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IPOVIEW-Intrepid Potash offering likely to yield rich rewards
Fri Apr 18, 2008 11:30am EDT

http://www.reuters.com/article/marketsNews/idCAN1817356420080418?rpc=44&sp=true

By Euan Rocha and Paritosh Bansal

NEW YORK, April 18 (Reuters) - Crop nutrient producer Intrepid Potash (IPI.N: Quote, Profile, Research), which is expected to price next week, presents a big opportunity for investors looking for exposure to a sector whose valuations have soared in recent months.

Booming demand for grain across the globe, driven largely by the growing needs of developing economies and the increasing use of biofuels, have led to soaring food grain prices.

Farmers trying to boost yields are using more fertilizers, leading to tight global supply conditions for crop nutrients and bumper profits for fertilizer producers.

Intrepid Potash accounts for about 1.5 percent of global potash production and is well-placed to take advantage of the growing demand, which may make it attractive to investors even in a bleak market for initial public offerings.

On Thursday, the company increased the size of its planned offering and raised the range it expects the stock to price in, indicating strong demand among investors.

"This is an early indication that there is something very solid going on with this stock," said David Menlow, president of IPOfinancial.com. "This is a good sign in an (IPO) market struggling to find its footing."

The crop nutrient producer was initially offering 24 million shares at an estimated $24 to $26 per share but has raised the offering to 30 million shares at an estimated price of $27 to $29 per share.

At the mid-point of this range, the offering would raise $840 million, giving the company a market capitalization of nearly $2.1 billion, with 74.85 million shares outstanding.

Morningstar analyst Ben Johnson said the offering still looks attractive even given the higher-than-expected price range.

"On a price to earnings basis, I think it is going to price probably at a bit of a discount to its peers," said Johnson, adding that the stock is likely to eventually trade roughly in-line with its peers.

Shares of North American fertilizer producers have risen dramatically in the last 12 months, in some cases tripling. In contrast, the Standard & Poor's 500 Index .SPX has declined about 6.6 percent, and Dow Jones Industrial Average .DJI has fallen about 2 percent.

Companies with sizable potash assets have been among the biggest winners in the sector. Shares of Potash Corp (POT.TO: Quote, Profile, Research) have risen about 225 percent in the last 12 months, while those of Mosaic Co (MOS.N: Quote, Profile, Research) are up a whopping 350 percent.

Earlier this week, Chinese importers agreed to pay North American and Russian potash exporters more than triple the price they paid a year ago for the crop nutrient.

In 2007, Intrepid sold 893,000 tons of potash and 158,300 tons of langbeinite -- a mineral with lower potassium content -- generating sales of $192.4 million, with a net income of $29.7 million. Almost all of its sales were within the United States.

The barriers to entry in the sector are high. Environmental approvals, geographical obstacles, infrastructure issues, labor shortages and capital constraints in the current credit environment all pose significant hurdles to new mine developments.

"To put a mining plan together, raise the money, build the mine and bring it into production is usually a five to seven-year process," said Evan Smith, an analyst with U.S. Global Investors.

So an IPO by a company that is already producing potash, Smith said, offers investors a rare chance to get in on the action.

Still, Intrepid has chosen to go public at a bad time for the IPO market. In the first quarter, just 25 deals priced, the lowest number since the third quarter of 2003, according to Dealogic.

As many as 36 U.S.-listed IPOs were withdrawn or postponed in the first quarter, Dealogic said.

"Investors have fears of their core investments and IPOs are a luxury item," Menlow said. "The question is, 'is the rest of the market ready to start looking at other investments?'"

But in the booming agricultural market, chances are that Intrepid may buck the trend.

"It is conceivable that the stock will in fact do well," Menlow said. (Reporting by Euan Rocha and Paritosh Bansal; Editing by Steve Orlofsky)