Intrepid Announces Second Quarter 2011 Financial Results

03.08.2011  |  Business Wire

Intrepid Potash, Inc. (NYSE:IPI) announced today second quarter 2011
financial results, with net income for the second quarter of $30.7
million, resulting in $0.41 of earnings per diluted share. This result
included the recognition of $0.04 per diluted share of income, net of
tax, associated with a refundable employment-related credit obtained
from the State of New Mexico. Adjusted earnings before interest, taxes,
depreciation, and amortization (Adjusted EBITDA¹) for the
second quarter of 2011 were $59.9 million.

'We saw continued strength in the agricultural commodities markets that
has provided a solid footing for the robust potash sales we experienced
during the second quarter,? said Bob Jornayvaz, Intrepid′s Executive
Chairman of the Board. 'Because of the reliability of our production,
our marketing strategy and our marketing flexibility, we have been able
to continue to sell into the market and to work with our customers that
have been affected by adverse weather conditions throughout the United
States. Our results in the second quarter of 2011 demonstrate that the
investments we have made and are continuing to make in our operations to
increase our granulation capacity are providing us with greater
flexibility and agility to respond to variations in demand in the potash
markets we serve. The overall strength of the potash market is reflected
in the improvement of our net realized sales price for potash to $462
per ton in the second quarter of 2011, a $20 per ton increase from the
first quarter. Strong crop economics support our belief that nutrient
demand will remain strong as farmers are incentivized to maximize yield
in order to lock-in profitability many have never experienced before.?

Second Quarter 2011 Highlights:

• 
  Potash sales in the second quarter of 2011 were 225,000 tons as
  compared to 129,000 tons sold in the same period of 2010.
  
• 
  Potash production increased 27 percent in the second quarter of 2011
  to 209,000 tons compared to 165,000 tons produced in the same period a
  year ago.
  
• 
  Average net realized sales price² for potash was $462 per
  ton ($509 per metric tonne) in the second quarter of 2011, compared to
  $376 per ton ($414 per metric tonne) in the second quarter of 2010 and
  $442 per ton ($487 per metric tonne) in the first quarter of 2011.
  
• 
  Cash operating cost of goods sold, net of by-product credits³,
  for potash was $160 per ton in the second quarter of 2011. This
  compares to $206 per ton in the second quarter of 2010 and $166 per
  ton in the first quarter of 2011.
  
• 
  Sales of langbeinite, which we market as Trio ^®, were 39,000
  tons in the second quarter of 2011 compared to 63,000 tons in the same
  period a year ago.
  
• 
  Langbeinite production in the second quarter of 2011 increased to
  44,000 tons from 39,000 tons produced in the second quarter of 2010.
  
• 
  Average net realized sales price for Trio ^® was $222 per ton
  ($245 per metric tonne) in the second quarter of 2011. This compares
  to $162 per ton ($179 per metric tonne) in the second quarter of 2010
  and $204 per ton ($225 per metric tonne) in the first quarter of 2011.
  
• 
  Average gross margin in the second quarter of 2011 for the sale of
  potash was $242 per ton or 52 percent, compared to $114 per ton or 30
  percent in the second quarter of 2010. Average gross margin for the
  sale of Trio ^® was $17 per ton or eight percent compared to
  $3 per ton or two percent in the same period of 2010.
  
• 
  Capital investment in the second quarter of 2011 totaled approximately
  $29.3 million.
  
• 
  As of June 30, 2011, we had $157.8 million of cash and investments and
  no outstanding debt. On August 3, 2011, we entered into a new $250.0
  million unsecured, revolving credit facility with a five-year term,
  replacing our expiring facility.
  

Intrepid′s marketing advantage was a key contributor to the success of
our second quarter results. 'Demand for potash remained strong during
the second quarter of 2011. Despite the severe drought in parts of the
southwest, our nimble approach allowed us to be successful in selling
our Carlsbad production into the Midwest market. We also saw
strengthening in the local truck market served by our Utah plants during
the quarter that helped us to achieve the best average net realized
sales price among our North American peers. We are further expanding our
marketing flexibility throughout our operations to build upon the
success that we have realized with the Moab compaction project,? said
Mr. Jornayvaz. 'The advantage of flexibility in our product mix to be
able to right-size our production of granular and standard product from
our Moab, Utah compactor has become even more evident through the
passage of time and reinforces the benefit of the planned capital
investments to increase our granulation capability at both our Carlsbad
and Wendover operations.?

Mr. Jornayvaz continued 'We are moving forward other major capital
projects to increase recoveries and increase production, which are all
designed to lower our per ton costs. The Langbeinite Recovery
Improvement Project at our East facility near Carlsbad, New Mexico,
including both the dense media separation plant and the granulation
plant is well into the construction phase. We expect to be substantially
complete with the construction of the dense media separation plant by
year-end and the granulation plant in early 2012. Additionally, the
Bureau of Land Management completed the public comment period for the
draft Environmental Impact Statement related to our proposed HB Solar
Solution Mine in June. This milestone brings this very important project
one step closer to fruition.?

Market Conditions

The confidence in the agricultural commodities markets that was evident
during the first quarter of 2011 carried over into the second quarter.
The outlook for potash continues to be constructive based on the current
market dynamics. Commodity prices have shown some volatility in the near
term as there has been some murkiness over the accuracy of estimates of
planted acres in the United States, specifically for corn, but, overall,
crop prices are strong by historical standards and supportive of farmer
economics. Further, the global backdrop of estimates of tight
stock-to-use ratios for both corn and soybeans, and global demand for
coarse grains remains intact.

As farmer economics show sustained strength, we have not experienced, as
we did in 2010, the typical lower pricing of summer fill programs that
producers have historically offered to incentivize purchasing during the
summer growing season. Many dealers have exhibited more confidence in
the potash market heading into this summer and are demonstrating this
through a willingness to carry over more potash inventory than in 2010.
We interpret the positive response at the grower and dealer level as an
ongoing commitment to maximize yields through balanced fertilization.

Based on continued steady demand for product, we raised our posted price
for our red granular potash on July 8, 2011, to $560 per ton. Further,
we raised the posted price for granular-sized Trio ^® on August
1, 2011, to $291 per ton. We believe that the timing of the fall harvest
and the subsequent fall application window is the most significant
near-term risk to demand.

Second Quarter Results and Recent Performance

Income before income taxes for the second quarter of 2011 was $50.8
million compared to $6.1 million in the second quarter of 2010. Income
before income taxes included $4.7 million of income related to a
refundable employment-related credit from the State of New Mexico. Cash
flows from operating activities were $50.7 million for the second
quarter of 2011, compared to $32.1 million for the second quarter of
2010. Adjusted net income⁴ for the second quarter of 2011 was
$27.8 million compared to adjusted net income of $3.7 million in the
same period last year.

Potash

During the second quarter of 2011, Intrepid produced 209,000 tons of
potash. Solid production rates were achieved at all of our facilities.
The increases were largely driven by the return to full production rates
in 2011 following our ramp-up in the latter half of 2010. Additionally,
our Moab solar solution mine benefited during the quarter from excellent
brine levels and favorable harvest conditions, which allowed for
approximately one month of additional production. During this same
period, we sold 225,000 tons of potash. This compares to 165,000 tons
produced and 129,000 tons sold in the second quarter of 2010. The
increase in tons sold as compared to the second quarter of 2010 is
attributed to more normal agricultural market conditions and a
willingness of dealers to purchase sufficient inventory to allow them to
exit the spring planting season with some level of inventory. Based on
our calculations, our average net realized sales price for the second
quarter of 2011 exceeded that of our North American competitors with an
average net realized sales price advantage of approximately $74 per ton.⁵

Our cash operating cost of goods sold for potash, net of by-product
credits of $6 per ton, decreased to $160 per ton in the second quarter
of 2011 from $206 per ton, net of by-product credits of $11 per ton, in
the second quarter of 2010. Our lower cash operating cost of goods sold
per ton for potash during the second quarter of 2011 resulted from our
mines producing at higher volumes than we were able to achieve in the
same period in 2010, and strong sales from our Utah operations, which
reduced per unit costs. We note that cash operating cost of goods sold
per ton does fluctuate from period to period, depending on the timing
and location of turnaround maintenance work and the location from which
sales are sourced. We expect higher cash operating cost of goods sold
per ton in the third and fourth quarter of 2011 due to the effect of
scheduled turnaround maintenance and time scheduled to tie-in new plant
and equipment during the second half of the year. These turnarounds and
tie-ins are operating necessities and reduce production from time to
time, while we continue to expend the operating costs during these same
periods.

Langbeinite ? Trio ^®

Demand for all grades of Trio ^® remained strong during the
second quarter of 2011 and we expect this strong demand for Trio ^®
to continue through the balance of 2011. Our existing production
facility produces approximately half of our langbeiniteproduction
in the form of natural granular-sized product, with the remainder
standard and fine standard-sized product. During the second quarter of
2011, we saw an increase in production of langbeiniteas a
result of returning langbeiniterecoveries to more
historically normal levels. We received the necessary construction
permits for the dense media separation plant of the Langbeinite Recovery
Improvement Project ('LRIP?) in March and for the granulation plant
associated with the project in June 2011. We have begun construction on
both of these plants. The benefit of being able to granulate all of our
langbeiniteproduction is the ability to earn a higher net
realized sales price per ton on the larger granular-sized material and
the flexibility of serving all markets more broadly.

Intrepid sold 39,000 tons of Trio ^® in the second quarter of
2011 at an average net realized sales price of $222 per ton, which was
$18 per ton higher than in the first quarter of 2011. This compares to
63,000 tons sold at an average net realized sales price of $162 per ton
in the prior year′s second quarter. The sequential improvement in Trio ^®
pricing in the second quarter of 2011 is the result of the price
increases implemented in February 2011 taking full effect, as well as
improvements in pricing in the export markets for both standard and
granular Trio ^®. The year-to-year decrease in Trio ^®
sales is primarily a result of our having less product available for
sale during the second quarter of 2011 as compared to the second quarter
of 2010.

Capital Investment

Total capital investment in 2011, which is consistent with our overall
capital investment strategy of increasing recoveries, increasing
production and decreasing per ton costs, is expected to be between $140
million and $165 million. Based on the progress of certain projects and
the timing of permits received to date, specifically around LRIP, we
believe that we will be closer to the top of this range for 2011. During
the second quarter, we continued to make significant progress on a
number of our capital projects, investing approximately $29.3  million
during the quarter and approximately $56.2 million during the first half
of 2011 in capital projects

Our strategy to increase granulation capacity is being undertaken for
both potash and Trio ^®. Our successful execution of the Moab
compaction project, which is producing a product of higher quality than
expected and at a better level of efficiency than originally designed,
has effectively been a confirming project for the next steps of
expanding our compaction capacity with the planned activities at our
North compaction facility in Carlsbad, New Mexico, as well as at our
Wendover, Utah facility.

The Environmental Impact Statement ('EIS?) review being conducted by the
Bureau of Land Management ('BLM?) for our proposed HB Solar Solution
Mine near Carlsbad, New Mexico, continues to progress in a meaningful
manner. We received the air quality permit from the State of New Mexico
for the HB mill in July 2011. The current schedule for receiving the
Record of Decision on the project remains in the first quarter of 2012.
As we move closer to the expected Record of Decision date on the
project, we continue to update the project cost estimates to incorporate
consideration of changes in scope, costs escalations related to
commodity and inflationary effects and the items described as
alternatives evaluated by the BLM in the draft EIS. Due to these factors
and considerations, which will continue to develop over time, we believe
that the total capital investment required for the HB Solar Solution
Mine will be higher, possibly significantly higher, than the previously
disclosed range of $120 million to $130  million, of which $28.3  million
has been invested to date. We believe that the project continues to be
an important and financially attractive capital investment that fits
squarely within our overall capital strategy in terms of increased
productivity and decreased cash operating costs per ton.

Several of the major capital investment activities for the quarter at
our New Mexico and Utah facilities, in addition to those highlighted
previously in this release, are described below and demonstrate the
continued execution of our capital investment strategy.

New Mexico

• 
  We continue to engineer the expansion of our North compaction plant
  and anticipate finalizing plans for the project in 2011, and we expect
  to be able to increase granular production beginning in 2013.
  
• 
  We are in the process of adding an additional mine panel at each of
  our East and West mines. The West Mine panel is scheduled to be
  operational in the third quarter of 2011 and the East Mine panel is
  scheduled to be operational in the fourth quarter of 2011.
  
• 
  The implementation of distributed control systems and increased
  instrumentation is continuing at our production facilities,
  particularly in Carlsbad, New Mexico.
  

Utah

• 
  We completed engineering for an additional solution mining cavern at
  our Moab facility. We expect drilling to commence during the latter
  part of this year, assuming timely receipt of permits, and project
  benefits to be realized beginning in 2012.
  
• 
  We started construction of the new compaction facility in Wendover
  that will allow us to granulate more of our potash production. Based
  on current schedules we expect to be able to increase granular
  production beginning in 2012.
  
• 
  We began construction of a new product warehouse at our Wendover
  facility. We expect the additional storage capacity to be in place to
  coincide with the completion of the new Wendover compaction facility.
  

Intrepid routinely posts information about Intrepid on its website under
the Investor Relations tab. Intrepid′s website address is www.intrepidpotash.com.

Unless expressly stated otherwise or the context otherwise requires,
references to 'tons? in this press release refer to short tons.One
short ton equals 2,000 pounds.One metric tonne, which many of
our international competitors use, equals 1,000 kilograms or 2,204.68
pounds.

Since Adjusted net income and Adjusted EBITDA are non-GAAP financial
measures, we make reference to their respective reconciliations in the
accompanying non-GAAP reconciliation tables towards the end of this
release and the associated financial tables provide the details to
reconcile these numbers to U.S. GAAP line items.Average net
realized sales price and cash operating cost of goods sold are defined
in the text of this release and the associated financial tables provide
additional details regarding these operating measures.

Conference Call Information

The conference call to discuss second quarter 2011 results is scheduled
for Thursday, August 4, 2011, at 8:00 a.m. MDT (10:00 a.m. EDT). The
call participation number is (800) 319-4610. A recording of the
conference call will be available two hours after the completion of the
call at (800) 319-6413. International participants can dial (412)
858-4600 to take part in the conference call and can access a replay of
the call at (412) 317-0088. The replay of the call will require the
input of the conference identification number 763324. The call will also
be streamed on the Intrepid website, www.intrepidpotash.com.
In addition, the press release announcing second quarter 2011 results
will be available on the Intrepid website before the call under
'Investor Relations - Press Releases.' An audio recording of the
conference call will be available at www.intrepidpotash.com
through September 5, 2011.

Certain statements in this press release, 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 expectations, beliefs, plans, estimates or projections
relating to the future, including statements regarding guidance, are
forward-looking statements within the meaning of these laws. Although we
believe that the expectations reflected in such forward-looking
statements are based upon reasonable assumptions, there can be no
assurance that the expectations will be realized. These forward-looking
statements are subject to a number of known and unknown risks and
uncertainties, many of which are beyond our control that could cause
actual results to differ materially and adversely from such statements.
These risks and uncertainties include: changes in the price of potash or
Trio ^®; operational difficulties at our facilities that limit
production of our products; interruptions in railcar or truck
transportation services; the ability to hire and retain qualified
employees; changes in demand and/or supply for potash or Trio ^®/langbeinite;
changes in our reserve estimates; our ability to successfully execute
the projects that are essential to our business strategy, including but
not limited to the development of the HB Solar Solution Mine as a
solution mine and the further development of our langbeinite recovery
assets; weather risks affecting net evaporation rates at our solar
solution mining operations; changes in the prices of our raw materials,
including but not limited to the price of chemicals, natural gas and
power; fluctuations in the costs of transporting our products to
customers; changes in labor costs and availability of labor with mining
expertise; the impact of federal, state or local government regulations,
including but not limited to environmental and mining regulations, and
the enforcement of such regulations; obtaining permitting for applicable
federal and state agencies related to the construction and operation of
assets; competition in the fertilizer industry; declines in U.S. or
world agricultural production; declines in use by the oil and gas
industry of potash products in drilling operations; changes in economic
conditions; adverse weather events at our facilities; our ability to
comply with covenants inherent in our current and future debt
obligations to avoid defaulting under those agreements; disruption in
credit markets; our ability to secure additional federal and state
potash leases to expand our existing mining operations; and governmental
policy changes that may adversely affect our business and the risk
factors detailed in our filings with the U.S. Securities and Exchange
Commission. Please refer to those filings for more information on these
risk factors. These forward-looking statements speak only as of the date
of this press release, and, except as required by law we undertake no
obligation to publicly update or revise any forward-looking statement,
whether as the result of future events, new information or otherwise.

* On a per ton basis, by-product credits were $6 and $11 for the second
quarter of 2011, and 2010, respectively. By-product credits were
$1.3  million and $1.4  million for the second quarter of 2011, and 2010,
respectively. There were no costs associated with abnormal production
for the second quarter of 2011 or 2010.

* On a per ton basis, by-product credits were $6 and $9 for the six
months ended June 30, 2011, and 2010, respectively. By-product credits
were $2.5  million and $3.4  million for the six months ended June 30,
2011, and 2010, respectively. Costs associated with abnormal production
were zero and $0.5 million for the six months ended June 30, 2011, and
2010, respectively.

INTREPID POTASH, INC.

NON-GAAP ADJUSTED NET INCOME
(UNAUDITED) RECONCILIATIONS

FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2011 AND 2010

(In thousands)

Adjusted net income is calculated as net income adjusted for significant
non-cash and infrequent items. Examples of non-cash and infrequent items
include insurance settlements from property and business losses, the
income associated with the refundable employment-related credit from the
State of New Mexico, non-cash unrealized gains or losses associated with
derivative adjustments, costs associated with abnormal production and
other infrequent items. The non-GAAP measure of adjusted net income is
presented because management believes it provides useful additional
information to investors for analysis of Intrepid's fundamental business
on a recurring basis. In addition, management believes that the concept
of adjusted net income is widely used by professional research analysts
and others in the valuation, comparison, and investment recommendations
of companies in the potash mining industry, and many investors use the
published research of industry research analysts in making investment
decisions.

Adjusted net income should not be considered in isolation or as a
substitute for net income, income from operations, cash provided by
operating activities or other income, profitability, cash flow, or
liquidity measures prepared under U.S. GAAP. Since adjusted net income
excludes some, but not all items that affect net income and may vary
among companies, the adjusted net income amounts presented may not be
comparable to similarly titled measures of other companies. The
following is a reconciliation of our net income, the most directly
comparable U.S. GAAP measure, to Adjusted net income:

INTREPID POTASH, INC.

NON-GAAP ADJUSTED EBITDA
(UNAUDITED) RECONCILIATIONS

FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 2011 AND 2010

(In thousands)

Adjusted earnings before interest, taxes, depreciation, and amortization
('Adjusted EBITDA?) is computed as net income adjusted for the add back
of interest expense (including derivatives), income tax expense,
depreciation, depletion, and amortization, and asset retirement
obligation accretion. This non-GAAP measure is presented because
management believes it assists investors and analysts in comparing our
performance across reporting periods on a consistent basis by excluding
items that we do not believe are indicative of our core operating
performance. We use Adjusted EBITDA to evaluate the effectiveness of our
business strategies. In addition, Adjusted EBITDA is widely used by
professional research analysts and others in the valuation, comparison,
and investment recommendations of companies in the potash mining
industry, and many investors use the published research of industry
research analysts in making investment decisions.

Adjusted EBITDA should not be considered in isolation or as a substitute
for performance or liquidity measures calculated in accordance with U.S.
GAAP. Since Adjusted EBITDA excludes some, but not all items that affect
net income and net cash provided by operating activities and may vary
among companies, the Adjusted EBITDA amounts presented may not be
comparable to similarly titled measures of other companies. The
following is a reconciliation of our net income, the most directly
comparable U.S. GAAP measure, to Adjusted EBITDA:

¹ Adjusted EBITDA is a financial measure not calculated in
accordance with U.S. Generally Accepted Accounting Principles
(non-GAAP). See the non-GAAP reconciliations set forth later in this
press release for additional information.

² Average net realized sales price is an operating
performance measure calculated as gross sales less freight costs,
divided by the number of tons sold in the period.

³ Cash operating cost of goods sold, net of by-product
credits, is an operating performance measure defined as total cost of
goods sold excluding royalties, depreciation, depletion, and
amortization.

⁴ Adjusted net income is a financial measure not calculated
in accordance with U.S. Generally Accepted Accounting Principles
(non-GAAP). See the non-GAAP reconciliations set forth later in this
press release for additional information.

⁵ Average net realized sales price advantage is an operating
performance measure calculated as the difference between our average net
realized sales price and the combined average net realized sales prices
of Potash Corporation of Saskatchewan Inc., The Mosaic Company, and
Agrium Inc. ('Agrium?) based on publicly available information. In
calculating these average net realized sales prices, we assumed a
freight rate of $18 per ton for Agrium based on historical reported
results as freight was not separately disclosed in Agrium′s latest
periodic filing.