Phosphate Holdings Inc. (PH), Madison, Miss., a Delaware corporation that owns Mississippi Phosphates Inc., has proposed an initial public offering with the U.S. Securities and Exchange Commission to raise some $200 million. When the company released second-quarter earnings back in August (GM Sept. 1, p. 1), it indicated that it was preparing its financial information to enhance liquidity and value, which could lead to a potential IPO.
As of Oct. 10, PH shares were selling for $18.00 on the OTC markets. PH noted that under its incorporation it is entitled to issue up to some 30 million shares, though the number in this IPO has not been identified, nor has the price at which the stock is to be offered.
PH plans to use substantially all of the proceeds from the IPO to build a new $125-$150 million sulfuric acid plant at the Pascagoula, Miss., DAP production facility. The new acid plant will have a nameplate capacity of 3,600 tons of acid per day, some 600 tons per day more than the current acid plants. The two existing acid plants were constructed in the 1970s.
PH says the new acid plant will allow it to produce DAP at full capacity of 870,000 st, rather than the current 750,000 st. PH notes that DAP consumption is expected to increase at an average annual growth rate of 3.5 percent from 2008 to 2012, according to the International Fertilizer Industry Association. It notes that no significant phosphate fertilizer production capacity is expected to be added to the market before 2011.
Actual DAP sales in 2007 were 620,600 st, versus 2006’s 579,800 st. Intervening factors have included damage from Hurricane Katrina and problems with the existing sulfuric acid plants. PH is currently in litigation against repair contractors of the acid plants, alleging negligence and breach of contract.
The new acid plant will also allow the company to sell 95,000 tons of excess sulfuric acid into the merchant acid market each year. The new acid plant, along with a cogeneration plant, are expected to help PH lower its DAP production costs. The cogeneration capabilities are 30 megawatts of electricity. Current internal electricity demand is 10-12 megawatts, so excess electricity may also be available for sale.
Any excess from the $200 million IPO proceeds would go to general corporate purposes, including the support of significantly higher working capital requirements due to the recent sharp increases in raw material and finished product prices, and the expansion of terminaling operations. Any remaining net proceeds could be used to fund other potential capital projects under evaluation, including the expansion of dock facilities, solid sulfur prilling operations, and uranium recovery from phosphoric acid. One project already approved to proceed is a 15,000 st sulfuric acid tank, with an approximate cost of $3 million. The company is also evaluating a 40,000 st UAN tank.
PH values the replacement costs of its Pascagoula plant at $900 million. It estimates that to build such a facility would take four years. Storage at the Pascagoula facility includes 70,000 tons of finished product. Raw material storage is 175,000 tons of phos rock, 8,000 lt of molten sulfur, 18,000 tons of sulfuric acid, and 24,000 tons of ammonia. PH says there is ample space for terminal expansion.
Boosting DAP production will increase raw material usage as indicated below.
| DAP | 750,000 tons | 870,000 tons | Conversion to DAP st |
| Phosphate Rock | 1,230,000 st | 1,426,800 st | 1.64 |
| Sulfur | 292,500 lt | 339,300 lt | .39 |
| Ammonia | 170,250 st | 197,490 st | .227 |
| 6Mo-08 | 6Mo-07 | Year 07 | Year 06 | |
| Total Net Sales $/M | 238.4 | 109.9 | 222.4 | 131.6 |
| Net Income (Loss) $/M | 42.0 | 33.6 | 48.9 | (1.8) |
| Earnings Per Share Diluted | 5.19 | 4.40 | 6.04 | (.24) |
PH cited three key alliances: Morocco’s OCP, which supplies phosphate rock; Transammonia, for ammonia procurement and terminaling, as well as DAP sales; and ICEC, for sulfur procurement, as well as some DAP business.
PH touted its long-term relationship with OCP, noting that it had purchased all of its rock from that company since 1991. In addition, it noted the higher grade of the rock, which lowers conversion costs. PH said in June that OCP gave notice that it will not extend PH’s current four-year agreement beyond Dec. 31, 2008. PH said OCP does desire to continue the two’s long-term relationship, and a new contract is expected to be inked by the end of 2008.
Transammonia supplies PH’s ammonia needs. In addition, all of its export DAP sales, and much of its domestic DAP sales, go to Transammonia. In the first half of 2008 about 75 percent of DAP sales were made into the international market in order to capture better prices, versus only 21 percent in first half 2007. The company is also the exclusive user of PH’s ammonia terminal.
ICEC is PH’s major sulfur supplier, providing some 7,000-12,000 lt to the company each month.
Goldman, Sachs & Co. and Merrill Lynch & Co. are acting as joint book-running managers for the offering.
The offering will be made only by means of a prospectus. When available, a copy of the prospectus may be obtained by submitting requests to Goldman, Sachs & Co., Attn: Prospectus Department, 100 Burma Road, Jersey City, New Jersey 07305; phone: 212-902-1171; fax: 212-902-9316; and email at prospectus-ny@ny.email.gs.com; or Merrill Lynch & Co., Attn: Prospectus Department, 4 World Financial Center, New York, New York 10080;, phone: 212-449-1000.