All Posts from April 14, 2008

Intrepid Potash values shares at $24-$26; reports results for 2007; details expansion plans

Intrepid Potash Inc. plans to sell up to 27.6 million shares of its common stock in its recently announced initial public offering (GM Jan. 7, p. 15), for a value of between $24-$26 per share. The proposed maximum aggregate offering price is $717.6 million.

Intrepid has applied to list the shares on the New York Stock Exchange under the symbol IPI.

Assuming a share price of $25 per share, Intrepid expects net proceeds from the IPO to be $559.8 million. Some $419.8 million, or about 75 percent, will be paid to Intrepid Mining, together with 47.2 million shares of common stock, in exchange for all of Intrepid Mining’s assets other than cash. About $82.5 million – 14.7 percent of proceeds – will be used for repayment of debt assumed from Intrepid Mining pursuant to the exchange agreement. This will leave Intrepid Potash with no outstanding debt. Approximately $59.2 million will be used to fund production expansion and other growth opportunities, and for general corporate purposes.

Intrepid is eyeing expansion of its idled HB and North Mines. It hopes to reopen HB as a solution mine, and expects to begin Phase I of the HB project in 2008, with production starting in 2009. Phase I will consist of the flooding of 4,400 of the 21,600 total acres of the mine, and has the potential to add up to 150,000-200,000 tons of potash production by 2011. Intrepid says the North Mine has the underground infrastructure and mine shafts already in place should it opt to restart it.

In addition, Intrepid said it has also initiated two projects that it believes will allow it to increase langbeinite production by 90,000 st over the next 3-4 years while lowering production costs.

Since Dec. 31, 2007, the company has spent $80 million on capital expenditures at its facilities. Its two Utah facilities both use low-cost solar evaporation.

In 2007, Intrepid generated net sales of $192.4 million, EBITDA of $48.5 million, and net income of $29.7 million, at an average potash sales price of $194/st. Net sales are defined as gross sales less freight costs, which, in effect, results in all sales being stated net of delivery costs (FOB the mines). Intrepid noted that its posted price for red granular potash in Carlsbad has increased 132 percent, from $217/st on Sept. 30, 2007, to $503/st as of April 1, 2008.

During 2007, Intrepid sold 96 percent of its potash and langbeinite volumes in North America, with the remainder being sold outside North America on its behalf by Potash Corp. of Saskatchewan Inc. The agriculture market represents 64 percent of potash sales in 2007, with industrial and feed markets accounting for 30 and 6 percent, respectively.

Intrepid touts its position as the number one producer of potash in the United States. Since 2004, Intrepid says it has supplied on average 1.5 percent of world potash consumption and 8.5 percent of U.S. consumption annually. It has supplied a higher proportion of the potash consumed in the southwestern and western U.S. In addition to langbeinite, a low chloride product suitable for chloride-sensitive crops, the company also produces salt, magnesium chloride, and metal recovery salts from its mining process.

Intrepid currently operates five facilities – three in New Mexico and two in Utah – and has nameplate capacity to produce 1.2 million st of potash and 250,000 st of langbeinite. In 2007, it sold approximately 893,000 st of potash and 158,300 st of langbeinite, an increase of 22 and 66 percent over 2006. Preliminary estimates for the first quarter of 2008 are 224,000 st of potash and 56,000 of langbeinite, versus the year-ago 218,000 st and 45,000 st.

As a dedicated potash producer, Intrepid said it believes its financial performance will be subjected to less volatility than producers who also deal in other commodities. It notes that after the transaction, it will be one of only two publicly-traded potash-only companies producing today, the other being Uralkali in Russia.

Intrepid said that annual potash consumption in its normal markets is greater than five times the company’s annual production. As a result, it said it can target sales to the markets in which it has the greatest transportation advantage, maximizing net sales per ton. Intrepid noted its advantage regarding rail and truck routes, adding that it is located in an oil and gas producing region, allowing it to reach industrial customers by truck. It also noted that its geographic advantage is difficult for competitors to erode, particularly in an environment of high and rising transportation costs.

Intrepid estimates its potash and langbeinite reserves have a life of between 28-124 years.

Assuming the underwriters do not exercise options to purchase additional shares, Intrepid shares should be held as follows:

• 32.1 percent by public shareholders;
• 27.2 percent by Harvey Operating and Production Co. (HOPCO), a Colorado corporation wholly-owned by Hugh Harvey Jr., Intrepid’s executive vice president of technology and one of its directors;
• 27.2 percent by Intrepid Production Corp. (IPC), a Colorado corporation wholly-owned by Robert Jornayvaz III, Intrepid’s chairman of the board and CEO;
• 13.5 percent by Potash Acquisition LLC (PAL), a Delaware LLC, the largest beneficial owner of which is Platte River Ventures I, L.P., a Delaware LP. One of Intrepid’s directors, J. Landis Martin, is the managing member of Platte River Ventures I, L.P.’s general partner, PRV Investors I, LLC, a Delaware LLC.

Members of Intrepid’s senior management team currently own 80 percent of Intrepid Mining. After the offering, the team and board of directors will own 67.9 percent of the common stock (63.1 percent if the underwriter’s option to purchase additional shares is exercised in full).

Intrepid Results 2005-2007

* Income from continuing operations

Sales Volumes 000 st

Gross Sales $ m

Avg Net Selling Price

Avg Gross Margin st