Intrepid reports 1Q loss; plans to idle West facility
Intrepid Potash Inc. on May 9 reported a first-quarter net loss of $18.4 million ($0.24 per diluted share), compared with net income of $6.5 million ($0.09 per diluted share) in the first quarter of 2015. The company also announced that it is idling operations at its West facility in Carlsbad, N.M., which generated 42 percent of Intrepid’s potash production in 2015.
“In the quarter, we continued to be significantly impacted by declines in potash pricing and general oversupply in the U.S. markets. In response to this challenging environment, we are taking actions to lower our overall production costs and optimize our mine portfolio,” said Bob Jornayvaz, Intrepid’s executive chairman, president, and CEO. “Accordingly, today we announced the difficult, but necessary, decision to idle the West facility in July. At the same time, we successfully converted our East facility to Trio®-only production in early April, ahead of our original timeline. These two transitions remove our two highest-cost potash production facilities from our portfolio, substantially increase our Trio® production, and allow us to focus on our lower cost solar production.”
Intrepid said the West facility’s operations have become increasingly less profitable in recent months as oversupply and foreign competition in the U.S. potash market pressured prices. The facility is expected to transition to care and maintenance in July, and will remain in that mode until Intrepid determines otherwise. Approximately 300 Intrepid employees will be impacted by the decision, and the company anticipates that it will incur charges of $1-$3 million (approximately $0.01-$0.04 per share) in the second quarter related to the idling of the facility.
“The decision to idle the West facility was difficult, but necessary in order to better position Intrepid for long-term success,” said Jornayvaz. “While the transition of this facility to a care-and-maintenance mode significantly reduces our potash production capacity, this move, in combination with the transition of the East facility to Trio®-only production, removes our two most expensive potash facilities from production during this period of low potash prices. We believe our remaining potash production facilities, which consist of our three low-cost solar solution mines, will improve our position on the world cost curve and provide the right model for our portfolio in this challenging environment.”
Intrepid sold 218,000 st of potash in the first quarter, down 13,000 tons, or 6 percent, from the same period last. The average net realized sales price for potash was $216/st in the quarter, down 40 percent from last year’s first quarter and a 22 percent decline from fourth-quarter 2015. Intrepid said potash prices were pressured by high levels of global potash supply, combined with the strength of the U.S. dollar and its effect on import tons coming into the North American market.
Potash production for the first quarter totaled 215,000 st, a 9 percent decline from the year-ago quarter due to deferred production at the HB facility from early in the first quarter to the second quarter.
Trio® sales for the first quarter totaled 50,000 st at an average net realized sales price of $316/st, compared with 62,000 st and $367/st, respectively, in the year-ago quarter. “Trio® pricing continues to demonstrate some resiliency to the market pressures evident for other commodities, though competition in certain key markets resulted in a 4% price decline compared to the sequential fourth quarter,” the company said.
Adjusted for restructuring costs and write-offs of deferred financing fees, Intrepid’s first quarter net loss was $17.4 million ($0.22 per diluted share), compared with adjusted net income of $6.5 million ($0.09 per diluted share) in last year’s first quarter. Cash, cash equivalents, and investments as of March 31, 2016, totaled $54.9 million. Cash flow used in operations for the first quarter of 2016 was $1.1 million and capital expenditures totaled $6.0 million.
Jornayvaz reported that Intrepid has reached an agreement with lenders for its credit facility to extend until no later than July 31, 2016, the previous waiver of the requirements under the facility to meet quarterly financial covenants and to deliver 2015 financial statements without a going concern modification.
“While this agreement further reduces the amount under the facility, it provides us with the time to thoughtfully continue our negotiations with the noteholders,” he said. “In addition, we are performing due diligence surrounding an alternative credit facility proposal we have received. Our noteholders have also agreed to waive until June 30, 2016, the financial covenants under the notes. We continue to work with our lenders towards a mutually agreeable long-term solution to our debt covenant issues”