Intrepid Potash Soars in Debut
By LYNN COWAN
April 22, 2008 2:24 p.m.
The heightened demand for crop fertilizers world-wide made for runaway growth in the share price of Intrepid Potash Inc.'s IPO Tuesday.
The potash producer opened at $46.25 a share on the New York Stock Exchange, up 45% from its initial public offering price of $32. It sold 30 million shares at a price above its expected $27 to $29 range, which was set by underwriters Goldman Sachs Group Inc., Merrill Lynch & Co. and Morgan Stanley.
The deal reopens the U.S. IPO market after a month's hiatus; the last deal to debut in U.S. markets was Visa Inc. on March 19. Demand for the deal was expected to be high, thanks to rapidly rising fertilizer prices and enormous stock gains this year by established public companies like Potash Corp. of Saskatchewan Inc., Mosaic Co. and Agrium Inc. Intrepid Potash's underwriters raised both the number of shares sold by 6 million and the price range by $3 on the deal last week. The stock was changing hands recently at $48.80.
"You talk about bringing a deal out in a perfect situation. This was a slam dunk from the get-go," says Sal Morreale, who tracks IPOs for Cantor Fitzgerald LP, which wasn't an underwriter on the deal. "This deal is behaving extremely well in a rocky market."
Based in Denver, Intrepid Potash mines two primary fertilizers: potash and langbeinite, a sulfate of potash magnesia that is a low-chloride fertilizer. In 2007, it sold 22% more potash and 66% more langbeinite than in 2006. It forecasts a 3% and 24% production increase in each, respectively, in the first quarter of 2008 compared with the same period in 2007.
Prices for each fertilizer have been skyrocketing, thanks to global demand for more variety in food crops from emerging economies like China, and to a lesser extent, the increase in crops used for fuel like ethanol and biodiesel.
The price of one type of potash, red granular, rose 132% from September 2007 to the beginning of this month; last week, a consortium of major potash producers inked a deal to sell their commodity to China at triple last year's price.
Intrepid Potash was formed in November by Intrepid Mining LLC, which itself was created in 2000 to acquire a mine from Canadian giant Potash Corporation of Saskatchewan. The mine it bought had been declining in production, but Intrepid nearly doubled the amount produced by using horizontal drilling technology that is normally used in oil and gas fields, but had never been tried on potash. Intrepid Mining then acquired more potash assets from other producers. The company says its potash and langbeinite mines have a remaining reserve life ranging from 28 to 124 years, and it plans to re-open an idled mine in New Mexico.
Along with the usual hazards of operating mines, Intrepid Potash warns in its prospectus that potash prices can be volatile. In 2006, protracted negotiations between China and international producers delayed purchases of potash by the Chinese, which led to a buildup of inventory in North America.
Unlike many commodities like gas and oil, there is no active hedge market for potash, and so the company cannot protected itself from price volatility through hedging. And while the only known source of langbeinite is located in New Mexico -- and mined by Intrepid Potash and competitor Mosaic Co. -- a German company produces a similar low-chloride fertilizer, and the Chinese are working to synthetically produce langbeinite from brines.
In 2007, Intrepid Potash reported net sales rose 37% to $192.4 million and its gross margin doubled to $52.5 million, compared with 2006; income from continuing operations rose 23% to $29.7 million. The company's net income declined 17.6% to $29.7 million because the 2006 period included income from discontinued operations and gains from sales on assets; the company sold its oil and gas assets in the final quarter of 2006.
Post-IPO, management of Intrepid Mining owns 68% of the company's stock. The majority is held by Hugh E. Harvey, the company's executive vice president of technology, and Robert P. Jornayvaz III, its chairman and chief executive.
Although the U.S. isn't considered a major source of potash -- Canada and Russia mine the most -- Intrepid is the largest producer of potash in the U.S. Since 2004, it has supplied, on average, 8.5% of U.S. consumption of potash and 1.5% of the world's.
