Intrepid Potash Inc (IPI) 2009 Q4 法說會逐字稿

Good morning and welcome to the Intrepid Potash fourth quarter 2009 earnings conference call. At this time all call-in participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions) I would like to remind everyone this conference is being recorded today, Monday, March 1st, 2010, at 11:00 AM Mountain Time. It is my pleasure to turn the conference over to William Kent, Director of Investor Relations. Mr. Kent, please go ahead.

Good morning. Thank you all for joining us for our fourth quarter 2009 earnings conference call. I would like to start by introducing today's participants from the Company. We have with us Bob Jornayvaz, Chairman and Chief Executive Officer, Hugh Harvey, Chief Technology Officer, David Honeyfield, Executive Vice President and Chief Financial Officer, RL 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 meaning 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 this morning 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 www.intrepidpotash.com includes a reconciliation of non-GAAP 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 will now turn the call over to Bob Jornayvaz.

Thanks to all those for taking the time to learn more about our fourth quarter results. We appreciate your time. On balance the fourth quarter closed out a year that was marked by a number of successes and many challenges for Intrepid. Despite the difficulties we faced during 2009 the fourth quarter began to show signs of recovery in the potash sector. We sold 150,000 tons of potash during the fourth quarter. The highest sales level achieved since the third quarter of 2008. We earned $0.09 per diluted share on a net income of $6.7 million, generated EBITDA of $14.5 million and ended the quarter with $107 million of cash and investments.

The fourth quarter was distinctly different than the prior nine months of 2009. Demand for potash improved with farmers applying product when the weather window allowed them to get into the field. In October and December, much of the corn growing region in the United States was either unseasonably wet or under snow, which negatively affected the ability of farmers to harvest crops and apply nutrients. November provided for soil application opportunities with favorable harvest and fertilizer application conditions. The activity we saw in November when we sold almost 66,000 tons of potash gave us confidence that farmers were beginning to apply potash at more normal rates after reducing rates in 2008 and early 2009. Potash distributors in the fourth quarter, however, acted as they had in the prior quarters of 2009, taking very little price risk by continuing to hold a limited amount of uncommitted inventory.

We continue to work with the small number of customers in 2010 on our forward warehousing program in selected strategic locations where we believe it should prove beneficial. It appears that the reluctance of dealers to take on inventory risk has begun to abate in the early part of the 2010 spring season. We are seeing dealers willing to build product inventories in order to have product available for sale when a customer needs it. With dealers actively stepping back into the market for the spring season, our red granular inventory is now fully committed to the end of March.

Before I wrap up my comments I want to reflect on some of the decisions that Intrepid made in 2009 that allowed us to navigate the unprecedented market we faced. We stayed true to our goal of being a margin driven company by managing how we deployed capital specifically targeting projects that would increase our long term efficiency and lower our per ton cost, and by matching our production to meet the market demand. These decisions allowed us in 2009 in a similar liquidity position to where we started the year. We exited 2009 with a balance sheet that has over $107 million in cash and investments which provides with us the flexibility we need to operate our business in a prudent manner and the stability to make long-term decisions. In the face of the market difficulties that we experienced during 2009, we remain confident in the longstanding drivers of our business, and the potash industry as a whole.

The fundamental need for potash has not changed over the past year. The world's population continued to increase per capita, arable land continued to trend lower and farmers, now emboldened by supportive crop prices, have resumed using potash to seek improved yields through balanced fertilization. There is no question that we are seeing hopeful signs in the potash market. We remain committed to making business decisions for the long term that are margin focused while also allowing us to maintain a healthy level of cash on our balance sheet. Our confidence in the long-term prospects for potash remains. We believe that 2010 should see return to more historic fertilization rates in the United States. John Mansanti, who joined our Company in November 2009 and is our Vice President of Operations, will take the call over from here. John.

Thanks, Bob. We produced 124,000 tons of potash and sold 150,000 tons of potash during the fourth quarter of 2009. This compares to 201,000 tons produced and 94,000 tons sold in the fourth quarter of 2008. We produced 45,000 tons of langbeinite, which we market under the name of Trio. We also sold 25,000 tons of Trio in the quarter. During 2009 we made a concerted effort to target mine panels with higher relative langbeinite grades in order to keep up the domestic demand for granular Trio. Capital investment in our operating facilities was approximately $24 million in the fourth quarter. The investments were used to fund a number of opportunity and de-bottlenecking projects that were already in progress, as well as for sustaining and improving capital projects.

During 2009 we invested $104 million in the business. As will you remember, we made the decision in the third quarter to scale back capital spending for the duration of 2009, yet we still were able to successfully advance our more important larger scale projects. We installed the stacker reclaim at our West Mine, which is currently in service, and we're eager to test it at design production rates when the West Mine is operating at higher rates later this year. The new thickeners at the East Mine are assembled and should be in service by the second quarter. These thickeners are designed to increase potash recovery and should provide us with the ability to treat ores with higher clay content. Further, we made substantial progress in upgrading our facilities, including installing and expanding the use of process control systems in our Carlsbad facilities.

In 2010, we intend to focus on final engineering of improvements to our current langbeinite recovery circuit. We are currently evaluating several alternatives as we attempt to optimize the deployment of capital, product recoveries, and market needs. We expect to make a final decision on the scope and timing of this project in the next few months.

In terms of total capital spending for Intrepid in 2010, we are targeting approximately $125 million to $155 million. Of these dollars, we intend to allocate approximately $45 million to $65 million to sustaining an improvement projects, including new mining equipment to develop additional mining panels, and we intend to allocate $55 million to $75 million to increase productive capacity, specifically langbeinite recovery and additional compaction in our Moab facility. We also plan to invest approximately $12 million in rebuilding warehouse capacity at the east plant and anticipate that the majority of this cost should be reimbursed through an existing insurance claim. As with all capital programs, since we have been public, we expect 2010 capital program to be funded out of cash flow and existing cash on hand. I will turn the call over to RL Moore, our Senior Vice President of Marking and Sales.

Thank you, John. As Bob noted, the late fall harvest and winter fertilizer season was characterized by good weather driven demand in November and has turned towards a more typical Spring filled profile in early 2010. As we previously discussed reduced applications of potash fertilizer in the United States in 2008 and 2009 should lead farmers to return to more normal application rates in 2010 in order to maintain yields.

During the fourth quarter, dealers remain very price sensitive and continue the just in time purchasing trend. With the settlement of the Chinese contract at the end of December 2009, a general sentiment began to emerge that the market had reached a level that would allow US dealers to start purchasing their Spring potash requirements. With dealers holding limited inventories at that time beginning of the year we have seen a marked improvement in truck demand from our facilities. Considering the sales activity that we've already witnessed, we believe that distributors, dealers, and ultimately farmers have acknowledged their need to purchase product. Our posted price of $360 per ton for red granular potash which went into effect on December 28th, 2009, was increased to $390 per ton effective today, March 1st. With that being said, we recognize the need to stay competitive with the pricing being offered in the specific markets that we have historically served.

In the industrial portion of our business, the North America drilling rig count has grown by 45% since July of last year, and we're seeing some measured level of improvement in this market. Our industrial sales have continued the lag 2008 levels, but we anticipate the sales should begin to increase as we move into the second quarter of 2010. As with previous quarters, the animal feed component of our various markets has seen consistent demand. I will now hand the call off to Dave Honeyfield our Chief Financial Officer to wrap things up.

Thanks, RL. The cash production costs per ton of potash sold in the fourth quarter of 2009 net of byproduct credits was $186 per ton, a decrease over the $242 per ton in the fourth quarter of 2008. As we discussed in the press release that we issued on January 21st, we directly expensed $9.4 million of production costs in the fourth quarter of 2009. This was a result of our decision to operate our west facility and our Wendover facility at lower rates in the fourth quarter, but was also driven by the impact of the substantial weather related production disruption at our Carlsbad east surface facility. The effect of expensing these production costs directly was that they did not include -- pardon me that we did not include these costs in inventory and therefore, the cost did not get captured in the corresponding cost of good sold answer. We're working to resume full production at our West Mine, and we anticipate that it should take until still in mid-2010 to ramp up to historically comparable production levels. Based on this assumption, we believe that a modest portion of production costs will likely continue to be expensed as abnormal in the first quarter 2010 albeit at much lower levels than we've seen in recent quarters. Similarly, cost per ton amounts should likely continue to remain somewhat consistent until all the production facilities are back operating at historic levels of capacity utilization.

Our average net realized sales price for potash was $408 per ton in the fourth quarter, and it's important to understand that first quarter realized prices are expected to be lower because of the price reductions in the market and our decision to adjust prices to be competitive. On a positive note, if you look at green markets publication course murate of potash pricing for the Midwest over the last four weeks has stabilized and even begun to increase.

I want to briefly touch on capital investment. I'm pleased that our decision to defer some capital investment in 2009 allowed us to exit the year with a cash and investment balance of approximately $107 million. As we stated on our last earnings call, we intended to enter 2010 with a healthy level of liquidity. Our strong balance sheet should allow us to execute on the robust capital investment plans that we have for 2010. As I had noted in the past, the pace of this capital investment may be impacted by the cash flows we generate from operations and may change depending on market conditions or other factors. We expect sales volumes in the first quarter of 2010 to increase over the volumes that we saw in the fourth quarter of 2009 as January and February have been strong months. As RL touched on, distributors are stepping back into the market and farmers seem to be embracing the agronomic need to apply potash.

2009 was a challenging year for Intrepid and through balanced decision making and prudent use of capital we were able to work through 2009 and enter 2010 in solid financial shape. 2010 is setting up to be much improved in terms of volumes over last year with distributors and end users beginning to by-product in a more typical fashion, supported by good crop economics. Intrepid intends to continue to focus on margins as we move forward and keep a keen eye on how we deploy our capital investment dollars. Our long term view of the potash market remains unchanged. By taking the appropriate steps to invest opportunistically in our business and maintaining a healthy balance sheet, we believe we are well positioned for continued success. We'll now open the lines for any questions.

(Operator Instructions) You have a question from the line of Robert Koort.

Thanks. Good morning.

Good morning, Bob.

RL, you mentioned something about the price hike that was effective March 1st, but then acknowledgement to be competitive were required. Does that imply that some producers aren't supporting that market increase?

I can't speak to what the other producers are doing, but we do have market that we sell into that come up against the river locations, and we have to compete against barge business. Those are the areas where we look at having to be competitive.

And can you talk a little bit about your forward positioning program, how that looks any differently going into this Spring than it might have last year or last Fall?

Going into this Spring, we've cut it back to just really a couple of our key customers that we work with that have warehouses located on railroads where we have some freight advantages. There were locations in the eastern part of the United States that we had some forward warehouse programs with, and with the change in the pricing, as it went down we found that those locations were no longer favorable for us to support. We have a good relationship with those customers because most of them buy our Trio from us and have other sources to where they can purchase their potash.

Great, thank you.

Thank you.

Your next question comes from the line of Edlain Rodriguez.

Good afternoon. I'm trying to get a better sense of the production cost issue. If you look at the cash production number for Q4 at $186 per ton, it's higher than the $177 you reported in 3Q despite higher production in the quarter. Can you talk about what's going on there and also at full operating rates, should we expect that number to be back to the levels we've seen -- we saw in 2007 [and 2008]?

Hi, Edlain this is Dave. I think the way to think a little bit about costs going forward is you've really hit it right on the head that as production rates increase, because a big portion of our cost base particularly in Carlsbad is somewhat fixed in nature, you will start to see those costs come down. So we're moving -- we're continuing to move forward in terms of bringing productivity on at our West Mine. That implies getting some additional folks on the ground. And so when we look at where we think costs will be at a point in time where we're at full production rates, I think you can look at probably the mid part of 2008 as likely a better indication, and certainly recognize that the mining sector continues to have wage escalation and cost escalation from vendors on chemicals and such. But, yes, absolutely, that's the direction we're headed. So I don't know if I answered all your questions are -- or John if you have anything else to adhere.

Maybe differentiating 2010 from other years, adjusting to the market last year, we had the reduction in force. As we move forward strategically, we're looking at less contractor involvement and a higher percentage of our own people that requires staffing, training, and there's some inefficiencies associated with getting people up to speed. So part of that is built into 2010.

Okay, that's great. Another quick question ton industrials market. When you look at your sales there, they continue to lag. But has there been a structural change in that market that would make it almost impossible, very challenging for sales to go back to previous levels we've seen before?

Well, I'll touch on that a little bit, Edlain, then let RL touch on it. We've definitely not seen the increased drilling rates in the Rocky Mountains. When we look at the industrial usage out of our Moab and Wendover facilities, because of the gas price differential that we see in the Rocky Mountains we're not seeing the kind of drilling activity up here that we had previously seen. That rig count is slowly coming back, but not at the pace that we're seeing in Texas, Louisiana, and Oklahoma. So I don't think there's been so much a complete structural change, but we have to acknowledge where we've seen differences in the various rig countries and how that affects industrial sales from our Moab and Wendover facilities. With that being said, we're spending the money in 2010 approximately $14 million, to build a compaction facility at our Moab facility that will allow us to compact 100% of the production at Moab. So that if that rig count doesn't come back the way we think it will, we will have that ability to compact everything and sell into it the ag market. So we believe we're adjusting and reacting to market forces, market changes as quickly as we can. Once again, not to be too redundant. I wouldn't say there's been so much a structural change in the industrial market as just a recognition rig counts are picking up in different parts of the country at different times. RL is there anything you would like to add to that?

I think you covered it Bob.

Edlain, does that answer your question?

Yes, thank you.

Your next question comes from Don Carson.

Thank you. Couple questions, Bob, just on your pricing and volume outlook for 2010. In your slide pack you've talked about North American consumption of potash getting back to 8 million product tons. That would still be a nice recovery, pretty low relative to 2007, 2008. So is that still kind of your thinking on the volume recovery, and I know that you have talked about clearly farmers are more price sensitive now. What's your sense of how much growers are willing to put down at these prices? And just as a sidebar on price, are you finding the Canadians more aggressive given their offshore prices haven't come up that much and they get much he better premiums than the US market?

Let's start with volumes. The movement that we're seeing that we saw November, and that we're seeing in the first two months indicate that we're definitely seeing all of our markets as it relates to the ag picture move on a much steadier -- steady state demand, more normalized kind of a demand profile. So we've got limited data points, but what we're seeing is very robust and is -- we're very happy with. Would give us a reason to believe that we're going to return to more normal rates. From a pricing of potash to the farmer perspective, I think that demand is indicative of farmers willing to pay current prices, and I would suggest that when the price was even higher in November, and we saw such good movement in November, that farmers were willing to pay the going price in November. And we saw a lot of farmer movement in November. So the third part of your question was --

Canadian competition given US prices are pretty attractive relative to their offshore net-backs currently.

Well, I think they had inventory that they needed to move. I think that 2009 is behind us. I think 2009 was about as abnormal a year as any of us have seen, and let's hope that that's what that was all about. I don't really have anything to add about the Canadians marketing other than that.

So, Bob, given that prices are lower now than when you sort of forecasting an 8 million ton market for the 2009-2010 year, would you see some up side to that volume forecast that you had made earlier?

I think it's very reasonable. I think it's very reasonable to see if these lower potash prices significant volume demand. Thank you.

Your next question comes from the line of Vincent Andrews.

Thanks, good afternoon, everybody. Bob, wonder if could I follow up on something you just said. You noted you were seeing strong demand in November at higher prices than today. So what -- in terms of the idea of getting back to those prices, what do you think it takes, and do you think it requires higher level of pricing in the export markets, which I obviously know you don't participate in, but is there a situation in the Spring where things get tight either because of logistics or because of supply, or what do you think the state of play is going forward on price?

Well, things are already tight, as we mentioned. Our red granular inventory and production is committed through the end of March. And we're seeing strong demand going past that. So simple economics would tell you that strong demand does have an impact on pricing, and that's certainly what we hope to see. All I can talk about is that in November, we use that as a pretty reflective month of the state of the market. We were at higher pricing and we saw very significant demand. So I'm going to leave it there as it comes to trying to be a prognosticator of price.

I would only say that January and -- we have not seen demand drop off here in the first quarter. November was a very good month, but we've moved more potash in January and February than we did the entire fourth quarter.

And your pace of orders for April delivery is at, above, or below the pace for March, obviously you're sold oint March, but has there been any -- how far out are people buying?

We've actually booked some rail shipments to go out in April. Not very many. We've tried to maintain our product that we have available to cover the customers that have participated with us in our forward warehousing program, to cover our truck market out of Carlsbad, which is and will always be our absolute best market, and then the product for our animal feed and industrial markets, we still carry a premium over the ag.

My real question, are people buying any further in advance than you anticipate, or that they would have in a normal year?

I don't think we've seen that kind of tightening in the market yet where people feel the need to do that. We're certainly having a lot more discussions. There's a lot more about the forward part of the market. But we're not necessarily seeing it in the order book quite yet, because, let's be honest this market has just now turned.

Okay. Well, that's very helpful. I will pass it along.

Thanks.

Your next question comes from the line of Dave Silver.

Yes, hi. Good afternoon, or morning. I know, we're straddling the divide here. Quick question about the pricing trends in potash that you're seeing. So your average potash selling price was $408 for the fourth quarter. And then did you talk about stabilization in the first quarter, and you cited kind of the benchmark or selling list it price of $360 per short ton in Q1, or for the bulk of Q1. Could I kind of use that maybe plus distribution costs to kind of figure out or estimate where you think your selling prices are bottoming the out here? In other words, $360, $375, some where in that range? Is that a reasonable surprise given that the quarter is not over yet?

Yes, I think that's very reasonable.

Dave this is Dave Honeyfield, too. I think the other piece, when you build your models, that you might want to think about, when we talk about our net realized price, that is a net price. So if there's a freight number or a distribution number on top of that, you may end up with a higher gross price, but I would ask to you probably model at that net realized price number. So I think the way Bob touched on that, yes, that makes decent sense if you're adding the freight piece on top. But keep in mind, when we're discussing net realized price, we've already backed out freight and everything else, so that's really the cash that we see coming in the door to us.

So the apples to apples would be kind of maybe 360's versus the 408 you reported?

Keep in mind for larger customers we always will have a little bit of a discount that moves, then we're still competing with the river market. And that market is a little bit tighter. So that's an indicative number, it's fair to say that each market will have its own price point.

Very fascinating markets and different mix -- and the mix is constant changing, no doubt. I had a couple questions on the CapEx side. So I appreciated John's detail on the breakdown this year in terms of sustaining versus discretionary CapEx. Could you do the same for 2009? In other words, how much of the $103.6 million would you characterize as sustaining? And then separately, in the cash flow statement, I was having a little trouble building up to the 103.6. I'm just wondering there's an adjustment there.

I'll touch real quick on the 2009 numbers, Dave, and I'll also let you know that we are filing our 10-Q, or 10-K, thank you, this afternoon. So those will be detailed in the liquidity and capital resource section, but that approximate mix of CapEx, it's not that dissimilar. So we're probably in the -- I think we're in the $45 million range on sustaining, and then there were also some improvement dollars that got us to about $60 million, then the remainder of that was -- were some of our core projects, like the west tails -- pardon me, the stacker reclaim at west, and getting the tanks on site at the East Mine. On the cash flow statement, the piece that always a little tricky to follow is that it never quite matches the -- never quite matches the accrual base, because you have to back out accruals on the cash flow statement. So over time, those will level out. But certainly that's something we're happy to visit with you off-line and try to help you reconcile that, too, if need be.

Okay. No problem. Accruals and deferrals. Then just one last question ton Trio side of your business. That's the smaller of your two product lines. But if I -- just listening here, as an interested observer, it struck me that there seems to be substantial short-term emphasis on Trio, in at least a couple areas. First, I would say you continue to build inventory in that product line. I think expressing confidence in your forward order book. Then secondly, in your capital spending program, if I kind of parsed the emphasis you had, that seems to be the project you view as kind of the low hanging fruit, or the highest net return, quickest payback of the projects in your portfolio, let's say, for 2010. Is that a correct assumption? Or could you maybe talk about the shorter term view on Trio demand and why the confidence you have in continuing to produce ahead of at least recent sales trends?

Great question. Let me break it into two components on Trio. One is granular, one is standard. When we look at our granular sales, we were sold out several times during 2009, and there's significant demand for our granular product. Our standard product, on the other hand, didn't see as much demand because the method by which it's applied is very different. We sell more of our standard product into the international market. So a large part of the capital that you are going to be seeing expended on the Trio side is to give us the ability to pril, or compact, if you will, our Trio product to sell into that market that has much greater demand. So we have great faith in the Trio granular market, as evidenced by the fact that we ran out of inventory several times during the course of 2009. So we really like people to understand the differentiation between standard and granular, and the capital that we're going to spend to take our standard and turn it into granular. Does that make sense?

Yes. So product mix within the Trio product line?

Right.

Okay. And then my supposition or my hypothesis that the recovery or the Trio recovery project is kind of your maybe most attractive of your 2010 or shorter term capital projects in terms of returns or payback, or however you look at it?

That's an accurate assessment. There's several advantages that come with recovery. We're already processing that material. So being able to elevate that to a higher recovery, get more product is very attractive to us when we look at all the projects we have.

Okay, thank you very much.

Your next question comes from the line of Douglas Chudy.

Good afternoon. Sounds like you saw favorable demand in January and February. Do you sense any component of the recent volume improvement reflects some pre buying ahead of announced price increases?

I'll let RL -- but I think a little bit -- well RL I'll let you address that.

Any time you have a price announcement you have that occurring before the announcement. A lot of what we had booked we had booked at that price before the announcement. With that being said, our ore activity has dropped off with this announcement, but we haven't been overly concerned about it because we've got enough orders on the books to take us through March and into April.

Okay, that's helpful. Did I hear you correctly that January and February volumes exceeded the entire fourth quarter?

Yes, sir.

And then just one final question. What type of capital investment is required to shift your Trio production from standard to granular product?

Again, as I stated earlier, we're in the process of evaluating that in relationship to all the other prices, but that's something we'll quantify a little deeply, present that to the board, get approval, be in a position to announce that at that time.

To back up on the Trio recovery, that project can be anywhere from about $70 million to $160 million, depending upon how big and how far we want to go. Right now we're trying to engineer it in a compartment fashion so we can add the prilling piece and a little bit of increased recovery piece in 2009. So I would say that on the capital side for Trio it's going to be at the lower end of that range I just gave you. In the upcoming years we'll be able to then add additional components on to that design.

Okay, that's helpful.

Your next question comes from the line of Elaine Yip.

Good afternoon.

Hi there.

You mentioned in the press release that it might take time until mid-2010 to return to historical production levels because of not having sufficient number of qualified employees. Can you comment on the issues you are seeing there? How difficult to the hire qualified employees and how long does it take to properly train them?

Let me just give you a quick overview, then I'll let John handle the details. The southeast New Mexico labor market has been for the last several years a very robust labor market, primarily because it's got various forms of mineral extraction, it's got oil and gas drilling, it's got several -- it's got the WIPP site which is a federal uranium waste handling project. So there's a lot of different components that make the southeast labor market -- southeast New Mexico labor market a tougher market.

Having said that, we are really trying to stay away from some of the actions we took in 2007 where we brought on lots of contract employees that would come and go and weren't as reliable as an employee that we can go out and recruit from a different part of the country, bring in, train, incentivize to stick around, so that we can after more productive worker. So it's a little bit different strategy. Rather than just hiring a warm body, we're trying to go out and recruit specific people with certain skills, train them, and incentivize them to stick around. So, John, you want to talk to the timing of what that takes?

As Bob said, the Carlsbad market is anomalous to national trends there, and that represents some challenges. The key thing is to get, as we move to more of an employee-based production, as opposed to a contractor-based production, to get people on board, because demands on people, it means you're reaching to people that have fewer industrial skills, need to be trained, need to be exposed to the environment. There's a safety issue and everything that goes with that. So there's a time line associated with bringing somebody in, getting them familiar with the potash industry and the industrial setting that we're asking them to work in.

Does that cover it for you?

Yes. Well, given that you're not going to -- it's going to take longer to return to full rates, does that impact your ability at all to realize the typical volume share that you see in the marketplace?

Well, as we mentioned earlier, we're basically committed to the end of March, and we would much prefer to be in a position where we've sold all of our inventory or sold the product that we anticipate producing. So from a margin driven standpoint, we think that's a better way to run the business. We'll see, but that's philosophically where we're coming from.

Thank you very much.

Your next question comes from the line of Mark Gulley.

Question regarding the industrial side of potash demand. Perhaps I should know this, but is potash used in some of these brand-new natural gas fields, the tight shales in Fort Worth and places like that, or is it just Rocky Mountain based?

Hugh?

Yes, this is Hugh Harvey. I would say that there's a high likelihood that the new shale plays will use potash, because potash is basically a clay swelling inhibitor. And so whenever you go to complete a gas well, it's always advantageous not to plug up the poor throats in the formation. So I'm not going to hold our Company out as being experts in every gas play out there, but from the physics side of it, yes, potassium chloride would be used in their completion mix.

Is it being used now, or is that something we have to wait for?

No, if it's being used, it would be used right from the start.

Okay. Then I want to go back to the accounting treatment of the cost that you isolate with respect to potash production. Can you run through again why you spiked that out, and is the reason to give us a better idea of what your production costs are going forward? That item has always been a little bit confusing to me.

Mark this is Dave Honeyfield. To start with, there is a requirement in US GAAP, and it was formally known as FAS 151. And that requirement is that any costs associated with abnormally low production get expensed immediately. And so when we go through that calculation, we look at kind of what we think are ranges of normal production. And there's quite a bit of judgement that goes into that calculation. So what happens mechanically is it gets carved out, and it never runs through the inventory numbers, then accordingly never runs through the cost of sales line.

But in terms of -- does that get you exactly to a, quote, normalized level of costs? I would say it isn't, because we really just look at that over a range of possibilities in terms of production levels and we know that directionally as we produce more tons we will have a lower cost per ton, and as we produce less tons, the converse will be the case. So directionally, it it will get you there, Mark, but it's not going to be -- I wouldn't use it as a predictive number spot on, like I mentioned earlier in my comments. I believe with Edlain Rodriguez. I think looking back to those mid 2008 numbers and thinking about just some minor inflationary items, it's probably a better way to think about it when we get to full capacity level.

Okay, that's helpful. One final question on that. Would it be wrong to characterize that as just a difference between standard costs and actual costs, or is it beyond that?

I'd say it's probably beyond that, just because there's more judgment involved with the calculation, but I think conceptually you're getting your hands around it. The core, it is a manufacturing concept.

Thank you.

Your next question comes from the line of [Forrest Sinika].

Good afternoon. Just along the same topic, abnormal production costs, how much more volume would you need to see such that you would not have any such abnormal accounting treatment?

It's hard to put a spot-on number on it, Forrest. I think the way I would try to respond to it is really just that we don't expect to see much of that cost here going forward, and I stated in my comments it will be significantly less, which you can -- I think you can imply from that reasonably that that means production levels are going to be increase. We've announced that, as John stated, we're trying to get our production at the west facility back up to full capacity, and all that's helpful. Really the largest share of that was our decision as we commented earlier to reduce production at the west and the Wendover facility. I wouldn't he anticipate too much of that going forward, but there will probably be a little bit here in the first quarter.

Thank you. That's helpful. My other questions have been answered.

I think we probably have time for one more question, then we'll probably close up at that point.

Our last question comes from the line of Fai Lee.

Thank you. With respect to the commentary about being fully committed on the red granular inventory, is that fully committed on just volumes, or how should we view the pricing on those commitments?

RL, I will let you answer that.

What we have fully committed is to go out there to some of our partners that we work through warehouses, the ores that they have replenished their inventories, where they've been moving it out. That will depend on what the competition design in those warehouse areas. If our competition follows the pricing they put out and we'll be able to get a higher net back than we did in January and February. If not, we'll have to continue to meet competition. While we haven't committed, we do have tons set aside to cover our truck demand which I commented earlier has probably been better in the last two months than it has the last 18 months. Part of the tons we have going out will be at the new price and some will be at a competitive price.

Okay, and in terms of the posted price, just want to clarify something with respect to David's question earlier. If you have a $360 posted price, and let's say it doesn't change for the quarter, should the net sales price be a little lower due to the potential discounts to larger customers? Is that the way to think about it?

Fai, this is Dave. I think that's an accurate way to think about it. As information to support that, what I'd ask to you do is, and we publish this in our Q's and our K's as well. Our net realized sales prices, the highest we had was in the fourth quarter of 2008 and that was at $762 a ton. Our posted price was $800 a ton. So I think what that helps people understand is there's always going to be a little bit of a difference there, and the net realized price, for the most part, will always be some percentage lower than what the posted price is for a variety of the reasons that we've talked about here today.

Okay. And does that percentage change over time?

It changes by market. What I would ask you to do is continue to probably look at our posted price numbers relative to what the green market net realized prices have been and my sense is, as folks can probably build their own models of how they view pricing, and our net realized price will shake out based on a lot of that historical data that's out in the market.

The Trio, can you tell us what your posted price is for Trio right now and what it was in December?

It went from $181 yesterday to $196 today.

Okay. Great. And just the last question. You mentioned you're fully committed on the red granular inventory. Do you have other inventory that may not be fully committed? The comment seems very specific to red granular.

The reason we always talk about red granular is because that's our most commoditized market that goes into the Midwest and goes along the river. When he we look at our granular inventories through out the Company we're drawing them down and they're very low. It at Moab, where we always carry higher standard inventory, don't forget the evaporation season begins in April. So that we quit running our plant, and we need that standard product to compact throughout the Summer months. But throughout the Company we're seeing much improved inventory levels in terms of drawing them down.

Okay. Thank you.

So I think at that point, since we don't see any other questions in the queue, we'd like to say thank you for joining today's call and for taking the time to learn more about Intrepid. Thanks so much, and have a great day.

This does conclude today's conference call. You may now disconnect.