CVR Partners LP, which is currently involved with an initial public offering (GM April 4, p. 1), says it plans to pay out all cash it generates each quarter to investors. As a result, it says for the year ending March 31, 2012, this could represent 14.8 percent distribution yield.
CVR is projecting net income for the year ending March 31, 2012, of $125.7 million on sales of $297.4 million. EBITDA is put at $150.4 million and dividends of $1.92 per common unit.
CVR says its payout to investors should be a greater percentage of operating cash flow when compared to its publicly traded competitors across the broader fertilizer sector, such as Agrium Inc., Potash Corp. of Saskatchewan Inc., CF Industries Holdings Inc., Yara International ASA, and Terra Nitrogen LP. It puts those companies’ average dividend yields at 0.1 percent, 0.3 percent, 0.4 percent, 1.6 percent, and 6.9 percent, respectively, as of Feb. 28, 2011.
CVR said its general partner will have a non-economic interest and no incentive distribution rights, and will therefore not be entitled to receive cash distributions. Common unitholders will receive 100 percent of cash distributions.
Despite CVR’s assertions, sources noted that the fertilizer industry is cyclical, and traditional limited partnership investors looking for stable and consistent dividends over time might see volatility with CVR.
CVR’s March 2012 estimates include full production, something it did not achieve in 2010. The company assumes its units will not be offstream in 2011 for a turnaround. It assumes on-stream factors for its gasifier, ammonia, and UAN at 96.2 percent, 95.4 percent, and 92.2 percent, whereas they were 89 percent, 87.8 percent, and 80.8 percent, respectively, in 2010. The company had both a major scheduled turnaround and the rupture of a high-pressure UAN vessel in 2010.
CVR estimates it will sell 686,200 st of UAN at an average plant gate price of $278/st, for total UAN sales of $191 million for the year ending March 31, 2012. By comparison, it sold 580,700 st of UAN at an average price of $179/st on sales of $103.9 million for the year ending Dec. 31, 2010.
CVR estimates it will sell 157,400 st of ammonia at an average price of $547/st, for sales of $86 million for the year ending March 31, 2012, compared to 164,700 st, $361/st, and $59.5 million, respectively, for the year ending Dec. 31, 2010.
For the quarter just ended March 31, 1011, CVR estimates that it produced 100,000-105,000 st of ammonia, with 33,000-35,000 net st available for sale. The rest would be upgraded to some 163,000-170,000 st of UAN. For the year-ago quarter, CVR produced 105,100 st, of which 38,200 net st were available for sale and the rest upgraded to 163,800 st of UAN.
CVR estimated the average plant gate price of ammonia recognized in revenue for the quarter ending March 31, 2011, to be $560-$565/st, and the average plant gate price for UAN at $200-$210/st. For the year-ago quarter, prices were $282/st and $167/st, respectively.
CVR said UAN pricing for first quarter 2011 was adversely impacted by the outage of a high-pressure UAN vessel that occurred in September 2010. This caused CVR to shift delivery of lower-priced tons from the fourth quarter 2010 to the first and second quarters of 2011.
For the quarter ending March 31, 2011, CVR estimates ammonia sales of 23,500-26,500 st and UAN sales of 169,500-175,500 st, compared to the year-ago 31,200 st and 155,800 st, respectively.
CVR said it will spend some $135 million for the 400,000 st/y expansion of its UAN plant (GM April 4, p. 1). At the end of 2010, some $31 million had already been spent on this project. It expects to take 18-24 months to complete. The project is being funded by $91.4 million from the net proceeds of the IPO.
Citing Blue Johnson & Associates, CVR said the convenience of using UAN