Abet Chichi2

[bob3]

Mad Dash for Potash

http://www.ipohome.com/default.asp

Intrepid Potash is the only dedicated producer of potash in North America, offering investors a pure play in a commodity currently trading at record prices. Over the next 5 years, global potash demand growth is projected to outstrip announced supply additions given the limited availability of commercial deposits and the extensive capital requirements for greenfield projects. As the largest US-based supplier, the company plans to capture share in its diversified domestic markets while Canadian competitors suffer from rising freight costs and a declining dollar. On Thursday, the company amended the terms of its offering; it now plans to sell 30 million shares (25% more than originally expected) at a range of $27-$29 (12% higher at the midpoint). Goldman Sachs, Merrill Lynch and Morgan Stanley are the lead underwriters on the deal.

No substitute

Potash is one of three essential nutrients required for crop cultivation, protecting plants from drought, disease, parasites and cold weather. Recoverable potash deposits occur rarely in nature, and as a result, the industry is economically and geographically concentrated. Intrepid Potash currently produces from two conventional mines in Carlsbad, NM, and two solution mining facilities in Utah. In addition, the company plans to convert an idled Carlsbad potash mine into a solution facility, with production expected to commence in 2009. Intrepid’s potash revenues are more diversified than the industry norm; 64% of its potash is used as fertilizer, while 30% is sold as an input in oil & gas drilling fluid and the remaining 6% is used as a nutrient in animal feed.

Made in the USA

Because of its proximity to end users in the western US, Intrepid can capture additional margin through lower freight costs to end users. Although Intrepid’s larger competitors to the north can recover their potash more efficiently, the cost of shipping it to buyers in the western US far outweighs any scale advantages. The company estimates that in 2007, buyers in its target domestic market consumed 5x more potash than the company was able to produce. With plans in place to add low-cost capacity through upgrades to existing operations and renovations of idled facilities, the company should be well-positioned to benefit from the favorable trends in potash demand.

Making hay while the sun shines?

Insiders are set to receive a considerable sum on the IPO, including $156 million in cash for each of the two founders even before the deal size was increased in Thursday’s filing. Investors should note the historical cyclicality of the potash market and the growing price incentive for competitors to accelerate capacity expansion plans. A strengthening US dollar or falling freight costs could erode the company’s margin advantage over Canadian competitors. Furthermore, unforeseen changes to US biofuel policy might derail the trend in agricultural commodity prices and filter through to fertilizer markets.

Will investors dig it?

While trends in agricultural commodities markets will likely give this stock legs in the near term, we believe the company’s proximity advantage in the US market, diversified revenue sources and low-cost expansion opportunities provide fundamental reasons to stick around for the long haul. With inflation-wary investors looking to commodities for protection, we believe Intrepid Potash has cultivated significant interest in an otherwise infertile IPO market.

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