But I think they’ve made a lot of progress, so we’re excited about that.
Andrew Wong : That’s great. Thank you.
Operator: Thank you. [Operator Instructions] Our next question is coming from Rob McGuire from Granite Research. Your line is now live. Rob, perhaps your phone is on mute.
Rob McGuire: Thanks so much. Good morning. Could you please talk about your healthy increase in downstream production volumes? Perhaps just elaborate on what’s behind that and if you think it could continue on a year-over-year basis for the remainder of 2024?
Damien Renwick: Yeah, good morning, Rob. Basically, we’re sold out on all of our downstream plants, so as we get improved performance from those assets, then we’re in a good position to sell them and increase the volumes. And that’s exactly what we’ve been doing right across the board, so it’s pretty simple in that aspect.
Mark Behrman : Yeah, I think, in fact, we’ve got about 200,000 tons of ammonia that we sell in El Dorado and inject into the pipeline to a customer that we’d love to find a way, and we’re working diligently to find a way to upgrade, so I think we’ve still got some more upgrading capabilities. Will take some more capital to do that, like an expansion that we’ve talked about in the past, but we think that there’s certainly margin enhancement as we move forward.
Damien Renwick: Yeah, and the other bit of margin enhancement that we continually revise is basically what’s the mix, right? And how do we optimize that mix and what’s the position on pricing or term of contract or whatever we take on those upgrades, so yeah.
Cheryl Maguire : Yeah, and I think one other thing I would point out, Rob, is when you’re thinking about Q1 to Q2, and I kind of alluded to it in the script, we expect to see further increase in volumes on all of our downstream production for UAN, AN, and nitric acid. And then, of course, you’ll see a corresponding decrease in ammonia sales as we look to continue to upgrade further.
Rob McGuire: That’s helpful from all three of you. Thank you. Moving on, how would you characterize the strength of the spring application, and what does that tell you about future demand? In other words, could you also talk about it, you know, if you think there was a pull forward from 2Q into Q1, you kind of touched on it in the comments, but if you could elaborate, I’d appreciate it.
Damien Renwick: Yeah, look, I think the way the season is setting up, it’s looking pretty good. Planting is running ahead of the five-year average, I think in the last report we were about 27% versus 22% on average, so that’s all pointing to a good season. Look, clearly we had a really strong pre-plant run on ammonia, but we’re now really focused on what that means for UAN and some of the other nitrogen products, and we think we’re well positioned to take advantage of whatever the season throws at us, and we’re confident that it will be a pretty healthy spring this year.
Rob McGuire: Okay, I appreciate that, and then lastly, could you — you kind of touched on this in the past, but can you discuss the mining industry’s push to decrease its carbon footprint? Are they under different pressure than the rest of corporate America, or is it just simply they’re keeping up with everyone else?
Damien Renwick: That’s an interesting question, it’s probably a bit of both, I think. You know, look, the mining industry is trying to decarbonize and some of the big producers have a really strong effort on that. They’ve all got sustainability reports and people responsible for driving improvements there, so we’re seeing some of that come through in some of our discussions with them on our low carbon offerings as we look to commission our project at El Dorado, so I think we’re well placed to take advantage of that, and we hope that they continue to try and push to decarbonize their supply chains.
Rob McGuire: But just to follow on, do you think that there’s more demand for low carbon ammonia in the next few years when you start producing, coming from mining or industrial, or is it probably going to look about the same?
Damien Renwick: I think it’ll look about the same, it’s hard to split the —
Operator: Please stand by. [Technical Difficulty]
Operator: Now rejoining our speakers. The speaker line has now rejoined. I believe Rob, you were online for a question.
Rob McGuire: Yes, indeed. Just touching base on, sorry about that, I’m just going to move on if you don’t mind. Are there any meaningful upgrades taking place in the turnarounds to uptick your onstream rate?
Damien Renwick: Yeah, Rob, we’ve got a urea expansion that we’re pursuing and implementing at Pryor and that’ll help us produce another 60,000 tons to 70,000 tons of UAN per year. And the rest of the turnaround scope’s really for both sites. Pryor and Cherokee’s really going to be focused on improving reliability.
Mark Behrman : Yeah, so we expect to come out of the turnarounds with much higher operating rates and that obviously would just improve product for sale. So yeah, we’re looking for, these are major turnarounds for us. We’re very focused on them and actually it’s a fair amount of capital that we’re deploying into the turnarounds.
Rob McGuire: Thank you.
Operator: Thank you. Our next question today is coming from Charles Neivert from Piper Sandler. Your line is now live.
Charles Neivert: All right, guys, just one quick question. The SG&A percentage seems to be on the rise lately. Is there any particular reason for it? Should we expect it to stay at the higher level or is it going to come back to where it had been over the last couple of years?
Mark Behrman : Yeah, Charlie, I think you’re going to see us carry an extra $10 to $15 million in SG&A for the next 12 months to 18 months, maybe 24 months as we push reliability programs. Some of that is obviously rolling up to the cost of sales, but some of it we’re carrying up as corporate overhead. So we would see, once we achieve the reliability rates that we’ve outlined, we definitely should see some reduction in expense.
Charles Neivert: And then in terms of the net debt-to-EBITDA multiple, do you guys have a target in mind? I mean, admittedly, EBITDA has been moving around a little bit over the last year, so you’re trailing 12 months and seeing some big movement. But when things, the life of [bad terms] begin to level off and get less volatile, do you guys have a target in mind as to where you’d like to be when it all works its way through?
Mark Behrman : Yeah, no more than 2.5 times levered.
