures 1 and 2.
Figure 1. Ogden Facility Property Location Map
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COMPASS MINERALS INTERNATIONAL, INC.
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Figure 2. Locations of East and West Ponds Relative to the Ogden Plant and the Great Salt Lake
The Great Salt Lake is the largest saltwater lake in the western hemisphere, and the fourth largest terminal lake in the world, covering approximately 1,700 square miles. It is also one of the most saline lakes in the world, with a chemical composition very similar to the world’s oceans. Salinity throughout the Great Salt Lake is governed by lake level, freshwater inflows, precipitation and re-solution of salt, mineral extraction, and circulation and constriction between bays of the lake.
The infrastructure associated with the Ogden facility, including the Ogden plant, is located on the shores of the Great Salt Lake in Box Elder and Weber Counties in the State of Utah. The Ogden plant is located at the approximate coordinates of 41˚16’51” North and 112˚13’53” West on the east side of the lake approximately 15 miles (by road) to the west of Ogden, Utah, and 50 miles (by road) to the northwest of Salt Lake City, Utah. The east ponds are located adjacent (to the north and west) to the Ogden plant in Bear River Bay. The west ponds are located on the opposite side of the Great Salt Lake (due west) in Clyman and Gunnison Bays. Access to the Ogden facility is via Ogden, Utah, and its vicinity on paved two-lane roads. From Salt Lake City, Utah, located 40 miles to the south, Ogden is accessible via Interstate Highway 15. Commercial air travel is accessible from Salt Lake City. The area population provides a more than adequate base for staffing the Ogden facility, with a pool of talent for both trades and technical management. The Ogden facility is connected to the local municipal water distribution system, Weber Basin Water Conservation District. The Ogden facility is also connected to the local electrical and natural gas distribution systems provided by Rocky Mountain Power and Dominion Energy, respectively, and houses an existing substation that services the operations at the east ponds. Rail access is provided by Union Pacific Railroad on an existing siding at the Ogden plant.
The Ogden facility is located on approximately 171,114.53 acres of land, of which approximately 7,434.16 acres are owned by the Company. The Great Salt Lake and minerals associated with it are owned by the State of Utah. The Company is able to extract and produce salts from the lake by rights derived from a combination of: (i) lakebed lease agreements (the “Lakebed Leases”) with the Utah Department of Natural Resources, Division of Forestry, Fire and State Lands (the “Utah FFSL”); (ii) two leases for upland evaporation ponds (the “Upland Pond Leases”) with the State of Utah School and Institutional Trust Lands Administration (the “Utah SITLA”); (iii) seven non-solar leases and easements; (iv) water rights for consumption of
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COMPASS MINERALS INTERNATIONAL, INC.
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brines and freshwater (the “Water Rights”) through the Utah Department of Natural Resources, Division of Water Rights; (v) a large mine operation mineral extraction permit (GSL Mine M/057/0002) (the “Mineral Extraction Permit”) through the Utah Department of Natural Resources, Division of Oil, Gas and Mining (the “Utah DOGM”); and (vi) a royalty agreement, dated September 1, 1962 (as amended from time to time, the “Royalty Agreement”), with the Utah State Land Board.
Leasable areas for mineral extraction on the Great Salt Lake lakebed are identified in the Great Salt Lake Comprehensive Management Plan (the “GSL Plan”), which is managed by the Utah FFSL. The GSL Plan is updated approximately every ten years, or when there are major changes to the Great Salt Lake environment and setting. A party interested in leasing lakebed for mineral extraction may nominate an area within the area designated by the GSL Plan as leasable, at which time, the Utah FFSL will issue public notice of lease nomination, conduct an environmental assessment on the nominated lease area, and ultimately consider approval of the lease nomination. This process was followed historically in the acquisition of existing Lakebed Leases held by the Company for the Ogden facility.
The Lakebed Leases and Upland Pond Leases provide the Company the right to develop mineral extraction and processing facilities on the shore of the Great Salt Lake. The Lakebed Leases and Upland Pond Leases were issued between 1965 and 2012 and cover a total lease area of approximately 163,681 acres among 12 active leases, though not all are currently utilized.
Each of the Lakebed Leases remains in effect until the termination of the Royalty Agreement. Most of the Lakebed Leases provide the State of Utah with the opportunity to periodically adjust the lease’s terms, except for the royalties to be paid. These readjustment opportunities occur at intervals ranging from five to 20 years. In the past, these periodic readjustments have not materially hindered the business.
Pursuant to each of the Lakebed Leases (except for Mineral Lease 20000107), the Company is obligated to pay rent at rates ranging from $0.50 to $2.00 per acre per year, and some leases have a minimum rent of $10,000 per year. The rent paid pursuant to each lease is credited against the Company’s royalty obligations pursuant to the Royalty Agreement (as described further below). The rent for Mineral Lease 20000107 is $69,024 annually and is not credited against royalties due. The Lakebed Leases do not impose any material conditions on the Company’s retention of the property except for the continued production of commercial quantities of minerals and payment of rent and royalties.
The Upland Pond Leases consist of Special Use Lease Agreement (“SULA”) 1186, which was acquired in May 1999, and SULA 1267, which was acquired from Solar Resources International in 2013. SULA 1186 and SULA 1267 expire in April 2049 and December 2041, respectively, but the Company has options to extend each agreement for two successive five-year periods. The rent for SULA 1186 is $16,460 per year and rent for SULA 1267 is $207,000 per year. Both Upland Pond Leases allow for the construction and operation of evaporation ponds on the subject properties. The Upland Pond Leases do not impose any material conditions on the Company’s retention of the property except for payment of rent.
The Company also holds seven non-solar leases and easements granted by Utah FFSL or Utah SITLA covering approximately 1,258 acres. Two of these are material to the operation of the Ogden facility, Behrens Trench Easement 400-00313 and PS-113 Easement SOV002-0400. The Company paid a one-time fee of $42,514 for Behrens Trench Easement 400-00313, which expires in June 2051. The Company paid a one-time fee of $27,273 for PS-113 Easement SOV002-0400, which does not expire. The Company also has a lease indenture for a brine canal with the Union Pacific Railroad, dated April 13, 1967, on Promontory Point. The indenture automatically renews with payment, which is $595.72 annually.
The Water Rights are procured by application to the Utah Department of Natural Resources, Division of Water Rights, which reviews the application and evaluates the proposed nature of use, place of use, and point of diversion in light of availability of water pursuant to hydrology and/or prior claims relative to the available water, and whether the proposed use would impair existing water right holders. The application is posted for public review and comment, and the State Engineer evaluates the merits of the application and either approves or denies the application, sometimes with modifications or conditions on future use. The Water Rights control the actual extraction of minerals from the Great Salt Lake and dictate the amount of brine that can be pumped from the lake on an annual basis. The Company has 156,000 acre-feet extraction rights from the north arm of the Great Salt Lake under five Water Rights, on which it relies for its current production. The Company holds additional 205,000 acre-feet water extraction rights that can be utilized on either the north or south arms of the Great Salt Lake under two Water Rights that are currently unutilized. As a limit on the volume of brine that can be pumped from the lake in a year, the Water Rights effectively cap the aggregate production of salt that is possible in any year. The Company has certificated all of its Water Rights, meaning that demonstration of actual use in order to retain the right in perpetuity has been approved and authorized.
The Mineral Extraction Permit (GSL Mine M/057/0002) was granted by the Utah DOGM. The Mineral Extraction Permit enables extraction of brine from the Great Salt Lake and ultimate mineral extraction from the brine. The Mineral Extraction Permit also enables all lake extraction, pond operations, and plant and processing operations conducted by the Company at the Ogden facility. The Mineral Extraction Permit is supported by a reclamation plan that documents all aspects of current operations and mandates certain closure and reclamation requirements in accordance with Utah Rule R647-4-104. Financial assurance for the ultimate reclamation of facilities is documented in the reclamation plan, and security for costs that will be incurred to execute site closure is provided by a third-party insurer to the State of Utah in the form of a surety bond. The total future reclamation obligation is estimated to be $4.36 million. The Company expects that its lithium extraction plans are
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COMPASS MINERALS INTERNATIONAL, INC.
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allowed under the terms of the Mineral Extraction Permit. Any greenfield expansion of ponds or appurtenances beyond the existing facility footprint would require a modification to the Mineral Extraction Permit regardless of the mineral(s) developed.
Pursuant to the Royalty Agreement, the Company has rights to all salts from the Great Salt Lake, and in exchange, the Company pays a royalty to the State of Utah based on net revenues per pound of salts produced. The Royalty Agreement contains a most favored nations clause that effectively provides that the Company always pays the lowest royalty rate for any particular salts as any other person pays to the State of Utah for extraction of such salts. The current royalty rate for SOP under the Royalty Agreement is 4.8%. To extract lithium and LCE products (as described in further detail below), the Royalty Agreement must be modified. Currently, there is no statutory royalty rate specifically for lithium products in Utah, but the statutory rate for other mined minerals in Utah is 5% of net revenues. To produce lithium products of lithium carbonate or lithium hydroxide, the Company would reasonably expect to deduct the cost of purchased carbonate or hydroxide inputs. The Royalty Agreement does not expire so long as paying quantities of minerals are produced and the Company pays a minimum royalty of not less than $10,000 per year.
The Ogden facility is the largest SOP production site in the western hemisphere, and one of only four large-scale solar brine evaporation operations for SOP in the world. The Ogden facility has the capability to produce up to 325,000 tons of solar pond-based SOP, approximately 750,000 tons of magnesium chloride and 1.5 million tons of sodium chloride annually when weather conditions are typical. These recoverable minerals exist in vast quantities in the Great Salt Lake.
Solar evaporation is used in areas of the world where high-salinity brine is available and weather conditions provide for a high natural evaporation rate. Mineral-rich lake water, or brine, from the Great Salt Lake is drawn into the solar evaporation ponds. The brine moves through a series of solar evaporation ponds over a two- to three-year production cycle. As the water evaporates and the mineral concentration increases, some of those minerals naturally precipitate out of the brine and are deposited on the pond floors. These deposits provide the minerals necessary for processing into SOP, solar salt and magnesium chloride. The evaporation process is dependent upon sufficient lake brine levels and hot, arid summer weather conditions. The potassium-bearing salts are mechanically harvested out of the solar evaporation ponds and refined to high-purity SOP through flotation, crystallization and compaction at the Ogden plant. After sodium chloride and potassium-rich salts precipitate from brine, a concentrated magnesium chloride brine solution remains, which becomes the raw material used to produce several magnesium chloride products. Recent analysis and evaluations conducted by the Company have also demonstrated that this magnesium chloride solution contains material quantities of lithium, which, when combined with the naturally occurring lithium content of the Great Salt Lake, forms the basis for the estimates of the lithium mineral resources at the Ogden facility summarized below.
Operations have been ongoing at the Ogden facility since the late 1960s, with commercial production starting in 1970. Lithium Corporation of America (“Lithcoa”), separately, and then in a partnership with a wholly owned subsidiary of Salzdetfurth, A.G., carried out initial exploration and development activities between 1963 and 1966. In 1967, Gulf Resources and Minerals Co., or Gulf Resources, acquired Lithcoa, and in 1973, acquired Salzdetfurth, A.G.’s (then known as Kaliund Salz A.G.) partnership interest. Gulf Resources made significant capital expenditures in the early 1980s to protect the evaporation pond system at the Ogden facility from the rising levels of the Great Salt Lake. On May 5, 1984, a northern dike of the system breached, resulting in severe flooding and damage to about 85% of the pond complex. The breach resulted in physical damage to dikes, pond floors, bridges, pump stations, and other structures. In addition, brine inventories were diluted, making them unusable for producing SOP. During the next five years, Gulf Resources pumped the water from its solar ponds, reconstructed peripheral and interior dikes and roads, replaced pump stations, and laid down new salt floors in order to restart its operation at the Ogden facility. In 1993, D.G. Harris & Associates acquired the Ogden facility, and in 1994, constructed the west ponds, which are connected to the east ponds by a 21-mile, open, underwater canal called the Behrens Trench, which was dredged in the lakebed from the west ponds’ outlet to a pump station near the east ponds. Ownership of the Ogden facility was transferred in 1997 to IMC Global (“IMC”), following its acquisition of Harris Chemical Group (part of D.G. Harris & Associates). IMC sold a majority of its salt operations, including the Ogden facility, to Apollo Management V, L.P. through an entity called Compass Minerals Group in 2001. Following a leveraged recapitalization, the company now known as Compass Minerals International, Inc. completed an initial public offering in 2003.
The Company has operated the Ogden facility since its initial public offering in 2003. In that time, the Company has invested funds and acquired necessary permits to increase the efficiency and expand the capacity of the Ogden facility through upgrades to the Ogden plant and solar evaporation ponds. The Company believes that the Ogden facility and its operating equipment are maintained in good working condition. The net book value of property, plant and equipment associated with the Ogden facility as of September 30, 2021 was $242,500,000, exclusive of mineral rights and the value of assets leased under operating leases.
Beginning in 2018, the Company undertook a program to better understand lithium concentrations within the processes of the ongoing operations at the Ogden facility, and specifically, within the brine remnants hosted within the halite beds of the largest evaporation ponds. Activities undertaken to date have included pot-hole trenching, sonic core drilling, aquifer testing within the salt mass, brine sampling and analysis, and geotechnical analysis of the halite to better understand its hydraulic properties. The Company has also conducted bench-top and pilot scale mineral processing and metallurgical testing to evaluate the efficacy of lithium extraction from Great Salt Lake brine as a coproduct to the existing production of other salts. The
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COMPASS MINERALS INTERNATIONAL, INC.
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Company’s current proposed program of exploration and development relates to evaluating process technologies most applicable to the extraction of lithium from brine.
The Ogden facility has procured and is operating in compliance with all required operating licenses, including permits pertaining to mineral extraction, effluent discharge and air permitting. The Ogden facility operates under a Title V air permit (# 5700001003), which is administered by the Utah Department of Environmental Quality. The permit covers emissions from the pond and plant operations and expires in December 2026. Additional air permitting will be required for processing plants associated with the planned extraction of lithium, the specific requirements of which are unknown and will depend upon the design of the processing plant. Surface water discharges from the Ogden facility are regulated under Utah Pollutant Discharge Elimination System (UPDES) permit UT0000647. The permit requires discharge monitoring for effluent flows from the nine outfalls that discharge into the saline waters of the Great Salt Lake and regulates inputs in pond and plant processes that may be discharged in project effluent.
Summaries of the Ogden facility’s potassium and SOP mineral resources and mineral reserves as of September 30, 2021 and December 30, 2020 are shown in Tables 3 and 4, respectively. Joseph Havasi, who is employed full-time as the Director, Natural Resources, of the Company, served as the QP and prepared the estimates of potassium and SOP mineral resources and mineral reserves at the Ogden facility. A copy of the QP’s TRS with respect to the potassium and SOP mineral resource and reserve estimates at the Ogden facility, dated November 29, 2021, with an effective date of September 30, 2021 (the “Ogden Potassium TRS”), is filed as Exhibit 96.1 hereto.
Table 3. Ogden Facility – Summary of Potassium and SOP Mineral Resources at September 30, 2021 and December 30, 2020
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September 30, 2021
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December 31, 2020
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Resource Area
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Average Potassium Grade (mg/L)(7)
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Potassium Resources (tons)(1)(2)(4)(5)
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Cut-Off Grade (mg/L)(6)
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SOP Resources (tons)(1)(2)(3)(4)(5)
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Average Potassium Grade (mg/L)(7)
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Potassium Resources (tons)(1)(2)(4)(5)
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Cut-Off Grade (mg/L)(6)
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SOP Resources (tons)(1)(2)(3)(4)(5)
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Measured Resources
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Total Measured Resources
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—
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—
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—
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—
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—
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—
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—
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—
|
Indicated Resources
|
Great Salt Lake North Arm
|
7,320
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14,480,978
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4,000
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32,231,855
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7,320
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14,521,604
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4,000
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32,322,279
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Great Salt Lake South Arm
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3,060
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26,057,971
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1,660
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58,000,000
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3,060
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26,057,971
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1,660
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58,000,000
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Total Indicated Resources
|
|
40,538,949
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90,231,855
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|
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40,579,575
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90,322,279
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Measured + Indicated Resources
|
Great Salt Lake North Arm
|
7,320
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14,480,978
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4,000
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32,231,855
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7,320
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14,521,604
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4,000
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32,322,279
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Great Salt Lake South Arm
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3,060
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26,057,971
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1,660
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58,000,000
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3,060
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26,057,971
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1,660
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58,000,000
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Total Measured + Indicated Resources
|
|
40,538,949
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90,231,855
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40,579,575
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90,322,279
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Inferred Resources
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Total Inferred Resources
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—
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—
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—
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—
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—
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—
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—
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—
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(1)Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral resources will be converted into mineral reserves upon application of modifying factors.
(2)Mineral resources are reported in situ for the both the north arm and the south arm of the Great Salt Lake.
(3)Conversion of potassium to SOP uses a factor of 2.2258 tons of SOP per ton of potassium.
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COMPASS MINERALS INTERNATIONAL, INC.
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(4)Included process recovery is approximately 7.8% based on historical production results. Mining or metallurgical recovery is not applicable for this operation.
(5)Based on pricing data described in Section 18.1 of the Ogden Potassium TRS. The pricing data is based on a five-year average of historical sales data for SOP of $573 per ton. Sales prices are projected to increase to approximately $8,529 per ton for SOP through year 2161 (the current expected end of mine life).
(6)Based on the economic analysis described in Section 19 of the Ogden Potassium TRS, the QP estimated a cut-off grade of approximately 4,000 milligrams of potassium per liter of brine extracted from the north arm of the Great Salt Lake, and a cut-off grade of 1,660 milligrams of potassium per liter of brine in the south arm of the Great Salt Lake, which ultimately flows into the north arm of the Great Salt Lake. The QP assumes that when the north arm of the Great Salt Lake (where the Ogden facility sources its brine) reaches this concentration level, the Ogden facility will halt production of potassium and SOP.
(7)Reported potassium concentration for the Great Salt Lake assumes an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm.
Table 4. Ogden Facility – Summary of Potassium and SOP Mineral Reserves at September 30, 2021 and December 30, 2020
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September 30, 2021
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December 31, 2020
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Reserve Area
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Average Potassium Grade (mg/L)(7)
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Potassium Reserves (tons)(1)(2)(4)(5)
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Cut-Off Grade (mg/L)(6)
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SOP Reserves (tons)(1)(2)(3)(4)(5)
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Average Potassium Grade (mg/L)(7)
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Potassium Reserves (tons)(1)(2)(4)(5)
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Cut-Off Grade (mg/L)(6)
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SOP Reserves (tons)(1)(2)(3)(4)(5)
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Proven Reserves
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Total Proven Reserves
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—
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—
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—
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—
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—
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—
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—
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—
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Probable Reserves
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Great Salt Lake North Arm
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7,320
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20,562,500
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4,000
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45,768,145
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7,320
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20,671,875
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4,000
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46,011,592
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Great Salt Lake South Arm
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
—
|
Total Probable Reserves
|
7,320
|
20,562,500
|
4,000
|
45,768,145
|
|
7,320
|
20,671,875
|
4,000
|
46,011,592
|
Total Reserves
|
Great Salt Lake North Arm
|
7,320
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20,562,500
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4,000
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45,768,145
|
|
7,320
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20,671,875
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4,000
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46,011,592
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Great Salt Lake South Arm
|
—
|
—
|
—
|
—
|
|
—
|
—
|
—
|
—
|
Total Reserves
|
7,320
|
20,562,500
|
4,000
|
45,768,145
|
|
7,320
|
20,671,875
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4,000
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46,011,592
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(1)Mineral reserves are as recovered, saleable product.
(2)Production rates for SOP are 325,000 tons per year. This relates to a depletion of 145,833 tons of potassium per year. Based on the QP’s reserve model, the life of mine is estimated to be 140 years.
(3)Conversion of potassium to SOP uses a factor of 2.2258 tons of SOP per ton of potassium.
(4)Included process recovery is approximately 7.8% based on historical production results. Mining or metallurgical recovery is not applicable for this operation.
(5)Based on pricing data described in Section 18.1 of the Ogden Potassium TRS. The pricing data is based on a five-year average of historical sales data for SOP of $573 per ton. Sales prices are projected to increase to approximately $8,529 per ton for SOP through year 2161 (the current expected end of mine life).
(6)Based on the economic analysis described in Section 19 of the Ogden Potassium TRS, the QP estimated a cut-off grade of approximately 4,000 milligrams of potassium per liter of brine extracted from the north arm of Great Salt Lake, and a cut-off grade of 1,660 milligrams of potassium per liter of brine in the south arm of the Great Salt Lake, which ultimately flows into the north arm of the Great Salt Lake. The QP assumes that when the north arm of the Great Salt Lake (where the Ogden facility sources its brine) reaches this concentration level, the Ogden facility will halt production of potassium and SOP.
(7)Reported potassium concentration for the Great Salt Lake assumes an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm.
From December 31, 2020 to September 30, 2021, for both potassium and SOP, combined measured and indicated resources decreased by approximately 0.25% and total reserves decreased by approximately 0.53%. The decreases in the combined measured and indicated resources were attributable to depletion of potassium from the Great Salt Lake in connection with
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COMPASS MINERALS INTERNATIONAL, INC.
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extraction operations of the Company and another salt producer, while the decrease in reserves was attributable to the Company’s production of SOP during that period.
Key assumptions and parameters relating to the potassium and SOP mineral resources and mineral reserves at the Ogden facility are discussed in Sections 11 and 12, respectively, of the Ogden Potassium TRS. Among them are assumptions with respect to water levels of, and the rate of ionic recharge from water inflows into, the Great Salt Lake, which affect the total amount of potassium in the Great Salt Lake.
The potassium and SOP mineral resource estimates for the Great Salt Lake were calculated for the north and south arms individually, given the difference in brine composition within these two areas. These estimates are based upon technical information and engineering data developed and maintained by local personnel at the Ogden facility, the Company’s corporate supporting resources and from work undertaken by third-party contractors and consultants on behalf of the Ogden facility. In addition, public data sourced from the Utah Geological Survey, United States Geological Survey, internal Company technical reports, previous technical studies, maps, Company letters and memoranda, and public information. The primary criteria considered for classification of the mineral resource and reserve estimates for the north and south arms of the Great Salt Lake consist of confidence in chemical results, accuracy of bathymetric data and representativeness of a relatively small number of spot samples for the entire Great Salt Lake volume.
A summary of the Ogden facility’s lithium and LCE mineral resources as of September 30, 2021 is shown in Table 5. Joseph Havasi, who is employed full-time as the Director, Natural Resources, of the Company, served as the QP and prepared the estimates of lithium and LCE mineral resources at the Ogden facility. A copy of the QP’s TRS with respect to the lithium and LCE mineral resource estimates at the Ogden facility, dated July 13, 2021, with an effective date of June 1, 2021 (the “Ogden Lithium TRS”), is filed as Exhibit 96.2 hereto.
Table 5. Ogden Facility – Summary of Lithium and LCE Mineral Resources at September 30, 2021
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September 30, 2021
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Resource Area
|
Average Grade (mg/L)(4)
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Lithium Resources (tons)(1)(2)(3)
|
LCE Resources (tons)(1)(2)(3)(6)
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Measured Resources
|
Total Measured Resources
|
—
|
—
|
—
|
Indicated Resources
|
|
|
|
Great Salt Lake North Arm
|
51
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250,000
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1,330,750
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Great Salt Lake South Arm(5)
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25
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230,000
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1,224,290
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Pond 96, Halite Aquifer
|
214
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1,003
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5,335
|
Pond 98, Halite Aquifer
|
221
|
957
|
5,090
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Pond 113, Halite Aquifer
|
205
|
15,106
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80,363
|
Total Indicated Resources
|
44
|
497,066
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2,645,828
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Measured + Indicated Resources
|
Great Salt Lake North Arm
|
51
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250,000
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1,330,750
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Great Salt Lake South Arm(5)
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25
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230,000
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1,224,290
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Pond 96, Halite Aquifer
|
214
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1,003
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5,335
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Pond 98, Halite Aquifer
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221
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957
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5,090
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Pond 113, Halite Aquifer
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205
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15,106
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80,363
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Total Measured + Indicated Resources
|
44
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497,066
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2,645,828
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Inferred Resources
|
Pond 1b, Halite Aquifer
|
318
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2,231
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11,870
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Pond 97, Halite Aquifer
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212
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744
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3,957
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Pond 114, Halite Aquifer
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245
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6,360
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33,836
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Total Inferred Resources
|
256
|
9,335
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49,663
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(1)Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral resource will be converted into mineral reserves upon application of modifying factors.
(2)Mineral resources are reported as in situ for the Great Salt Lake and evaporation pond salt mass aquifers. The Great Salt Lake estimate does not include any restrictions such as recovery or environmental limitations. Pond resources incorporate specific yield which has been measured or estimated for each pond to reflect the portion of in situ brine potentially available for extraction. No other restrictions have been applied to the pond resource estimate.
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COMPASS MINERALS INTERNATIONAL, INC.
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(3)The mineral resource estimate does not utilize an economic cut-off grade. This is due to the lake concentration being variable dependent upon lake surface elevation and the use of solar concentration ponds to increase lithium concentration in the process to levels appropriate for lithium processing. As no lithium cut-off grade has been applied, the resource estimate does not assume an effective lithium sales price.
(4)Reported lithium concentration for the Great Salt Lake assumes an indicative lake level of 4,194.4 feet in the south arm and 4,193.5 feet in the north arm.
(5)The Company does not have exclusive access to mineral resources in the lake and other existing operations, including those run by US Magnesium, Morton Salt and Cargill, also extract dissolved mineral from the lake (all in the south arm).
(6)Lithium to LCE uses a factor of 5.323 tons of LCE per ton of lithium.
The Company first estimated lithium and LCE mineral resources at the Ogden facility in June 2021. As the Company continues engineering and developing processes for the extraction of lithium and LCE from current production of other products, it expects to integrate testing and processes to monitor for depletion of the lithium and LCE resources in the future.
Key assumptions and parameters relating to the lithium and LCE mineral resources at the Ogden facility are discussed in Section 11 of the Ogden Lithium TRS. Among them is the assumption that there is a reasonable probability that the Company will be able to develop an appropriate method for extraction of lithium and LCE from the resources summarized above based on the methods used by existing Chinese operations and the ongoing development of similar technologies at numerous other lithium brine sources described in Section 10 of the Ogden Lithium TRS. Also assumed is that there are reasonable parallels to the possible means of lithium and LCE extraction from the brines of the Great Salt Lake to the operating model of Standard Lithium Ltd. described in its preliminary economic assessment of the use of direct lithium extraction technologies on oil-field brine in the Smackover Formation in Arkansas.
The lithium and LCE mineral resource estimates for the Great Salt Lake were calculated for the north and south arms individually, given the difference in brine composition within these two areas. They are based on historic data collected by the Utah Geological Survey and United States Geological Survey over an extended period for brine concentration and volume. The primary criteria considered for classification of the mineral resource estimate for the north and south arms of the Great Salt Lake consist of confidence in chemical results, accuracy of bathymetric data, dynamic interaction of surface and subsurface brines, and representativeness of a relatively small areal extent samples for the entire Great Salt Lake volume.
The lithium and LCE mineral resource estimates for Pond 1b, Pond 96, Pond 97, Pond 98, Pond 113 and Pond 114 evaluated the available information for each pond individually. In particular, brine chemistry and halite aquifer properties were sufficiently different to warrant that the resource estimate for each pond utilize different parameters. These parameters are identified within the discussion of the mineral resource estimate for the halite aquifer in each pond in Section 11 of the Ogden Lithium TRS. Lithium and LCE mineral resources within the evaporation ponds were estimated utilizing Voronoi polygonal methods. The lateral extent of each polygon was defined by bisector between drillholes, and the vertical extent of each polygon was defined by the measured halite aquifer stratigraphy. The brine volume for each polygon was determined through analysis of hydrogeologic data that characterized the specific yield of the halite aquifer. The brine assay data for lithium from each drillhole was applied to that polygon for that drillhole. There was no treatment, averaging, or cut-off applied to the brine assay data.
The Cote Blanche mine is a production stage, underground mine that produces rock salt primarily for highway deicing customers through a series of depots located along the Mississippi and Ohio rivers (and their major tributaries) and chemical and agricultural customers in the Southern and Midwestern United States. The Cote Blanche mine is located in south-central Louisiana in the Parish of St. Mary (T15S, R7E), at the northern edge of Cote Blanche Hummoch, commonly called “Cote Blanche Island.” Maps of the Cote Blanche mine property are shown in Figures 3 and 4.
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COMPASS MINERALS INTERNATIONAL, INC.
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Figure 3. Cote Blanche Mine Property Location Map
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COMPASS MINERALS INTERNATIONAL, INC.
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Figure 4. Aerial View of Cote Blanche Island
Cote Blanche Island is situated between the Intra-Coastal Waterway and Cote Blanche Bay in the Gulf of Mexico. The Cote Blanche mine is approximately 124 miles west of New Orleans, Louisiana, and approximately 26 miles southeast of New Iberia, Louisiana, on the Gulf Coast. The approximate coordinates of the site facilities are 29˚45’4” North and 91˚43’24” West. The site is accessed by surface roads to the Cote Blanche Landing, and then by ferry boat from the Cote Blanche Landing to Cote Blanche Island. The Company accesses Cote Blanche Island via two rights-of-way with a separate private landowner group: one for the landing for the ferry boat that the Company operates and maintains; and the other for the barge canal, which is utilized for barge access to the mine. The barges are managed by contract tug boat services.
The Cote Blanche mine has a barge loading dock, administrative offices and other services-related structures. Power is supplied to the site by CLECO Power nearby power lines that are fed directly from the main power grid and there are telephone and cellular connections. Water is provided to the Cote Blanche mine by privately owned and operated wells that are on the mine site. The Cote Blanche mine is well established and has been in the community for over 50 years. The communities of New Iberia, Broussard and Lafayette, Louisiana, have the required infrastructure (shopping, emergency services, schools, etc.) to support the workforce. New Iberia is served by a small regional airport and a transcontinental railroad.
The Company leases the entirety of Cote Blanche Island from a private ownership group, except for 115 acres of the southeastern sector of the island (the “115 Acre Tract”), for a total mineral lease of 1,520 acres. The lease grants salt rights to the Company for all salt from the ground surface downward 3,000 feet, except for salt located within the 115 Acre Tract. The lease also grants surface rights in the western and southwestern sectors of Cote Blanche Island, with access rights to the mine road that extends north-south from the surface lease area to the Cote Blanche Crossing.
The lease has an effective end date of June 30, 2060, unless earlier terminated. In the event that no actual mining is being completed during any five consecutive years, the lessor has the option to cancel the lease. As lessee, the Company may exercise two options to extend the term of the lease, each for a 25-year period upon the same terms and conditions contained in the lease. The Company is required to hoist a minimum of 1,500,000 tons of salt annually in order to keep the lease in full force and effect. Under the terms of the lease, the royalty for each calendar year is equal to the Net F.O.B. Mine Sales Revenue Per Ton (as defined below), multiplied by the Applicable Royalty Rate (as defined below), multiplied by the number of tons of salt hoisted from the Cote Blanche mine in that calendar year. The “Net F.O.B. Mine Sales Revenue Per Ton” for each calendar
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COMPASS MINERALS INTERNATIONAL, INC.
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year is the quotient of the total bulk sales revenue (excluding any taxes) of the Company and its affiliates for salt sold from the Cote Blanche mine in bulk (in units of 1 short ton or more) (“Total Bulk Sales Revenue”) reduced for all freight in, freight out, fuel surcharge, additives, depot/warehouse storage, handling and operating costs, promotions/discounts and other costs as are properly deducted under generally accepted accounting principles in that calendar year, divided by the total number of tons sold. The number of tons of salt sold is the same number of tons used to generate the Total Bulk Sales Revenue. The “Applicable Royalty Rate” for 2014 and each succeeding calendar year is as follows: 2014, 4.7%; 2015, 4.9%; 2016, 5.1%; 2017, 5.3%; and 2018 and thereafter, 5.5%.
The lease further provides that if, on or before January 1 of 2034, 2059 or 2084 (each, a “Review Year”), the lessor or the Company determines that, in operation, the royalty provisions of the lease result in the lessor receiving more or less than 5.5% of the fair value of salt at the minehead free of all costs at that point (the “Royalty Standard”), such party shall deliver to the other party on or before January 1 of the Review Year a written statement of its reasons why the Royalty Standard is not being met, a computation of the amount that will satisfy the Royalty Standard and a proposed revision to the royalty provisions of the lease that will cause the royalty provisions to comply with the Royalty Standard. On or before January 30 of the Review Year, the other party is required to deliver to the first party a written statement of its opinion as to whether the royalty provisions as proposed comply with the Royalty Standard and a response to the first party’s statement delivered under the preceding sentence. If the parties are not in agreement, the parties are required to commence arbitration.
The lease provides that the lessor has full right to grant future oil, gas and other mineral leases, except salt, provided that each such future oil, gas and mineral lease shall expressly obligate the lessee to cooperate with the Company in the conduct of its operations in order that the purposes of both leases may be best effectuated. The lease obligates the Company to cooperate with the oil, gas and mineral lessee so as to permit drilling of oil and/or gas wells.
The Cote Blanche mine operates with a production schedule targeting approximately 2.2 million tons of salt per year. That target can vary significantly depending on the severity of winter weather conditions and the resulting market demand for road salt.
Domtar Industries, Inc. constructed the Cote Blanche mine over four years beginning in 1961 with 8-foot and 14-foot shafts and the barge loadout facility. Salt production commenced in 1966. The DG Harris Company purchased the Cote Blanche mine in 1990, which operated as Carey Salt Co. thereafter. The salt assets of The DG Harris Company were sold to IMC in 1997. IMC sold a majority of its salt operations, including the Cote Blanche mine, to Apollo Management V, L.P. through an entity called Compass Minerals Group in 2001. Following a leveraged recapitalization, the company now known as Compass Minerals International, Inc. completed an initial public offering in 2003.
Mining at the Cote Blanche mine occurs in 75-foot mining horizons at specific depths below the surface. To date, the salt dome has been mined at three levels, including the 1,300-foot level, which was mined from 1965 to 1986; the 1,100-foot level, which was mined from 1986 to 2002; and the current 1,500-foot level, which began in 1998 to and is expected to remain in operation through 2026. The Company is in the process of developing a ramp to an extension of the 1,300-foot level, for which mining is projected to start in 2022. Active mining on both the 1,300-foot level and the 1,500-foot level is anticipated to take place from 2022 to 2026. The Company’s current mine plan focuses on completion of the 1,500-foot level with future expansion to the 1,700-foot level and finally advancing to the 1,900-foot level. At this time, mining is not anticipated below the 1900-foot level.
There has been extensive historical oil and gas exploration on and adjacent to Cote Blanche Island, but the Company only has access to mapping and reports that are publically available from external subsurface exploration. While the historical data provide a strong depiction of the salt ore body, the Company has undertaken in-seam seismic and mud-rotary drilling to verify and validate salt diapir position, morphology and margin at the Cote Blanche mine. The nature of salt diapirs lends itself to a strong understanding of the homogeneity of the morphology and mineralogy of the ore body. Thus, the primary concerns within the salt diapir are understanding the margin of the diapir to support the mine plan by ensuring geotechnical stability, and mapping the localized presence of sandstone partings and seams that are encountered from time to time as well as sheer planes along margins of salt stock formations. The combination of historic data collected through externally funded and directed seismic and drilling programs for oil and gas exploration in strata surrounding the diapir, combined with Compass Minerals’ salt diapir morphology validation drilling has created a reasonably strong characterization of the definition of the salt diapir.
As the mining continues and progresses to the next deeper mining level at 1,700 feet and eventually to the 1,900-foot level, definition of the upper surface of the salt diapir is no longer necessary as mining will be below the current mining level. Therefore, mud-rotary drilling to validate the salt dome surface will no longer be necessary and instead the mining operation will continue its in-seam seismic data collection to assess the potential for potential anomalies, and as mining progresses to the outer margins of the mine plan, and verify that the lateral margins of the diapir are not within the Company’s self-determined, 400-foot setback of mineral extraction.
The Cote Blanche mine utilizes the room and pillar method of extraction. In this method, excavations (rooms) are recovered by mining and are alternated with areas of undisturbed salt (pillars) that form the necessary support for maintaining stability of the mine roof. The layout of the rooms and pillars and their respective sizes are optimized to maximize the ratio of salt extracted, relative to in situ salt, while still meeting safety and surface subsidence requirements. All levels in the current mine plan, 1,300-foot through the 1,900-foot levels, are currently mining or are planned to be operated in the same manner, with the
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COMPASS MINERALS INTERNATIONAL, INC.
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same mining parameters and with the same set of unit operations, altered only by the footprint of the mining of the room and pillar method as modified to reflect the constraints of the planned level and the lateral constraints of the salt dome contours of each level.
The current room and pillar layout has an extraction ratio of approximately 56% within the mined room area, but the overall extraction ratio of the property, taking into account barrier pillars and unmined zones and interruptions from oil wells among other anomalies is about 51%. Rooms are mined in a progression of two phases creating a total room height of 75 feet when completed. The rooms have a nominal width of 50 feet and are bounded by 100-foot square pillars. Variations in room and pillar dimensions are observed due to production blasting and scaling, so values are approximate. To achieve 75 feet of height, rooms are initially developed using a 30 foot top-cut (horizontal drill and blast), which is then vertically drilled and blasted (benched) an additional 45 feet, with 5 feet of sub-drilling. Loading and hauling is completed with diesel powered loading equipment and haul trucks. Development mining typically leads ahead of benching or room advance by approximately one and a half years.
The process for salt production at the Cote Blanche mine focuses on particle size reduction of the salt product. Rock salt is processed and sized by underground crushers and the mill before it is hoisted to the surface. The mill has two distinct halves: the mine run circuit and the whole mill. Only chemical quality and non-chemical quality salt can be processed through the whole mill. Ice control quality salt is processed through the mine run circuit. Once the salt has been sized accordingly, it is either stockpiled or placed directly onto a barge for transport to market. The main stockpile area allows separate piles for chemical, non-chemical, and ice control grade salt.
The Cote Blanche mine is operated with modern mining equipment and utilizes subsurface improvements, such as vertical shaft lift systems, milling and crushing facilities, maintenance and repair shops and extensive raw materials handling systems. The milling and crushing facilities were constructed when the Cote Blanche mine developed the 1,500 foot level in 2001. As of September 30, 2021, the net book value for the plant, property and equipment at the Cote Blanche mine is $46,800,000, exclusive of mineral rights and the value of assets leased under operating leases.
The Cote Blanche mine has procured and is operating in compliance with required operating licenses, including permits pertaining to mineral extraction, effluent discharge and air permitting. The Company will be required to renew the current air permit at the Cote Blanche mine, which is administered by the Louisiana Department of Environmental Quality, when it expires in December 2026. Surface water discharges from the site are regulated under Louisiana Pollutant Discharge Elimination System (LPDES) permit LA0103233. The permit requires discharge monitoring for effluent flows from the three outfalls that discharge into the saline waters of the Intracoastal Waterway and Cote Blanche Bay. The State of Louisiana does not require an operating permit for the Cote Blanche mine. Air and NPDES permits are maintained by the site. The site is located in a Coastal Protection Zone and therefore any new site disturbance requires permitting by the U.S. Army Corps of Engineers and the Louisiana Office of Coastal Management. Initial operations at the site predate the Coastal Resources rules so no formal reporting is required under this process.
There are no mine closure plans for the Cote Blanche mine. Once the lease agreement terminates, the Company has six months to vacate the mine of any personal property it wishes to recover before the landownership group assumes control of the mine and either continues mining or initiates other commercial or industrial uses of the surface mine site and underground void space.
Summaries of the Cote Blanche mine’s salt mineral resources and mineral reserves as of September 30, 2021 and December 30, 2020 are shown in Tables 6 and 7, respectively. Joseph Havasi, who is employed full-time as the Director, Natural Resources, of the Company, served as the QP and prepared the estimates of salt mineral resources and mineral reserves at the Cote Blanche mine. A copy of the QP’s TRS with respect to the salt mineral resource and reserve estimates at the Cote Blanche mine, dated November 29, 2021, with an effective date of September 30, 2021 (the “Cote Blanche TRS”), is filed as Exhibit 96.3 hereto.
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COMPASS MINERALS INTERNATIONAL, INC.
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Table 6. Cote Blanche Mine – Summary of Salt Mineral Resources at September 30, 2021 and December 30, 2020
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Salt Resources (tons)(1)(2)(3)(4)(5)(6)(7)
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Resource Area(2)(8)
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September 30,
2021
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December 31,
2020
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Measured Resources
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1,300-Foot Level
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25,491,881
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25,491,881
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1,500-Foot Level
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16,448,712
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20,494,440
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Total Measured Resources
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41,940,593
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45,986,321
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Indicated Resources
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1,300-Foot Level
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12,373,509
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12,373,509
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1,500-Foot Level
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9,028,840
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9,028,840
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1,700-Foot Level(9)
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361,584,762
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361,584,762
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1,900-Foot Level(9)
|
246,045,618
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246,045,618
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Total Indicated Resources
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629,032,729
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629,032,729
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Measured + Indicated Resources
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1,300-Foot Level
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37,865,390
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37,865,390
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1,500-Foot Level
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25,477,552
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29,523,280
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1,700-Foot Level(9)
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361,584,762
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361,584,762
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1,900-Foot Level(9)
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246,045,618
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246,045,618
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Total Measured + Indicated Resources
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670,973,322
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675,019,050
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Inferred Resources
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1,700-Foot Level(9)
|
32,915,833
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32,915,833
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1,900-Foot Level(9)
|
130,851,531
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|
130,851,531
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Total Inferred Resources
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163,767,364
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163,767,364
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(1)Mineral resources are reported in situ. Mineral resources are not mineral reserves and do not have demonstrated economic viability.
(2)Underground mineral resources are reported based on assumed 75-foot mining horizons, discounted for areas not accessible due to proximity to oil wells.
(3)Tonnage was calculated based on a tonnage factor of 0.0675 tons per cubic foot.
(4)Included process recovery is 94% based on production experience. Included mining recovery is approximately 56% based on the room and pillar layout.
(5)Although the actual sodium chloride grade is less than 100%, it is not considered in the resource, as the final saleable product is the in situ product, as-present after processing (i.e., the saleable product includes any impurities present in the in situ rock).
(6)A cut-off grade was not utilized for the calculation as the in situ product quality is relatively constant and saleable after processing.
(7)There are multiple saleable products based on salt quality from the operation (rock salt for road deicing and chemical grade salt). For simplicity, all sales are assumed at the lower value (and higher tonnage) product, rock salt, and are based on pricing data described in Section 16 of the Cote Blanche TRS. The pricing data is based on a five-year average of historical sales data for rock salt for road deicing of $61.41 per ton. Sales prices are projected to increase to approximately $706.49 per ton for rock salt for road deicing through year 2138 (the current expected end of mine life).
(8)Based on approximate areas of: 5,399,000 square feet (“ft2”) for the 1,300-foot level; 2,991,000 ft2 for the 1,500-foot level; 45,721,000 ft2 for the 1,700-foot level; 50,293,000 ft2 for the 1,900-foot level; and 104,404,000 ft2 in the aggregate.
(9)The 1,700-foot and 1,900-foot levels have been approximated using the 1,300-foot and 1,500-foot level contours, respectively, in alignment to the 400-foot contact distance restriction and site and safety constraints.
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COMPASS MINERALS INTERNATIONAL, INC.
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Table 7. Cote Blanche Mine – Summary of Salt Mineral Reserves at September 30, 2021 and December 30, 2020
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Salt Reserves (tons)(1)(3)(4)(5)(6)(7)
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Reserve Area(2)(8)
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September 30,
2021
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December 31,
2020
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Proven Reserves
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1,300-Foot Level
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13,316,339
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13,316,339
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1,500-Foot Level
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8,136,420
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10,422,256
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Total Proven Reserves
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21,452,759
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23,738,595
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Probable Reserves
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1,700-Foot Level(9)
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113,853,955
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113,853,955
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1,900-Foot Level(9)
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122,693,422
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122,693,422
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Total Probable Reserves
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236,547,377
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236,547,377
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Total Reserves
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1,300-Foot Level
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13,316,339
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13,316,339
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1,500-Foot Level
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8,136,420
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10,422,256
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1,700-Foot Level(9)
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113,853,955
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113,853,955
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1,900-Foot Level(9)
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122,693,422
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122,693,422
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Total Reserves
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258,000,136
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260,285,972
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(1)Ore reserves are as recovered, saleable product.
(2)Underground mineral reserves are reported based on assumed 75-foot mining horizons, discounted for areas not accessible due to proximity to oil wells.
(3)Tonnage was calculated based on a tonnage factor of 0.0675 tons per cubic foot.
(4)Included process recovery is 94% based on production experience. Included mining recovery is approximately 56% based on the room and pillar layout.
(5)Although the actual sodium chloride grade is less than 100%, it is not considered in the reserve, as the final saleable product is the in situ product, as-present (i.e., the saleable product includes any impurities present in the in situ rock).
(6)A cut-off grade was not utilized for the calculation as the in situ product quality is relatively constant and saleable after processing.
(7)There are multiple saleable products based on salt quality from the operation (rock salt for road deicing and chemical grade salt). For simplicity, all sales are assumed at the lower value (and higher tonnage) product, rock salt, and are based on pricing data described in Section 16 of the Cote Blanche TRS. The pricing data is based on a five-year average of historical sales data for rock salt for road deicing of $61.41 per ton. Sales prices are projected to increase to approximately $706.49 per ton for rock salt for road deicing through year 2138 (the current expected end of mine life).
(8)Based on approximate areas of: 5,399,000 ft2 for the 1,300-foot level; 2,991,000 ft2 for the 1,500-foot level; 45,721,000 ft2 for the 1,700-foot level; 50,293,000 ft2 for the 1,900-foot level; and 104,404,000 ft2 in the aggregate.
(9)The 1,700-foot and 1,900-foot levels have been approximated using the 1,300-foot and 1,500-foot level contours, respectively, in alignment to the 400-foot contact distance restriction and site and safety constraints.
From December 31, 2020 to September 30, 2021, combined measured and indicated resources at the Cote Blanche mine decreased by approximately 0.35% and total reserves decreased by approximately 0.88%. The decreases in salt resources and reserves were attributable to depletion of salt in connection with extraction operations of the Company.
Key assumptions and parameters relating to the salt mineral resources and mineral reserves at the Cote Blanche mine are discussed in Sections 11 and 12, respectively, of the Cote Blanche TRS. Among them are assumptions with respect to the continuity and homogeneity of the salt diapir.
The following classification has been applied to the Cote Blanche mine resource estimate:
•Inferred Mineral Resources: Volumes are defined as inferred mineral resources within a distance buffer of 400 feet from the proposed edge of the dome (defined from seismic surveys).
•Indicated Mineral Resources: Contiguous volumes of rock salt which lie between the current working faces and a buffer distance of 400 feet from the proposed edge of the dome on each level.
•Measured Mineral Resources: Contiguous volumes of rock salt mineralization informed from confirmation of geological continuity due to mapping, and sampling information to confirm salt quality.
With respect to the conversion of measured and indicated mineral resources to mineral reserves, the Company has developed mine plans and polygons for each of the various levels utilizing model data and software packages described in Section 12 of the Cote Blanche TRS and mapped into the contours of the various levels of the salt dome – these current plans define the mine.
In terms of economic factors, the recovery of the resource is governed primarily by the floor price of the salt as discussed in Section 19, Economic Analysis, and not by any grade cut-off for salt quality. In general, it is assumed that any ton of salt mined from Cote Blanche Mine is a saleable product and that economic impacts result from market influences and not resource constraints.
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COMPASS MINERALS INTERNATIONAL, INC.
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The Goderich mine is a production stage, underground mine that produces rock salt primarily for highway use and as feed product for other uses. The Goderich mine is located in southwestern Ontario, Canada, on the eastern shore of Lake Huron. The Goderich mine is located west of the town of Goderich, Ontario, on an isthmus in the mouth of the Maitland River, as it enters Lake Huron. Maps of the Goderich mine property are shown in Figures 5 and 6.
Figure 5. Goderich Mine Property Location Map
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COMPASS MINERALS INTERNATIONAL, INC.
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Figure 6. Lease and Mine Map: Goderich Mine
The Goderich mine is approximately 60 miles northwest of London, Ontario, and 120 miles west of Toronto, Ontario. Its approximate coordinates are 43˚ 44’ 50” North and 81˚ 43’ 30” West. Access to the Goderich mine is considered excellent. The town of Goderich has established infrastructure for both mining and exporting salt and can be accessed via regional highways from Toronto from the east (2.5 hours). The triangular-shaped mine site is surrounded by the lake on three sides and the Maitland River on the north side. Goderich Harbor and the Goderich mine site are accessed via North Harbor Road, a municipally owned and maintained road that connects the harbor area to Highway 21. The Goderich mine is connected to local power, water, natural gas and sewage infrastructure. Primary logistics for transporting mined product include the rail siding at the mine site and direct loading into ships or barges in Goderich Harbor. The town of Goderich provides all necessary resources for the Goderich mine, with a ready labor supply, housing, hotels, food and all other typical facilities. The close proximity to rail, port and roads provides easy access for all logistical needs. Commercial air travel is available from London, Ontario, Toronto, Ontario, and Detroit, Michigan, all of which are in relative proximity to the site.
The Goderich mine site is located on 16.3 acres of Company-owned land (PIN 41369-0004) on a man-made peninsula consisting of several large buildings and silos associated with mining and material handling, a ship loading facility and three shafts. The Company actively mines salt west of its owned land under Salt Mining Lease No. 107377, dated November 9, 2001, with the Ontario Ministry of Energy, Northern Development and Mines, comprising approximately 13,195 acres. The lease has a 21-year term expiring on May 31, 2022. The Company has an option to renew the lease for an additional 21 years, until 2043, so long the Company can demonstrate that the Goderich mine’s useful life extends through the 21-year renewal term, which the Company expects to exercise in 2022. The only material payments associated with the lease are royalties on the salt produced. The current royalty rate paid is $1.05 per ton.
The Goderich mine is the largest underground rock salt mine in the world. Based on the proposed mine layout and using a 6.5 million tons per annum average production run rate assumption, the Goderich mine has a current mine life of approximately 72 years, assuming the Company is able to successfully negotiate an extension of the lease following the expiration of the 21-year renewal term in 2043, which the Company currently expects.
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COMPASS MINERALS INTERNATIONAL, INC.
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Salt production began in Goderich, Ontario, in 1867 by Sifto Canada (“Sifto”) after an unsuccessful search for oil uncovered a vast bed of rock salt. Sifto used basic solution mining and evaporation, now known as mechanical evaporation, to begin the nearby Goderich plant.
In 1956, Sifto received approval to operate an underground salt mine while under the ownership of Dominion Tar and Chemical Company Ltd. Initial drilling at the Goderich mine started in 1955 with the sinking of the first shaft beginning in 1957. The Goderich mine started production upon the completion of the first shaft in 1959. Additional increases in production were enabled after a second mine shaft and a third mine shaft were completed in 1962 and 1982, respectively. In 1990, Domtar Chemicals Limited (previously known as Dominion Tar and Chemical Company Ltd.) sold Sifto to the North American Salt Company, a subsidiary of D.G. Harris & Associates. In 1993, D.G. Harris & Associates founded Harris Chemical Group as a holding company for salt operations, which was acquired by IMC in 1997. IMC sold a majority of its salt operations, including the Goderich mine, to Apollo Management V, L.P. through an entity called Compass Minerals Group in 2001. Following a leveraged recapitalization, the company now known as Compass Minerals International, Inc. completed an initial public offering in 2003.
The Goderich mine’s underground infrastructure is situated in the A-2 salt bed approximately 1,750 feet to 1,760 feet below the surface at the mine shafts’ location. The A-2 salt bed in the shaft area is approximately 79 feet thick. The regional stratigraphic sequence is well understood from many wells drilled across the basin and locally in the Goderich, Ontario, area. The salt strata are highly continuous over the basin, and most of the major salt units can be traced for hundreds of miles. On a local scale, the continuity of the salt beds can be impacted by the presence of pinnacle reefs, displacement by faults, or the local leaching of salt. The Company can use various tools to characterize geological conditions in nearby areas to assess the possibility of encountering these local ground conditions at the mine. Accordingly, the Company has engaged third parties to conduct in-seam seismic surveys and, more recently, has begun use of ground penetrating radar to identify disturbances in salt continuity and the thickness of the A-2 salt bed in development.
The Goderich mine progresses development of main entries in advance of bench mining. The subsequent benches achieve the remainder of the 60-foot room height for room production. Development and bench mining progress at an approximate 40:60 ratio in terms of area of advance in the mine plan and are part of the production process. As needed, underground rooms for facility support functions have been and will be developed in excavated areas of the mine. This includes development of shaft areas on each level for hoist equipment, design, planning and development of ramp structures from one level to the subsequent, lower level as required, installation of underground work facilities such as maintenance shops and storage rooms. As mining progresses, development also encompasses the design, placement, repair and maintenance of support infrastructure such as crushers, screens and other plant in support of mining. All portions of mine development within the A-2 salt are planned to be operated in the same manner and mining method, with the same mining parameters with the same set of unit operations.
The general method of mining employed at the Goderich mine is known as room and pillar mining. Beginning in 2012 and 2013, the Company advanced the Goderich mine to mechanized room and pillar mining as continuous miners (each a “CM”) replaced the previous under-cutter/over-cutter equipment and drilling and blasting sequence in the development areas of the mine. By 2017, the Company was engaged in continuous mining of the entire 60-foot face of the mined rooms in multiple lifts with a goal of improving efficiency, reducing costs and reducing the amount of diesel equipment utilized underground, thus largely eliminating the use of drilling and blasting at the Goderich mine. The Company continues to upgrade its CM fleet at the Goderich mine.
Certain mining units at the Goderich mine are equipped with both a CM and a flexible conveyor train (“FCT”), a dynamic move-up unit and a belt storage unit. On these mining units, the CM cuts the salt directly from the face and discharges it into a hopper on the end of the FCT. From the FCT, the rock salt is offloaded to the main underground belt conveyance system where it is then transported to the underground crushers and the mill. Other mining units are also equipped with a CM, but are supported with rubber-tired haulage equipment to transfer salt. Salt mined from these CMs is transferred from the face by rubber-tired haulage to a centralized dump point with a crusher and then follows the same process as the other units once the salt is put onto the underground conveyance system. Rock salt is processed and sized at the underground crushers and the mill before being hoisted to the surface. Salt is stockpiled at the surface in domes. The salt is then distributed to depots, packaging facilities and customers via ship (approximately 80%), and rail car and truck (approximately 20%). The net book value for the plant, property and equipment at the Goderich mine is $246,200,000, exclusive of mineral rights and the value of assets leased under operating leases.
The Goderich mine has procured and is operating in compliance with all required operating licenses, including permits pertaining to mineral extraction, effluent discharge and air permitting. The Ontario Ministry of Energy, Northern Development and Mines regulates closure for the Goderich mine. The most recent closure plan was approved by the ministry in 2012, and is in process of being amended as of September 30, 2021. Long-term cleanup of the site will essentially include demolishing surface facilities, removal of surface infrastructure and restoring a natural alvar ecological community on the surface, flooding of the workings, and decommissioning (plugging). The Goderich mine operates under two air permits issued by the Ontario Ministry of Environment, Conservation and Parks, one for the lab (8-1131-96-007), and the other for the garage for welding exhaust (5522-78NUN2). Site drainage into Snug Harbour and the Maitland River is permitted pursuant to Certificate of
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COMPASS MINERALS INTERNATIONAL, INC.
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Approval 2342-7ULQEU and Environmental Compliance Approval 1236-8YGK8A, respectively, issued by the Ontario Ministry of Environment, Conservation and Parks.
Summaries of the Goderich mine’s salt mineral resources and mineral reserves as of September 30, 2021 and December 30, 2020 are shown in Tables 8 and 9, respectively. Joseph Havasi, who is employed full-time as the Director, Natural Resources, of the Company, served as the QP and prepared the estimates of salt mineral resources and mineral reserves at the Goderich mine. A copy of the QP’s TRS with respect to the salt mineral resource and reserve estimates at the Goderich mine, dated November 29, 2021, with an effective date of September 30, 2021 (the “Goderich TRS”), is filed as Exhibit 96.4 hereto.
Table 8. Goderich Mine – Summary of Salt Mineral Resources at September 30, 2021 and December 30, 2020
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Salt Resources (tons)(1)(2)(4)(5)(6)(7)(8)
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Resource Area(3)(9)
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September 30,
2021
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December 31,
2020
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Measured Resources
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—
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—
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Indicated Resources
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1,485,710,000
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1,503,121,000
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Measured + Indicated Resources
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1,485,710,000
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1,503,121,000
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Inferred Resources
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148,200,000
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148,200,000
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(1)Mineral resources are reported in situ. Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the mineral resources will be converted into mineral reserves upon application of modifying factors.
(2)All figures have been rounded to reflect the relative accuracy of the estimates.
(3)Underground mineral resources are reported based on an expected representative A-2 salt bed thickness of 82 feet.
(4)Tonnage was calculated based on a tonnage factor of 0.0675 tons per cubic foot.
(5)Included process recovery is 97.5% based on production experience. Included mining recovery is approximately 38.7% based on the room and pillar mine plan.
(6)Although the actual sodium chloride grade is less than 100%, it is not considered in the resource, as the final saleable product is the in situ product, as-present after processing (i.e., the saleable product includes any impurities present in the in situ rock).
(7)A cut-off grade was not utilized for the calculation as the in situ product quality is relatively constant and saleable after processing.
(8)There are multiple saleable products based on salt quality from the operation (rock salt for road deicing and chemical grade salt). For simplicity, all sales are assumed at the lower value (and higher tonnage) product, rock salt and are based on pricing data described in Section 16 of the Goderich TRS. The pricing data is based on a five-year average of historical sales data for rock salt for road deicing of $60.58 per ton. Sales prices are projected to increase to approximately $295.60 per ton for rock salt for road deicing through year 2094 (the current expected end of mine life).
(9)Based on an area of approximately 575,257,000 square feet for the A-2 salt bed within the lease area.
Table 9. Goderich Mine – Summary of Salt Mineral Reserves at September 30, 2021 and December 30, 2020
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Salt Reserves (tons)(1)(2)(3)(4)(5)(6)(7)(8)
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Reserve Area(3)(9)
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September 30,
2021
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December 31,
2020
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Proven Reserves
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—
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—
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Probable Reserves
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470,030,000
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476,768,000
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Total Reserves
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470,030,000
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476,768,000
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(1)Ore reserves are as recovered, saleable product.
(2)All figures have been rounded to reflect the relative accuracy of the estimates.
(3)Reserve volume assumes a mining thickness of 18 meters (approximately 60 feet) production, 8.5 meters (approximately 28 feet) mains.
(4)Tonnage was calculated based on a tonnage factor of 0.0675 tons per cubic foot.
(5)Included process recovery is 97.5% based on production experience. Included mining recovery is approximately 38.7% based on the room and pillar mine plan.
(6)Although the actual sodium chloride grade is less than 100%, it is not considered in the reserve, as the final saleable product is the in situ product, as-present after processing (i.e., the saleable product includes any impurities present in the in situ rock).
(7)A cut-off grade was not utilized for the calculation as the in situ product quality is relatively constant and saleable after processing.
(8)There are multiple saleable products based on salt quality from the operation (rock salt for road deicing and chemical grade salt). For simplicity, all sales are assumed at the lower value (and higher tonnage) product, rock salt and are based on pricing data described in Section 16 of the Goderich TRS. The pricing data is based on a five-year average of historical sales data for rock salt for road deicing of $60.58 per ton. Sales prices are projected to increase to approximately $295.60 per ton for rock salt for road deicing through year 2094 (the current expected end of mine life).
(9)Based on an area of approximately 575,257,000 square feet for the A-2 salt bed within the lease area.
From December 31, 2020 to September 30, 2021, combined measured and indicated resources at the Goderich mine decreased by approximately 0.6% and total reserves decreased by approximately 1.4%. The decreases in salt resources and reserves were attributable to depletion of salt in connection with extraction operations of the Company.
Key assumptions and parameters relating to the salt mineral resources and mineral reserves at the Goderich mine are discussed in Sections 11 and 12, respectively, of the Goderich TRS. Among them are assumptions with respect to the continuity and homogeneity of the rock salt mineralization over the mined area.
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COMPASS MINERALS INTERNATIONAL, INC.
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The following classification has been applied to the Goderich mine resource estimate:
•Inferred Mineral Resources: At the Goderich mine, contiguous volumes of mineralization are informed by existing mining history. The confidence in local geological continuity is however, impacted by the potential for localized pinnacle reef intrusions (south central area of lease) and/or the possible presence of faults which may have displaced the A-2 sequence by as much 50 to 100 feet (northeast part of lease).
•Indicated Mineral Resources: These volumes are informed by the existing mining history and historical core boreholes with expected A-2 salt thicknesses but include the existing lease area, the pillars, roof, and floor of mined areas with the potential of extraction during retreat or by solution and all other mining in the A-2 mine area.
With respect to the conversion of measured and indicated mineral resources to mineral reserves, the Company has developed mine plans and polygons for the A-2 salt bed utilizing model data and software packages described in Sections 11 and 12 of the Goderich TRS and mapped into the limits of existing mining and current leasing – these current plans define the mine.
In terms of economic factors, the recovery of the resource is governed primarily by the floor price of the salt as discussed in Section 19, Economic Analysis, and not by any grade cut-off for salt quality. In general, it is assumed that any ton of salt mined from the Goderich mine is a saleable product and that economic impacts result from market influences and not resource constraints.
INTERNAL CONTROLS DISCLOSURE
The modeling and analysis of the Company’s resources and reserves has been developed by Company mine personnel and reviewed by several levels of internal management, including the QP. The development of such resources and reserves estimates, including related assumptions, was a collaborative effort between the QP and Company staff. This section summarizes the internal control considerations for the Company’s development of estimations, including assumptions, used in resource and reserve analysis and modeling.
When determining resources and reserves, as well as the differences between resources and reserves, management developed specific criteria, each of which must be met to qualify as a resource or reserve, respectively. These criteria, such as demonstration of economic viability, points of reference and grade, are specific and attainable. The QP and Company management agree on the reasonableness of the criteria for the purposes of estimating resources and reserves. Calculations using these criteria are reviewed and validated by the QP.
Estimations and assumptions were developed independently for each significant mineral location. All estimates require a combination of historical data and key assumptions and parameters. When possible, resources and data from generally accepted industry sources, such as governmental resource agencies, were used to develop these estimations.
The Company’s salt-producing locations do not utilize exploration in the development of their assumptions around mineral resources or reserves. The mineral deposits are restricted in access by bodies of water, and industry techniques used for geological exploration for other types of mineral deposits, specifically drilling, are degradational to the salt ore being assessed. Given the nature of the salt mineral, this limitation impedes the validation of mineral resources and reserves using drilling. Accordingly, geophysical techniques are utilized at both Goderich and Cote Blanche to assist in mine planning, and to verify that there are no obstructions ahead of advancement of the mine in the form of geological anomalies or structural features, such as faults that could affect future mining. In conducting these geophysical campaigns, including in-seam seismic and ground penetrating radar technologies, the Company is able to identify the continuity of ore-body ahead of mining.
Geographical modeling and mine planning efforts serve as a base assumption for resource estimates at each significant salt-producing location. These outputs have been prepared by both Company personnel and third-party consultants, and the methodology is compared to industry best practices. Mine planning decisions, such as mining height, execution of mining and ground control, are determined and agreed upon by Company management. Management adjusts forward-looking models by reference to historic mining results, including by reviewing performance versus predicted levels of production from the mineral deposit, and if necessary, re-evaluating mining methodologies if production outcomes were not realized as predicted. Ongoing mining and interrogation of the mineral deposit, coupled with product quality validation pursuant to industry best practices and customer expectations, provides further empirical evidence as to the homogeneity, continuity and characteristics of the mineral resource. Ongoing quality validation of production also provides a means to monitor for any potential changes in ore-body quality. Also, ongoing monitoring of ground conditions within the mine, surveying for evidence of subsidence and other visible signs of deterioration that may signal the need to re-evaluate rock mechanics and structure of the mine ultimately inform extraction ratios and mine design, which underpin mineral reserve estimates.
For the mass load estimations in the Great Salt Lake brine, the Utah Geological Survey (“UGS”) as of September 2020 (water samples across five locations) and United States Geological Survey bathymetry data from 2000 (sonar sampling) were used as the basis for the modeling of sodium, magnesium, potassium and lithium mass loads, the critical ions of interest. Key data from the common sampling points were compared to confirm data correlated. Because these reports are independently produced, undergo inter-agency review, and their key data points correlate, no further evaluation of sampling methods or quality control were reviewed by Company management or the QP. In addition, the Company conducted its own sampling at UGS sample locations to further define and integrate current lithium mass load definition with a lithium dataset that was
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COMPASS MINERALS INTERNATIONAL, INC.
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discontinued in the 1990s. The Company also collected potassium and other ion data during this campaign in order to relate ion relationships and ratios in its modelling as well. These data were derived from samples collected by the QP in hermetically sealed samples containers, sent to an external laboratory under chain of custody, analyzed by an accredited laboratory for metals analysis, and the data were reviewed and validated by SRK Consulting. Review of the data derived from the Company’s sampling campaign revealed that the data were of sufficient quality to integrate in to the historic UGS data set for further mass load modelling.
The QP is satisfied that the hydrological/chemical model for the Great Salt Lake reflects the current hydrological and chemical information and knowledge. The mineral resource model is informed by brine sampling data spanning approximately 55 years and recent bathymetry data. Continuity of the resource is not a concern, as the lake is a visible, continuous body. The Company’s experience in extracting potassium and other salts from the Great Salt Lake for over 50 years under dynamic conditions, such as changing lake elevations and ion concentrations, lends confidence regarding the ability to operate under varying conditions, utilizing ion concentrations as a tool to monitor reserve estimates and make operational decisions.
Management also assesses risks inherent in mineral resource and reserve estimates, such as the accuracy of geophysical data that is used to support mine planning, identify hazards and inform operations of the presence of mineable deposits. Also, management is aware of risks associated with potential gaps in assessing the completeness of mineral extraction licenses, entitlements or rights, or changes in laws or regulations that could directly impact the ability to assess mineral resources and reserves or impact production levels. Risks inherent in overestimated reserves can impact financial performance when revealed, such as changes in amortizations that are based on life of mine estimates.
The Company packages its Salt segment products at three additional Company-owned and operated facilities located in Illinois, Minnesota and New York. The Company estimates that its annual combined packaging capacity at these three facilities is 275,000 tons. This packaging capacity is based on the Company’s estimate of the tons that can be packaged at these facilities assuming a normal amount of scheduled down-time and operation of its facilities under normal working conditions, including staffing levels. The Company has the capability to significantly increase its annual packaging capacity by increasing its staffing levels in response to demand, which would require incremental labor and other costs.
ITEM 3. LEGAL PROCEEDINGS
We are involved in the legal proceedings described in Part II, Item 8, Note 9 and Part II, Item 8, Note 12 to our Consolidated Financial Statements and, from time to time, various routine legal proceedings and claims arising from the ordinary course of our business. These primarily involve tax assessments, disputes with former employees and contract labor, commercial claims, product liability claims, personal injury claims and workers’ compensation claims. Management cannot predict the outcome of legal proceedings and claims with certainty. Nevertheless, management believes that the outcome of legal proceedings and claims, which are pending or known to be threatened, even if determined adversely, will not, either individually or in the aggregate, have a material adverse effect on our results of operations, cash flows or financial condition.
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COMPASS MINERALS INTERNATIONAL, INC.
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ITEM 4. MINE SAFETY DISCLOSURES
Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95 to this report.
Information about our Executive Officers
Below is information about each person who was or is an executive officer as of September 30, 2021, and as of the date of the filing of this report. The table sets forth each person’s name, position and age as of the date of the filing of this report.
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Name
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Age
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Position
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Kevin S. Crutchfield
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60
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President and Chief Executive Officer and Director
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James D. Standen
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46
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Chief Financial Officer
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Mary L. Frontczak
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55
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Chief Legal and Administrative Officer and Corporate Secretary
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George J. Schuller
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58
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Chief Operations Officer
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S. Bradley Griffith
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53
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Former Chief Commercial Officer
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Kevin S. Crutchfield, President and Chief Executive Officer and Director, joined Compass Minerals and assumed his current position in May 2019. Mr. Crutchfield also serves as member of our Board of Directors. Prior to joining Compass Minerals, Mr. Crutchfield served as CEO and member of the board of directors of Alpha Metallurgical Resources, Inc. (f/k/a Contura Energy, Inc.), a publicly traded, leading coal supplier, since the company’s inception in 2016. Previously, he served as CEO from 2009 to 2016 and chairman from 2012 to 2016 of Alpha Natural Resources, Inc., a coal producer. From 2003 to 2009, he held roles of increasing responsibility at Alpha Natural Resources. Prior to Alpha Natural Resources, Mr. Crutchfield spent over 15 years working at El Paso Corporation, a natural gas and energy provider, as well as other coal and gas producers. He also previously served on the Board of Directors of Couer Mining Inc.
James D. Standen, Chief Financial Officer, joined Compass Minerals in April 2006 and assumed his current position in August 2017. Prior to this position, Mr. Standen served as the Company’s Interim Chief Financial Officer and Treasurer starting in April 2017. He also served as the Company’s Vice President, Finance and Treasurer from October 2016 to April 2017, as Treasurer from July 2011 to October 2016 and as Assistant Treasurer from April 2006 to June 2011. Prior to joining the Company, Mr. Standen spent six years at Kansas City Southern in various finance roles after spending two years with the public accounting firm Mayer Hoffman McCann P.C.
Mary L. Frontczak, Chief Legal and Administrative Officer and Corporate Secretary, joined Compass Minerals in November 2019 and assumed her current position in February 2020. Prior to her current role, she served as the Company’s Chief Legal Officer and Corporate Secretary. Before joining Compass Minerals, Ms. Frontczak had served as Senior Vice President and General Counsel of POET LLC, an ethanol and other biorefined products producer, since 2017. Prior to POET, she headed the legal department at Bunge North America, an agribusiness and food ingredient company, from 2015 to 2017 and held roles of increasing responsibility at Peabody Energy Corporation, the world’s largest private sector coal company, from 2005 to 2015 and The May Department Store Company from 1996 to 2005. Her experience also includes five years in private practice.
George J. Schuller, Chief Operations Officer, joined Compass Minerals and assumed his current position in September 2019. Prior to joining the Company, Mr. Schuller spent more than three decades working at Peabody Energy Corporation, the world’s largest private sector coal company. While at Peabody Energy, he served both surface and underground mining operations in the United States and Australia, most recently serving as President-Australia from 2017 to 2019 and Chief Operating Officer-Australia from 2013 to 2017. Prior to those positions, Mr. Schuller served in roles of increasing responsibility at Peabody Energy, gaining experience in continuous improvement and technical services in the areas of health, safety, operations, sales and marketing, product delivery and support functions.
S. Bradley Griffith, Former Chief Commercial Officer, departed Compass Minerals in October 2021. He joined Compass Minerals in August 2016 and assumed the role of Chief Commercial Officer in July 2019. Prior to this position, Mr. Griffith served as the Company’s Senior Vice President, Plant Nutrition from August 2016 to July 2019. Before joining Compass Minerals, Mr. Griffith spent eight years working at Monsanto Company, a global provider of agricultural products. While at Monsanto, he held various positions, including Vice President, Global Strategic Accounts, Vice President, Global Microbials and Vice President, Western Business Unit (USA Row Crops). Prior to Monsanto, Mr. Griffith held a number of pharmaceutical and medical sales roles, most recently at Sanofi.
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COMPASS MINERALS INTERNATIONAL, INC.
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