Intrepid Potash, Inc · NYSE:IPI
Intrepid Potash — Investor Presentation (March 2011)
53 slides from Intrepid Potash's investor presentation, Mar 7, 2011
Slide 1: Investor Presentation March 2011
Investor Presentation March 2011
Slide 2: Forward-looking statements
Certain statements in this presentation, and other written or oral statements made by or on behalf of us, are “forward-looking statements” within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management’s expect
Slide 3: Strategically Located, Potash-Only Company
Intrepid Potash Strategically Located, Potash-Only Company Intrepid has an intense margin focus: Strategic marketing Improve reliability and efficiency Capital investment to increase recoveries and productivity which is designed to lower per ton production cost Innovate production methods 3 Florida
Slide 4: Building Upon Our History of Value Creation Through Innovation
4 Building Upon Our History of Value Creation Through Innovation February 2004: Acquired Carlsbad facilities from Mississippi Chemical April 2004: Acquired Wendover facility from Reilly Chemical February 2000: Acquired Moab facility from Potash Corp. 2000 2005 2006 2008 2007 2004 2004: Increased Moa
Slide 5: Company Overview
Company Overview The largest U.S. producer of potassium fertilizer Only western world producer created and dedicated solely to potash-related products Supplies ~1.5% of global demand and ~9.4% of U.S. demand 1 of 2 global producers of sulfate of potash magnesia, marketed as Trio® 5 active production
Slide 6: Solid Financial Performance
6 Solid Financial Performance Adjusted EBITDA(1) (In millions) Balance Sheet as of December 31, 2010 (1) This is a financial measurement not calculated based on U.S. Generally Accepted Accounting Principles (Non GAAP). Non-GAAP reconciliation available in the appendix to this presentation. Net Incom
Slide 7: Strong agricultural commodity prices supportive of farmer economics into 2011
Strong agricultural commodity prices are very supportive of farmer economics into 2011 Tight corn and soybeans stocks are supporting crop prices and limiting downside risk to nutrient pricing Expectation of high corn yield in 2011 / 2012 crop year is the minimum necessary to support the current stoc
Slide 8: Supply and Demand Dynamics Are Influencing Marketing Decisions
Supply and Demand Dynamics Are Influencing Marketing Decisions New prices announced by Intrepid: For potash effective April 1, May 1, and June 1 For Trio® effective March 1 and April 1 Intrepid has sales for near-term shipment, but has not committed tons further than June Based on current market dyn
Slide 9: Supply and Demand Fundamentals Lead to the Current Pricing Environment
Supply and Demand Fundamentals Lead to the Current Pricing Environment U.S. Mid-West (fob warehouse) $515-560 spot Saskatchewan (fob mine) $505-515 spot E.C.L. America cfr $399-435 spot SE Asia cfr $408-431 spot W. Europe (cfr import) $410 spot India (cfr Indian port) (standard) $336 contract As of
Slide 10: Potash Is Well Positioned to Gain Greater Share of Nutrient Investment
Potash Is Well Positioned to Gain Greater Share of Nutrient Investment 10 Little indication on the horizon of a major price shock from nitrogen given the relatively flat natural gas strip Nitrogen price and natural gas curve have diverged Sources: Green Markets, Bloomberg Recent Prices as of 3/4/11
Slide 11: Few Deposits, Fewer Global Producers
Few Deposits, Fewer Global Producers 11 2008, ‘09 & ‘10– MM KCL Equivalent Tons (2) (3) (2,5) (2,5) Sources: Public filings and select country data from Fertecon and IFA (1) Mosaic’s fiscal year ends on May 31, data has been adjusted to reflect calendar year (2) PCS has ownership stake. (3) PCS mark
Slide 12: Potash Deliveries Track Population Growth
Potash Deliveries Track Population Growth 12 In spite of slower world economy, population growth continues Utilizing the 1.1% growth rate, provided by the US Census Bureau, in world population of 6.9 billion people: Each year – 75 million more people or approximately nine more New York Cities This w
Slide 13: Increasing Population Continues to Drive Grain Demand
Fundamentals of Increasing Population Continue to Drive Grain Demand Over the Long-Term 13 Note: Grains include corn, wheat, barley, oats and sorghum. Stock to use ratio is average inventory / consumption for that year; data updated monthly. Sources: United Nations Food and Agriculture Organization
Slide 14: United States Potash Consumption
United States Potash Consumption 14 Sources : Fertecon, United States Department of Agriculture (USDA). Potash consumption is shown in fertilizer years (July – June). Grains stocks include: Barley, Corn, Oats, Sorghum, Wheat Potash fertilizer consumption has remained relatively constant, with an ann
Slide 15: Commodity Prices Have Moved Higher
Commodity Prices Have Moved Higher 15 Harvest 2011 CBOT Prices Commodity 1 Year Ago 3/4/2011 Dec. ‘11 Corn ($/bu) $4.24 $6.09 Nov. ‘11 Soybeans ($/bu) $9.58 $13.61 Dec. ‘11 Wheat ($/bu) $6.50 $9.03 Dec. ‘11 Cotton ($/lb) $0.78 $1.27 *Nearby futures data as of 3/4/11 Source: Bloomberg 50 100 150 200
Slide 16: Strong Returns for Farmers
Strong Returns for Farmers 16 - Non-land fixed costs include: labor, opportunity cost of unpaid labor, taxes, insurance, general overhead, and machine and equipment expenses. - Other variable costs include: seed, chemicals, fuel, lube, electricity, repairs, water, interest, custom operations, and dr
Slide 17: Farmers Understand the Agronomic Benefits of Potash
Farmers Understand the Agronomic Benefits of Potash Potash application rates were down in 2008 and 2009 A robust 2009 crop coupled with lower application rates meant that soils were being depleted of “banked” nutrients with the solid harvest in 2010 The solid 2010 crop likely resulted in a significa
Slide 18: Ethanol Has Become a Steady State Demand Driver
Ethanol Has Become a Steady State Demand Driver Ethanol demand has driven growth in corn use over the last decade Other uses have remained relatively flat Ethanol expected to grow to approximately 35% of total corn use Ethanol Production reached record levels in recent months, fueled by a one year e
Slide 19: Why consider an investment in Intrepid Potash?
Why consider an investment in Intrepid Potash ? Strong Long-Term Industry Fundamentals The Only Western World Potash Pure-Play Margin Focused Decision Making Strategically Located Assets Diversified Markets and Customer Base with Enhanced Product Flexibility Well-Defined, Attractive Organic Growth O
Slide 20: Strategically Located Assets
Strategically Located Assets 20 Average Potash Consumption in Intrepid’s Markets is Greater than 5x of Intrepid’s Average Production Low High Sources: Association of American Plant Food Control Officials (AAPFCO), The Fertilizer Institute (TFI), Intrepid Potash. (1) AAPFCO, Fertecon, USDA. New Mexic
Slide 21: Intrepid's Potash Price Advantage: Strategically Located and Lower Royalties
Intrepid’s Potash Price Advantage: Strategically Located and Lower Royalties 21 (1) Sources: Green Markets and Fertecon Notes: (1)Total COGS include: Cash operating costs including all royalty, profit and capital taxes. (2) Intrepid Q4 2010 government payments were $14/ton, North American competitor
Slide 22: Diversified Markets and Customer Base with Increased Flexibility in Product Mix
Diversified Markets and Customer Base with Increased Flexibility in Product Mix Intrepid sells potash into three different markets: Agricultural, Industrial and Animal Feed Agricultural represented ~80% of Intrepid sales compared to an industry average of 92%(1) Agricultural primarily consumes granu
Slide 23: Focus to Reduce Costs and Increase Production Flexibility
Intrepid’s Focus is to Reduce Costs and Increase Production Flexibility New Mexico – 2010 Increased mining and hoisting capacity at the West Mine Commissioning of the underground stacker / reclaim system at the West mine Expansion of distributed control systems Addition of a new mining panel at both
Slide 24: Continuous Improvement and Development of Assets
Continuous Improvement and Development of Assets is Key to Intrepid’s Competitiveness and Strategy 24 Productivity enhancement at the West Mine is notable Tons hoisted from 2004 – 2009 have averaged 2.4 million tons per year since Intrepid purchased the assets Through successful execution of capital
Slide 25: Well-Defined Attractive Growth Opportunities to Increase Production and Lower Per Ton Costs
Well-Defined Attractive Growth Opportunities to Increase Production and Lower Per Ton Costs 25 Major Capital Projects Facility Key Expected Benefits Estimated Capex Range for Future Projects (1) Estimated in service date Potash Debottlenecking and Expansion Projects at Existing Facilities Wendover C
Slide 26: Moab Compaction Project
Compactor unit installed and in service at end of 2010 Total capital investment of approximately $11 million Ability to granulate greater than 100 percent of annual production from Moab facility, an increase from the current 40 percent capacity Project allows flexibility in production between granul
Slide 27: Growing the Langbeinite Business Presents a Key Opportunity
Intrepid believes the market recognizes the combined value of the nutrients in Trio®, potassium, magnesium and sulfur, and, as a result, Intrepid expects the pricing opportunity in the premium market to strengthen Growing the Langbeinite Business Presents a Key Opportunity for Intrepid Intrepid made
Slide 28: Langbeinite Recovery Improvement Project
Langbeinite Recovery Improvement Project Expected to increase Trio® recoveries from the current design of 30-35 percent to approximately 50 percent, thereby reducing cash costs per ton Expected to reduce process water consumption Allows for production flexibility through the ability to granulate 100
Slide 29: HB Solar Solution Mine capital investment and per ton capex
$120 - $130 mm total estimated capital investment results in $700 per ton capex to reopen an existing mine compared to an estimated average cost of $1,400 per ton for greenfield projects HB Solar Solution Mine expected to be among the lower-cost potash mines in North America Same proven solar evapor
Slide 30: HB Solar Solution Mine: Project Timeline & EIS Process
HB Solar Solution Mine: Project Timeline & EIS Process 30 We are well into the EIS process with the BLM Anticipate completing EIS review process and receiving the Record of Decision in the first quarter of 2012, reflecting updated timeline from BLM BLM is completing preparation of the draft EIS Rece
Slide 31: Final Thoughts
31 Final Thoughts Strong Long-Term Industry Fundamentals The Only Western World Potash Pure-Play Margin Focused Decision Making Strategically Located Assets Diversified Markets and Customer Base with Enhanced Product Flexibility Well-Defined, Attractive Organic Growth Opportunities that Lower Per-To
Slide 32: Appendix
POTASH Appendix
Slide 33: Conversion Rates
33 Conversion Rates 1 metric tonne = 1.102 short tons 1 product ton of potash (KCL or KCL Equivalent) = 61% K20 1 product ton of langbeinite = 22% K20 1 product ton of SOP = 50% K20
Slide 34: Calculation of Adjusted EBITDA
Calculation of Adjusted EBITDA 34 Non-GAAP Reconciliation Adjusted Earnings before income taxes, interest, depreciation and amortization (“EBITDA”) is computed as net income adjusted for the add back of income tax expense, interest expense including derivatives, depreciation, depletion, amortization
Slide 35: Calculation of Adjusted Net Income
Calculation of Adjusted Net Income 35 Non-GAAP Reconciliation Adjusted net income is calculated as net income adjusted for significant non-cash and unusual items. Examples of non-cash and unusual charges include insurance settlements from property and business losses, non-cash gains or losses associ
Slide 36: Selected Financial Data
36 Selected Financial Data Adjusted Net Income (1) (In millions) Adjusted EBITDA (1) (In millions, except gross margin percentage) Net Sales (In millions) Earnings Per Share (Diluted) (1) This is a financial measurement not calculated based on U.S. Generally Accepted Accounting Principles (Non GAAP)
Slide 37: Historical Quarterly Production and Sales Summary
37 Historical Quarterly Production and Sales Summary 2008 2009 2010 Quarter ended September 30, December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, Production Volume (In thousands of short tons) Potash 200 201 137 131 112 124 172 165 166 150 Trio®
Slide 38: Estimated Long-Life Reserves
38 Estimated Long-Life Reserves (1) Product / Operations Date Mine Opened Current Extraction Method Minimum Remaining Life (years) Muriate of Potash Solar Moab 1965 Solution 125 Wendover 1932 Shallow Brine 30 HB Solar Solution Mine(2) N/A Solution 28 Conventional Carlsbad West 1931 Underground 158 C
Slide 39: Intrepid Production Volume History & Outlook
39 Intrepid Production Volume History & Outlook Tons (000’s) Intrepid’s Potassium Production Volume Growth Estimated Productive Capacity at Full Operating Rates(1) Historical ® ® Productive capacity is affected by operating rates, recoveries, mining rates and the amount of development work that Intr
Slide 40: Intrepid Average Net Realized Sales Price Advantage
Intrepid Average Net Realized Sales Price Advantage 40 Source: Based on Intrepid calculations using publicly available data 2010 Net Realized Sales Prices Q1 Q2 Q3 Q4 Intrepid $354 $376 $343 $363 Mosaic $323 $305 $300 $300 Agrium $307 $322 $297 $327 Potash Corp. $291 $280 $277 $293 $ 0 $ 20 $ 40 $ 6
Slide 41: The Only Western World Potash Pure-Play
41 Potash Salt Nitrogen Complementary Business Agrium Potash Phosphates The Only Western World Potash Pure-Play K+S Potash Potash Phosphates Nitrogen Potash Corp Mosaic Uralkali Potash Intrepid Comparables Revenue by Product - North America Comparables Revenue by Product - International ICL Potash F
Slide 42: Why Potash Only?
42 Why Potash Only? (1) Potash Corp. (2) Potash percentage represents 2007, nitrogen and phosphate percentages represent 2005 figures from Integer Research Ltd. (3) Estimated by Intrepid Potash based on publicly available historic production data. Operating capacity rates for nitrogen and phosphate
Slide 43: Global Industry Susceptible to Production Interruptions & Supply Shocks
43 Depleted Conventional Mines Mines Currently With Less than 15 Years Reserve Life Theodore, Amelie, Marie Louis mines in France Pasquasi and San Cataldo mines in Italy Salzdetfurth, Friedrichshall, Bergmannssegen-Hugo, Siegfried-Giesen, and Niedersachen-Riedel German mines Trona, California Severa
Slide 44: Carlsbad Potash Area
44 Carlsbad Potash Area
Slide 45: Potash Production and North American Inventory Levels
45 Potash Production and North American Inventory Levels N. American Inventory (000s Tons KCL Equivalent) Sources: IPNI, Fertecon, Intrepid Potash®. Potash Production (000s Tons KCL Equivalent) (1) Global Production North American Production 5,000 15,000 25,000 35,000 45,000 55,000 65,000 75,000 500
Slide 46: Nutrient removal of various crops
Nutrient removal of various crops 46 N P2O5 KCl Eq. *Based on 2009 world yield for Oil Palm and 2009 US Yields for all others Sources: UN Food and Agriculture Organization (FAO), International Plant Nutrition Institute, International Potash Institute, USDA lb/acre* Corn (grain) Cotton (lint) Rice So
Slide 47: Removal of KCl by Selected Crops
Removal of KCl by Selected Crops: Steady in the United States - Growing Significantly Worldwide 47 Sources: International Plant Nutrition Institute, UN Food and Agriculture Organization, USDA USA Removal of KCl Equivalent by Various Crops ROW Removal of KCl Equivalent by Various Crops 7,261 8,466 -
Slide 48: United States Harvested Crop Acreage
United States Harvested Crop Acreage 48 Sources: UN Food and Agriculture Organization, USDA 72.4 68.8 69.3 70.9 73.6 75.1 70.6 86.5 78.6 79.6 81.3 72.4 73.0 72.5 72.5 74.0 71.3 74.6 64.1 74.7 76.4 76.8 53.1 48.5 45.8 53.1 50.0 50.1 46.8 51.0 55.7 49.9 53.6 23.1 23.8 23.1 23.6 21.7 22.4 21.4 21.7 21.
Slide 49: World Arable Land Decreasing
World Arable Land Decreasing 49 Source: UN Food and Agriculture Organization USA Total Area Harvested ROW Total Area Harvested - 100 200 300 400 500 600 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Million Acres Unharvested Arable Land Legumes, Roots, Tubers & Tree Nuts Fruits and Vegetables Fi
Slide 50: Brazil, India and China Must Increase Demand
50 To Reach Recommended Application Levels, Brazil, India and China Must Increase Demand China Brazil India sources: IPNI, Potash Corp. (MM Tons KCL) Goal to attain self-sufficiency of food supply History of under-application of potash Need to increase yields Increasing land use for agricultural pur
Slide 51: Fertilizer Use Below Recommended Rates
51 Fertilizer Use Below Recommended Rates Source: Morgan Stanley, Agricultural Products Research, September 4, 2008. 146% Shortfall 86% Shortfall 288% Shortfall Global Application Rates (lb/acre) 60 112 24 59 17 66 0 20 40 60 80 100 120 Nitrogen Phosphate Potash Current Average Application Rate Scie
Slide 52: Yield Response at Varying Soil Test Levels
52 Yield Response at Varying Soil Test Levels Average Yield Response to Potash Fertilization - No data for medium alfalfa yields. Response shown is an average of low and high yield responses. - Avg. relative yield assumes all other factors are non-limiting, yields approach 100% after fertilization,
Slide 53: Return on Potash Investment for Corn & Soybeans
Return on Potash Investment for Corn & Soybeans 53 ROI assumes 152.8 bu/acre and $6.98/bu for corn, 43.9 bu/acre yield and $13.83 for soybeans, $485/ton KCL (crop prices based on May 2011 futures minus $0.30 basis as of 3/4/11) Input Costs for Corn ($/bu) Input Costs for Corn ($/acre) Return on Pota