Intrepid Potash, Inc. Q2 2010 Earnings Call Transcript

Intrepid Potash, Inc. Q2 2010 Earnings Call Transcript
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Intrepid Potash, Inc. (IPI)

Q2 2010 Earnings Call Transcript

August 5, 2010 10:00 am ET

Executives

William Kent – Director, IR

Bob Jornayvaz – Executive Chairman

John Mansanti – VP, Operations

R.L. Moore – SVP, Marketing & Sales

David Honeyfield – President, CFO and Treasurer

Analysts:

Edlain Rodriguez – Broadpoint AmTech

Vincent Andrews – Morgan Stanley

Mark Connelly – Sterne, Agee & Leach

Elaine Yip – Credit Suisse

Don Carson [ph] – Sentient Ventures [ph]

Mark Gulley – Soleil Securities

David Silver – BofA-Merrill Lynch

Fai Lee – RBC Capital Markets

Horst Hueniken – Thomas Weisel Partners

Presentation

Operator

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Previous Statements by IPI
» Intrepid Potash Inc. Q1 2010 Earnings Call Transcript
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» Intrepid Potash, Inc. Q3 2009 Earnings Call Transcript

Good morning and welcome to Intrepid Potash second quarter 2010 earnings conference call. (Operator Instructions) I would like to remind everyone that this conference is being recorded today Thursday, August 5, 2010 at 8:00 a.m. Mountain Time.

It is my pleasure to turn the conference over to William Kent, Director of Investor Relations. Mr. Kent, please go ahead.

William Kent

Good morning and thank you all for joining us for our second quarter 2010 earnings conference call. I would like to start by introducing today's participants from the company. We have with us on the call today Bob Jornayvaz, Executive Chairman of the Board, David Honeyfield, President and Chief Financial Officer, Martin Litt, Executive Vice President and General Counsel, R.L. Moore, Senior Vice President of Marketing and Sales, and John Mansanti, Vice President of Operations.

I would also like to remind everyone that statements made on this call, which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements within the meeting of the United States securities laws. A number of assumptions, which we believe are reasonable, were made in connection with the expectations reflected in such forward-looking statements.

The forward-looking statements involve risks and uncertainties, which could cause actual results to differ from our expectations. For material information with respect to the risks, uncertainties and factors which could cause our actual results to differ from our forward-looking statements, we direct you to our news release issued last night and the risk factors described in our filings with the SEC. All forward-looking statements are qualified in their entirety by such factors.

Our earnings news release, which is posted on our website at intrepidpotash.com, includes a reconciliation of certain non-GAAP financial measures to the most directly comparable GAAP measures, including EBITDA which will be used on this call. All references to tons are to short tons of 2,000 pounds.

I'll now turn the call over to Bob Jornayvaz.

Bob Jornayvaz

Thanks, Will, and thanks to everybody for joining our discussion about Intrepid's second quarter 2010 results. As we have entered the heart of the summer growing season, we have seen sales volumes activity pickup over the last few weeks. As dealers have begun to take on inventory in preparation for what many in our industry believe will be a very robust fall. As we have stated previously, we believe that we are seeing a much more normal agricultural demand cycle similar to the periods before the 2008-2009 fertilizer year.

During the second quarter of 2010, we sold 129,000 tons of potash at an average net realized price of $376 per ton. Intrepid's advantage net realized sales price represented a $74 per ton advantage over the average of the other North American producers. This price advantage once again demonstrates that our location is a key component of our profitability and a distinct competitive advantage.

When we put it all together, we earned about a nickel per diluted share on net income of $3.6 million, generated $13.3 million in EBITDA, and continue to bolster our cash position exiting the quarter with $136 million in cash and investments.

On the sales front, we saw strong demand for product during April and most of May as the spring planting season was in full swing. Further, as we exited May and entered June, demand declined as spring fertilizer applications were completed. Further, the markets lacked clarity as to what the Canadian producers' summer fill program pricing might be. Dealers sought to enter the summer season with minimal inventory on their books. The activity we saw during the spring season indicates that farmers are once again replenishing the nutrients in their soil. We are also seeing more strength in the overall commodity markets and more specifically in the grain markets over the last month.

The December 2010 corn contract, the key benchmark for overall crop economics, recently went well above $4 per bushel adding confidence that farmers should have an economic opportunity to replace the nutrients drawn from the soil. The outlook for farmers return on their crop appears favorable due to the crops generally being planted earlier than normal this year and good weather in much of the country during the summer growing season.

The anticipated early harvest and strong farm incomes provide both a wide fall application window for potash and the cash to invest in soil nutrients.

The second quarter of 2010 presented us with a number of opportunities and a few challenges. We continue to build on our solid cash position, which will allow us to execute on a number of important capital projects, like our previously announced Langbeinite recovery improvement project, our new compaction plan at Moab, and the HB Solar Solution Mine, which are key to the future of Intrepid.

Progress on the HB Solution Mine includes the recently announced issuance by the New Mexico Environmental Department of Ground Water Discharge permit for the HB mine. Obtaining the state regulatory approval is a key milestone in the development of the HB project. These projects should not only increase our marketing flexibility, but should also provide for greater operational efficiencies and increased productivity, thereby, lowering our per ton costs.

John Mansanti, our vice president of operations, will take the call from here and give you an update on the status of these projects and give you some detail on our operational performance during the quarter. John?

John Mansanti

Thank you, Bob. We produced 165,000 tons of potash during the second quarter of 2010, right in line with our operating plans. This compares to 131,000 tons produced in the second quarter of 2009. We also produced 39,000 tons of Trio during the second quarter of 2010, which compares to 45,000 tons produced in the second quarter of last year. Increase in potash production was a result of our successful effort to ramp up Carlsbad after a production curtailment in 2009. We successfully met our targets for ore production in Carlsbad by utilizing and effective employee recurring program obtaining employees for temporary levels have increased over time and capturing the benefits of our ongoing capital programs.

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