Intrepid Potash Inc (IPI) 2010 Q4 法說會逐字稿

Good morning and welcome to the Intrepid Potash Fourth-Quarter and Full Year 2010 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 that this conference call is being recorded today, Thursday, February 24, 2011, at 8 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.

Good morning and thank you all for joining us for our Fourth-Quarter and Full Year 2010 Earnings Conference Call.

I'd 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; Hugh Harvey, Vice 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; John Mansanti, Vice President of Operations; and Kelvin Feist, Vice President of Marketing and Sales.

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. These statements are not guarantees of future performance. 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 risk and uncertainties which could cause actual results to differ from our expectations. For more information with respect to the risks, uncertainties and other 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 risk factors and management's discussion and analysis of financial conditions and results of operation in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q as filed 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 adjusted 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.

Thanks, Will, and thanks everyone for joining us today to discuss Intrepid's fourth-quarter and full 2010 results.

The fourth quarter of 2010 was very good for Intrepid on all accounts. The strength of the commodity markets, coupled with an early harvest and excellent weather conditions, allowed farmers to apply nutrients with confidence and provided them the opportunity to continue fertilizer applications into December. We also had solid potash production results from each of our facilities.

During the quarter, we earned $0.24 per diluted share on net income of $18.2 million. We generated $37.3 million in adjusted EBITDA and we increased our cash position to $143 million in cash and investments as of year-end.

Frankly, potash demand during the quarter was better than we had originally expected it to be. As agricultural commodity prices moved higher, USDA yield estimates were lowered again, and global grain stocks declined.

The US farmer appears to recognize that the 2010-2011 crop year has the potential to provide some of the best returns they have seen in recent history. And as a result, we believe the farmer will seek to maximize yield and return on his fertilizer investment. We are clearly in the midst of one of the greatest agricultural cycles in history.

With the weather window for farmers being open into December, Intrepid's ability to serve the just-in-time truck market during the fall application season was a significant contributor to our fourth-quarter success.

The marketing flexibility that our locations afford us, coupled with our decision to manage our inventories for margin, and focus on our truck market, was integral to our solid results for the quarter.

We were able to serve our traditional truck markets in the Southern United States in addition to meeting key customer needs for product in the Western Corn Belt, as other producers simply could not meet their prior commitments in a timely enough manner, and their customers found themselves unexpectedly short of product.

Consequently, we were able to earn, based on our calculations, a $79.00 per ton higher average net realized sales price during the quarter than our North American competitors.

To put this into perspective, we earned 25% more revenue per ton of potash sold than our competitors did as they seemingly focused on a volume-driven model to their businesses, versus a margin-driven model.

As I highlighted during the third quarter, the rise in commodity prices is not just isolated to corn and soybeans, but is rather a broad agricultural commodity expansion affecting everything from wheat to rice, to sugar, cotton, hay, barley, coffee and cocoa.

Based on research from Doane, a market research firm, overall crop acreage in the United States is expected to increase from 317 million acres in 2010 to approximately 323 million acres in 2011 and includes an estimated 91 million acres of corn in order to just maintain currently tight grain stocks.

The increase to 323 million acres would be just below the 324 million acres planted in 2008. This estimate of 6 million additional acreage is not CRP acreage, rather includes double-cropped acreage and marginal friend acreage that was last utilized in 2008.

So, what does this mean for Intrepid in 2011? First and foremost, we are firm believers that balanced fertilization, regardless of the crop, will be necessary for farmers to realize maximum yields and maximum profits.

We believe fertilization rates for this agricultural year generally will increase from the levels over the last two years in order for farmers to replace nutrients removed from their soils. In addition to this, the forecast of previously marginal acreage being farmed should require additional application of nutrients, since this acreage may not currently have proper nutrient balances.

From our perspective, this all means that in 2011 we should be able to sell every ton of granular product that we produce.

We believe Intrepid is very well positioned to address the changing and growing needs of the domestic potassium market. In 2010, we added a new compactor at our Moab facility which will help us serve the growing demand for granular product in the United States core agricultural markets and ensures more flexibility in our business model.

We are not stepping away from the industrial standard market by any means. Rather, we believe that given our oil and gas background, we understand the value that KCL provides, potash provides to an oil and gas producer in a way that is unique from other potash producers.

Since we are focused on achieving margin, we're going to continue to market our potash into the industrial oil and gas market in a thoughtful manner by providing education and direct support to our end-use customers that reflects the value that KCL brings to the oil and gas fluid systems. To accomplish this, we are bringing in additional industrial sales resources to assist in delivering this valuable message.

We are also focused on producing granular product as we work to add new compaction capacity at both our Wendover and Carlsbad operations.

The Langbeinite Recovery Improvement Project, when completed, should enable us to serve the demand of the growing Trio market, particularly for granular sized products.

And finally, we continue to make positive progress on developing the HB Solar Solution Mine, a project that is important to Intrepid's growth and competitive position in the marketplace.

John Mansanti, our Vice President of Operations, will take the call from here.

Thanks, Bob.

We produced 224,000 tons of potash during the fourth quarter of 2010, which was slightly ahead of our operating expectations. We saw good potash production from our East and West facilities near Carlsbad, New Mexico, as a benefit to minor staffing and operational training generated results.

The fourth quarter 2010 production compares to 124,000 tons of potash produced in the fourth quarter of 2009, an 81% increase over last year.

We also produced 31,000 tons of Trio during the fourth quarter of 2010. This compares to 45,000 tons produced in the fourth quarter of last year. As we mentioned last quarter, we have seen a year-over-year decrease in Trio production, as we made a number of operating decisions around langbeinite production. These operating decisions were designed to reduce process water usage and to prepare for the construction of the new facilities for our Langbeinite Recovery Improvement Project.

Currently, our Trio production is lagging historical levels by approximately 30% to 35%. To address this decline, we have made panel moves to focus on higher langbeinite areas within our mixed ore zones.

Additionally, multiple operational studies and analysis is ongoing, utilizing internal and external resources, to improve current langbeinite recovery rates, historical levels ahead of the Langbeinite Recovery Improvement Project.

Looking at potash production for the quarter, we saw the positive impact of the additional mine panels at East and West mines and the restart of our annual harvest season at our Moab and Wendover facilities. The East facility benefited from the maintenance turnaround that was at the end of September and early October, demonstrating improved reliability, enhanced sylvite recovery and increased granular production.

As a reminder, due to the seasonability of our solar evaporation operations, which relies on a solar evaporation season, and a subsequent harvest from fall to spring, extrapolating fourth-quarter production over a 12 month period is not a reasonable tool for forecasting our annual levels of production.

We anticipate that our annual potash production in 2011 should equate to the annualized production levels we realized during the second half of 2008. This level of production should be realized despite the relative increase in underground mine development, when compared to 2008. In fact, material mining process is anticipated to be almost 10% greater than levels we saw in 2008.

Overall, we are seeing our efforts to increase productivity begin to pay off at a time of strong demand.

Earlier, to the benefits of our capital projects, we commissioned a new compactor at Moab in mid-December 2010. I am pleased to say this project was completed ahead of schedule, under budget, and is currently performing at an expected capacity.

The compactor will allow us to process our standard inventories at Moab into granular product which will be available to sell into the strong agricultural cycle.

Other accomplishments on the capital front during 2010 were the successful commissioning of the new underground stack reclaim system, the enhanced [West Hoy] system, the new thickener at East, the new brine heater at Moab and the distributed control systems at our Carlsbad, New Mexico, facilities.

Construction of the product warehouses at our East facility was ongoing at the end of 2010, and they are now in service with a few wrap up items left to complete.

Also during the fourth quarter, we continued to make progress on the Langbeinite Recovery Improvement Project, moving through the detailed design and engineering phases, and completed site, civil and early works construction.

As with most significant capital projects to date, project schedule is highly dependent on the timing required to obtain permits, and we're working closely with the New Mexico Environmental Department to obtain those permits.

During 2010, we invested nearly $93 million into capital investments and moved forward our strategic initiatives. The HB Solar Solution Mine project continues to advance through the EIS process with a draft EIS scheduled for publication this spring.

Based on currently estimates from the BLM and their EIS contractor, we anticipate issuance of the recorded decision in the first quarter of 2011.

Now, I'll turn the call over to R.L. Moore, our Senior Vice President of Marketing and Sales.

Thank you, John.

We sold 216,000 tons of potash during the fourth quarter of 2010. This compares to 150,000 tons sold in the fourth quarter of 2009.

We also sold 27,000 tons of Trio, the majority of which was granular Trio, during the fourth quarter of 2010, compared to 25,000 tons of Trio sold in the fourth quarter of the prior year.

As highlighted previously, excellent weather conditions during the fall season allowed for nutrient application well into December.

While we continued to serve our traditional rail customers, our truck market was particularly strong. With a backdrop of strong commodity pricing and an early harvest, farmers continue to buy fertilizer late into fall in preparation for the upcoming spring planting season.

Another positive sign during the quarter was that dealers continued to replenish their potash inventories in anticipation of the spring season, rather than waiting until they had a firm order in hand, as was the case in 2009.

We take this as a sign of more dealer confidence in the stability and direction of potash prices. From our perspective, we should see normal to slightly above normal domestic potash demand for the spring season as farmers seek to maximize yields.

We have seen order activity occurring in the last few weeks with product beginning to move into our southern markets as weather conditions are improving and are allowing fertilizer applications to get underway.

We are seeing general acceptance of current potash prices, with some wholesalers and dealers attempting to lock in tons for shipments later into the spring season.

Based on the markets we serve, we believe that demand during the spring season will give us the opportunity to exit the season with very little granular inventory in our warehouses, even with the volume-driven approach that our competitors seem to be taking.

The ag sector continues to look good beyond this spring season, with some dealers and farmers looking to take a position on their fall potash requirements.

Demand for our granular Trio product remains robust and is exceeding our forecasted production level, requiring us to allocate granular product to our customers. As a result of this strong demand, we raised the posted price for our granular Trio by $10.00 per ton, to $256.00 per ton, FOB Carlsbad, on February the 6th.

Briefly looking at the industrial market for potash, we have seen demand improve for standard products out of our Carlsbad facilities, but continues to lag out of our Utah operations.

With the added flexibility that our new compactor allows, we are able to sell more granular tons into the agricultural market out of Moab. This will enable us to focus our Wendover operations on the production and sale of standard product for the industrial market in the Western United States.

We believe that some of the pressure on our standard sales volumes may abate as we move through 2011, as other North American producers have once again started shipping standard product to the export markets.

Before passing the call to Dave Honeyfield to wrap up our prepared comments, I would like to take a moment to introduce Mr. Kelvin Feist, who joined Intrepid at the beginning of the month as our new Vice President of Marketing and Sales.

Kelvin most recently was Director of Potash Marketing at Agrium, where among other things he was responsible for all marketing and sales programs related to Agrium's potash portfolio.

Over the next 3 to 6 months, I will be transitioning the leadership role for marketing and sales to Kelvin in anticipation of my retirement from a full-time position.

Now here's Dave Honeyfield to wrap up our prepared comments for this call.

Thanks, R.L.

I want to briefly cover a few items that I believe are important to understand about our fourth-quarter results and where Intrepid's business is headed in 2011.

One area that may have caught your attention when looking at our results was our cash operating cost to goods sold for potash. We were certainly pleased with the cash operating cost to goods sold results of $166.00 per ton net of the $7.00 per ton byproduct credit that we achieved during the fourth quarter, as it's indicative of our progress.

As John mentioned earlier, we had good production results in the last quarter with better than expected potash recoveries. This progress confirms that we're on the right path and that we're making the right decisions overall to control our per ton costs.

We're also realistic about what can occur in any mining and processing operation with any given quarter. And we believe that an estimated annual average cash operating cost to goods sold for potash, as we look forward into 2011, in the range of $170.00 to $180.00 per ton feels like a fair place to set expectations.

On the sales front, we continue have a positive bias and therefore we're being prudent with future sales to give ourselves the best opportunity to capture improved overall margins.

Consequently, we are making sure that we have adequate inventory to serve our truck markets and to be prepared to make just-in-time sales to customers that have immediate spring needs.

This marketing approach may result in sales volumes that vary from quarter to quarter. We remain confident that on a full-year basis we'll see potash sales that are in line with our overall annual production results.

Another area I'd like to highlight is estimated annual productive capacity. We have a current estimated annual productive capacity of approximately 870,000 tons of potash and approximately 200,000 tons of Trio. Productive capacity is affected by operating rates, recoveries, mining rates, and the amount of development work that we do. And therefore, actual production rates for mining companies tend to be lower than estimated total productive capacity.

We're currently in a period of more intense development work, focusing on future access to ore, and this important development work will have an impact on our current ore grades.

Returning the discussion to the potash sales market, we saw a healthy improvement in potash pricing in the fall last year that seems to have stabilized as we entered the spring planting season.

Further, we've heard from our customers that the forward sales and deliveries of product ordered late last quarter and early this quarter from other North American producers go out as far as June and that dealers' anticipated needs for the spring are being largely covered with scheduled deliveries of product ordered last fall at lower prices.

Our sense is that it will not be until this lower priced inventory moves through the system that we'll see the ability to capture a greater margin.

Historically, our reported average net realized sales price per ton for potash and Trio has been about 85% to 90% of our posted granular sales price, because of the different markets in which we sell our products, competitive customer discounts and the mix between standard and granular sales.

That being said, I also want to continue to remind folks of our long track record of realizing the highest average net realized sales prices of all North American producers.

Turning to our capital investments, we expect to invest approximately $140 million to $165 million in our business in 2011. Our capital investment program is contemplated to be funded from existing cash and investments and operating cash flows generated this year.

Speaking of cash flows, with the recently enacted tax law changes around bonus depreciation, our current taxes in 2010 were actually a benefit of $900,000. And we anticipate that our cash taxes as a percentage of total tax expense will be at very low levels for the next year or two.

Beyond our investment in sustaining capital of approximately $40 million to $45 million, our opportunity capital projects during 2011 will be focused on the Langbeinite Recovery Improvement Project; the commencement of design, engineering and construction of new compaction and warehousing at our Wendover, Utah, facility; and expansion of our granulation capabilities at our north compaction plant near Carlsbad, New Mexico.

Our Carlsbad operation should also see continued increases in underground mining rates with the addition of one new underground mining panel at both our West and East mines.

In closing, we saw the return to a more normal agricultural demand cycle in the United States in 2010. Throughout the difficult and turbulent market conditions that we faced over the last two years, we have remained focused on our core goals of increased recovery, increased reliability, increased productivity, and reduced per ton costs so that we can enjoy the benefits of this hard work in this current robust agricultural market.

As we move into 2011, I think it's clear that our game plan is to continue to focus on the execution of the important initiatives and projects that are designed to drive long-term value to our stockholders.

We'll now open the lines for any questions.

Thank you. (Operator Instructions).

Edlain Rodriguez, Gleacher and Company.

Just a quick question regarding potash prices. I know you don't sell in the international market, but do offshore prices have to move higher to narrow the gap between US prices before you would see US prices moving higher? Or do we have a different data mix here in the US?

I think the first thing that we're trying to do is to make sure that when people talk about international pricing and domestic pricing is that we're comparing apples to apples.

A lot of times people are looking at Chinese pricing which is negotiation and purchase of very, very significant volumes. And they look at a landed price in Brazil and they don't necessarily compare it on an apples to apples basis to what a farmer is paying in the Midwest to what a farmer is paying in-country in Brazil.

As we begin to really study what farmers are paying at both locations, there's not as huge a disparity as you might expect. There is still a difference, but it's not as big a difference as comparing a Midwest warehouse price to a landed price in Brazil. So that's the first point that I would like to make is that I think we really need to look at apples to apples comparisons.

The second is that we are seeing pricing and demand firming internationally. And so I think as we continue to see this very robust agricultural market in crops such as sugar, coffee, soybeans, rice, wheat, we're seeing increased demand internationally which is firming the price and I think that's what we've begun to see here is just a longer, firmer market here in the United States.

So, I think it's a valid question, but we would ask you to analyze it on an apples to apples comparison, in terms of farmer to farmer comparison. And I would suggest that here in the United States that we are, and always have been, a more robust market.

I think when the farmer in the Midwest is ready to plant his corn he is not necessarily as concerned with what a Chinese farmer might be paying for his potash when he's ready to farm and has great economics right in front of him.

So, while I do think it's something to watch, I don't think it's the barometer that people have made it out to be. And that's how we're looking at that today.

Okay. That makes sense. A quick follow up. You talked about dealers willing to start inventory and also trying to exit the spring with some inventory. So are you seeing some pre-buying ahead of that? And also is it a question of those guys are now trying to buy ahead of potential price increases?

Well, I think it's a little bit of everything. When you look at a normal demand-driven market, if we were to go back and analyze the corn market for example, any demand-driven market starts with the first phase of concern about have you really seen a bottom? Then people begin to believe that you've not only seen a bottom, but you then have a potential upward bias. And then finally, you actually have speculation.

And so, I don't think we're there yet. I think that people realize that we're in the midst of a very firm market, that we're in a very stable market. We do see dealers that are asking on a daily basis to try to purchase farther forward, which would indicate to us that dealers believe that we're in the midst of a strengthening market.

So, I think it all comes in stages and the good news is that we're seeing all the indications of a firm, stable, demand-driven developing market as we move through the spring. We're seeing excellent indications.

Mark Connelly, CLSA.

I've got just a couple of project questions. With respect to the granulation capacity, a two part question here. First, if that capacity doesn't end up being fully utilized, does it meaningfully affect your operating costs at the facility once it's fully up? And second, can you give us an update on the timing of the granulation at Wendover?

I'll answer the first part and then turn it over to Dave.

If I understand your question correctly, about the granulation capacity at Moab. We now have the ability to compact 100% of our production. So, we will utilize, we will right-size our granular production so that we don't end up with more industrial or standard product than we need to right-size still into that market.

So, I don't know if I'm answering your question correctly.

What I'm curious about is if you end up not needing all the capacity that you've put in place in compaction, obviously in the short run you're going to need it. I'm trying to think forward as the market shifts around. Does it increase your overall cost if that compaction capacity is not running full once it's fully up and running?

Certainly from an operating cost perspective, cash out the door, it does not. If we don't utilize it, or we don't need it to run it for quite as long during a season, then we don't incur those costs.

Clearly, we've made the capital investment. And it's a long term capital investment. So, there are going to be periods where frankly if we have the ability to get a higher margin by not compacting some of that product, we'll take advantage of it.

So, it's a very conscious decision to invest the capital for a long term period.

Once again, the key part is the ability to right-size the product for the right market.

Flexibility is key.

Exactly. I think you hit it on the head. John, do you want to talk about Wendover timing?

As far as Wendover timing, we are currently in the engineering phases and working, preparing to work with regulatory agencies relative to permits. Looking at all that, our initial projection is that we should have the facility up and running late this year, early next year with the ability to start compacting product in 2012.

Okay. And one last question if I may. HB Solar, we've been hearing other producers talk about increase in estimates of cost of mine development. Has your estimate of the HB project changed significantly since the last time we talked about it?

We're still at that $120 million to $130 million estimate. We are going through, certainly as we get closer to project, getting detailed bids and quotes back from folks, but as of right now, that number is staying where it's at.

And then I think, as you heard us mention before, you saw our release, we've shown that that expectation for getting the raw out is in the first quarter of 2012.

Vincent Andrews, Morgan Stanley.

My question just was going back to the US prices and where they can go and how they can get there, one of the concerns I've heard about that gap between US and international is just that if it got any wider it might encourage some of the non-US producers to bring some product into the US that otherwise might go to some of those international spot markets.

Any indication that there's anything like that taking place now? Is that something you'd be concerned about? And within that framework, how are you balancing your desire to sort of hold out for better prices with, it wouldn't be a bad thing if the channels started to rebuild inventory overall, and that might actually help pricing too. So how are you thinking about all of those things?

Well, I guess the first thing is, the good news is what a great market the United States market is. It's a diverse market. It's a strong market. It's a well-financed market. It's a liquid market. And so, we're very fortunate to be in the midst of the best agricultural market in the world.

What we're seeing today is about the same amount of international product being landed in the United States. There are always rumors of additional product tons trying to find their way into this great market.

We're not concerned about seeing significant additional volumes. I do think that we'll see slightly larger volumes than historically we've seen, just because it is such a great market here.

But we're also seeing that price that farmers are paying, all around the world, move up as well. We're seeing that demand cycle move up as well. So I think that that delta between the international pricing that the farmer is paying in the United States market, we're seeing it continue to shrink a little bit. And I think you're going to just continue to see that delta expand and contract as the year goes on and the markets continue to be equally as robust.

So, I don't think that there's going to be a certain point at which it hits a stable number. I think we're just going to see expansion and contraction of that variance. I don't know if that makes sense or not.

Sure. Just then on the dealer inventory piece, do you guys have an estimate of if dealers sort of rebuilt a quote unquote a normal level of inventory, how much demand that actually would be across the industry?

Well, we don't have a specific number, but I think that we are definitely at or above historic levels of demand here in the United States. So, we've always talked about the United States market being a 10 million short ton market. It's easily that if not more.

And so, we're seeing just a good, solid, right-sized market here in the United States that's got the opportunity to expand even more with these additional acres that are being talked about.

Yeah, I just was thinking from a pricing perspective, if they started to rebuild the inventory that obviously takes sort of tons away from other markets and maybe helps from a pricing perspective. Any thoughts there?

The message that we would state loudly and clearly is that this agricultural market is as good as it's ever been. And so we continue to see farmers wanting potash. We continue to get inquiries about how much potash can they buy farther out. So we would stress that we're in the midst of a very, very solid agricultural cycle. And so, we don't see any reason that demand for our products and agricultural products to be quite solid and robust.

Don Carson, Susquehanna Financial.

Dave, you mentioned on pricing that you thought most shipments this quarter would not be at the higher March 1st price. I know your domestic competitor is close to $515.00 price in Corn Belt as of March 1st. So, what are you expecting in terms of your realizations for the quarter in terms of sequential improvement from the fourth quarter?

And then secondly, a question for Bob, it's obviously a very robust grain market, but back in '08, we saw that there was a fair bit of price elasticity associated with potash. Above a certain price you started to see some resistance on the part of growers to buy potash. Where do you think that price is today? Do you think it's higher than it was in 2008, given the better grain fundamentals?

Let me address the second part and I'll let Dave address the first part.

There's no question that pricing can get to potential demand destruction. And there's no question that in 2008, as we saw the financial crisis erupt, that we saw incredible elasticity that was both a function of high prices in the agricultural community as well as the financial crisis. When those two were combined, we saw very significant price deterioration. We all know what happened.

There are few things that are a little bit different this time in the cycle. We never want to say that everything's changed because it is just, we have to take it as it exists today and analyze it as it exists today.

But the cattle herd size is smaller and we're still seeing robust demand in the feed markets, despite current grain prices. We're seeing robust hog pricing. We're seeing robust pricing in other commodities such as coffee, sugar, cocoa, that we did not see in 2008.

So, we're seeing more crops provide more opportunity than we previously saw in 2008, so that we have a much larger foundation to build upon this time. There's no question in 2008 it was primarily a corn cycle and not a complete foundational cycle across the entire agricultural business.

So I do think that there are certain elements that are different this time. We continue to see strong, firm foundational demand. And so, I think that we're going to continue to see strong, firm foundational demand for potash, which is going to have natural consequences.

So, I hope that answers your question. I'll turn the next part over to Dave.

Thanks, Bob. Don, a couple things on your question. The $515.00 price that you referenced, please keep in mind that that's a warehouse price in the Midwest. So, it's not really a new price. It's been there since the fall.

More the point I was trying to make was that a lot of the product that's still being received today was product that was priced by our competitors, product that our competitors had priced at much, much lower levels. So, you're seeing that come into the system now.

And when we talked about our net realized price, I think the comments that I had earlier in the call about kind of 85% to 90% of the posted price is pretty indicative in large part because of the fact that we took pretty aggressive actions in the fall to manage our inventories and make sure we started to serve the truck markets and make sure that we were able to take advantage of the higher posted price maybe more quickly than others.

So that suggests that you've got less room for sequential increase in Q1 and that that's going to be more of a Q2 event?

No, I think if you look back to our net realized price from Q4, that was at $386.00. And our posted price for potash now is $485.00. So, I think that that would tell you that we expect to be capturing more of that pricing around our current posting sooner than others will.

Dave Silver, Bank of America Merrill Lynch.

I had a couple of questions. First is kind of a follow on to some other pricing questions. But, it's February here, and so far as I know Intrepid or none of the other domestic producers have put out a price increase. And I think that's very unusual for the month of February going back many, many years.

And I do recall that once movement for spring planting starts in earnest, in my opinion, it's just impossible to implement a price increase. So, are you guys looking at the market here and is there a window, or is there not a window to increase prices in a very robust market, let's say between now and the spring planting? And if you're not planning on putting in a price increase between now and spring, could you just maybe discuss that based on your comments about very strong orders and eager farmers and things like that?

Well, Dave, as you know, we're the smallest of the North American producers. And the market is what the market is in terms of Intrepid, our size and our ability to be a leader, so to speak.

We believe that this is as robust an agricultural market as we've ever seen. And we continue to manage our inventories pretty close to the vest and not sell our product very far into the future to take advantage of what we believe is a very robust agricultural market.

But once again, I think you have to recognize Intrepid's position in that market. I don't know that we're necessarily, have the opportunity to be a market leader. But we are continuing to manage our inventories, to hold them as close in as we can, and not sell farther forward.

In terms of what's going to happen in the near future as to pricing, all I can tell you is that the market is strong from a demand standpoint and we continue to monitor it very closely.

Okay. And I'd like to just follow up on, Dave, I appreciate your comments about the deferred tax line on the cash flow statement. And I was just going to ask you for a tiny bit of additional clarification there because I'm not really up on the new twists to the tax law.

But, I just wanted to clarify that that large deferred tax asset, $266 million at December 31, that that's still all available to you to recognize as your earnings progress. And if I looked at the deferred tax in 2010, about $30.6 million, could I just assume that the roughly $24 million change in your deferred tax asset on your balance sheet; that's the portion of that carry forward that you recognized and the balance might refer to the change in the tax law you referenced?

Dave, just so folks are clear, what the government did in December is they changed the law so that all capital assets that were put into service between kind of mid-September of 2010 and the end of 2010, received 100% bonus depreciation. The tax law says that it's 100% bonus depreciation in 2011. And then goes back to 50% in 2012 and then you're on the normal maker's schedule from there.

So, the point, and it probably simplifies maybe your question a little bit more, is what we're trying to say is that our effective tax rate is going to stay right around that 39% to 40% range. But the majority of that is going to be deferred tax.

And the impact then is that it starts to reduce that deferred tax asset, maybe even more quickly than it was being reduced previously. So, certainly we believe that will all be utilized and we're going to continue to try to take advantage of the timing of getting our capital projects in to get the full benefit of that bonus depreciation.

So, the point is there is that most of our tax expense will be deferred tax expense.

[Faudi] Benjamin, Stifel Nicolaus.

My question is with regards to your point in terms of being able to manage your inventories and serve the truck market and also serve producers who actually fulfill some need that the producers did not or were not able to fill this last quarter.

My question is, we've been hearing from your competitors that they will try to close that gap on deliveries. How do you think this will affect you going forward?

Well, I think it's going to affect us going forward just like it always has. I mean, the great part about our locations is that we exist in a variety of very significant agricultural markets.

The Texas market, for example, this year with the additional significant cotton acres that we're going to see, with the hay crop, I mean there's a very, very significant amount of hay that gets fertilized and grown in the state of Texas. And as robust as the cattle market is right now, we just think that we're going to see a very strong local truck market that we can service out of our facilities.

As the spring develops, I do think that the Canadians will continue to try to catch up on their shipments, but as we have seen in each and every year, there are holes in those markets that we then have the ability to go out and fill.

So, it's not a situation that we haven't encountered before and that we know how to manage. We pride ourselves on our nimbleness, so to speak, and our ability to find those marketing holes. And as you can see from our long track record, we've always been able to find those niches and market our product more effectively to achieve higher net backs.

So, we don't think it's going to affect us any differently than it has in years past. We'll continue to focus on marketing strategy and being nimble in the marketplace.

And just one more question with regards to the langbeinite. Could you elaborate on when you expect the recoveries to come back to the historical rates?

John touched on all the things that we're working on. We're looking at the initial process design diagrams. We've got consultants on staff. We've got smart folks around the Company and our effort is to make sure we get that recovery back up to levels that we were seeing early last year, in 2009 and such.

So, it's hard for me to give you the exact date, but I can tell you that we've got the right process in place. We've got the right people in place. And our goal is to get that recovery level back up to where were know it can be, well ahead of our Langbeinite Recovery Project.

I wish I could be more specific, but I think it's, the important part is to know that we're on it and we've got the right folks on it.

Fai Lee, RBC Capital Markets.

I just wanted to clarify something with respect to the production outlook for this year, based on Dave's and John's comments. So basically, in a normal year, you should be able to produce about 870,000 tons, but this year is it going to be closer to 800,000 because of some of the work you're doing? Am I interpreting that correctly?

The 870,000 is a productive capacity number. So, what we were trying to, and I think we've been saying this for a little while here, I think if you look back at the end of 2008, if you look at the last half of 2008 and you annualize it, that's really where we think production will be.

As John touched on, we have increased our mining rates and such. And when you couple that with the development work, really the good news is we've been able to keep those production rates relatively flat, even with a higher development ratio.

So, that's why we keep trying to point people back to annualizing the second half of 2008.

Now, the second half of 2008, you produced around 400,000 tons, so annualizing that would bring it to 800,000. And with that 800,000, some of that will be weighted towards Q1 though, right? And then falling off in Q2 and Q3? And maybe back up in Q4 because of the Moab evaporation ponds, is that the way to think about it?

I think you've got the seasonality factored in just right there, Fai. I think your understanding of the evaporation season and the harvest season that we have in our solar evaporation ponds is a good way to think about it.

Fai, just to reiterate. When we talk about development, the good news about development means that we've identified higher ore grades that we are working our way towards. Sometimes we have to get through slightly lower ore grades, go ahead and bite the bullet, work through slightly lower ore grades to get to much better ore that we've identified.

So, we've made the choice to go ahead and invest the money in the development work to get to better ore grades.

And assuming you do get to those better ore grades, would that increase your production closer to the [8 semi] or would it move you beyond that?

I think as we look forward, Fai, we're going to be in that development phase for a number of years, certainly. It's an ongoing effort. Just how much do you do in a given year?

We continue to invest in mining equipment and we'll have more throughput, so I think you should see some modest increases over the next couple of years. Really, then the next big step will be the tons that come on from our HB project, which, again, we anticipate getting the record decision in early 2012. We'll start construction immediately. And then you see a little bit of production in 2013 and then full production on that expected in 2014.

And just a final clear up question on the COGS. The guidance you provided, that was net of the byproduct credit, I'm assuming?

That's correct.

Robert Koort, Goldman Sachs.

Bob, I think either you or maybe R.L. had a comment about the volume driven approach used by your competitors. And I guess I'm trying to triangulate the comments about pricing and it sounds like some people are expressing anxiety that prices aren't going up more. And your competitors seem to be adding quite a bit of capacity up north.

And so, as you look over say maybe the next two or three years, what would you expect to be the bigger driver of your profitability, incremental profitability, price or volume, costs, how do you see it playing out?

I think for Intrepid it's a combination of the above. I think Intrepid's going to be producing more tons over the next few and several years. And as we bring on lower cost tons like the HB and getting the LRIP completed, we'll be taking our COGS structure down.

So, I also think that, going back to the agricultural markets that we're in, we have every reason to believe that we're going to be in a strong agricultural cycle. And when we go back and we look at some of the other products, given what's going on in some of the shale plays and natural gas, we don't see any real reason for natural gas prices to spike significantly higher than have the opportunity to keep the nitrogen prices lower or definitely more stable than what we saw in 2008, the same with increased phosphate production coming on.

So we do think that potash has a unique opportunity in the future to continue to have a strong demand profile. So when I look at your three questions, is it a volume, a margin, or a pricing or a cost structure, I think it's a little bit of all of the above.

I think we've got all three of those levers to work with and trying to create the flexibility at each of our facilities to use that flexibility. So I think it's a little bit of each.

Let me ask you a question about farmer behavior. You mentioned maybe that dealer behavior is changing more favorably for you. If we think about a farmer, and I believe you characterized the conditions today as as good as you've ever seen them.

The USDA was out with their forecast this morning talking about maybe a 30% build in corn inventories after this year's crop. Still at very low levels, but at least some improvement. You've got a backwardated futures market for corn and soy and the rest of the ag commodities. So while they're still at robust levels, it's likely that they'll come off those robust levels.

Would you expect to see any change in farmer behavior? Or is there some sort of price threshold that you think is sufficient for sort of maximum fertilization rates?

I think that we've seen great farmer acceptance of where we are today. There's no question that two years ago that there was animosity towards the potash industry. And I think that we have long since passed through that stage.

I think that potash is very, very fairly priced. And so, I think that potash continues to add value and to add increasing value at current prices and even at lower prices given the margin opportunities for farmers, even if we do see, I don't know where corn is this morning, but if corn is correcting off $6.50 to $7.00 and it corrects back into the high fives, we're still at numbers that provide very, very attractive opportunities.

So, let's not forget that what we've seen pricing in the commodities run up to, if we see 20% and 30%, even 35% price corrections in those commodities, they're still correcting back to very, very high historic levels.

So, I think we'll always see elasticity in commodity markets. That's just the way commodity markets operate. But from a value perspective, potash is a great value at today's prices. And I think will continue to be a good value even if we see correction in some of the other commodities.

Douglas Chudy, KeyBanc.

I guess first question on Trio, you are selling granular Trio on an allocated basis. I think you noted a $10.00 ton increase in pricing in February. But with supply very tight here still, do you see further opportunity to push pricing here over the next couple of quarters?

Granular Trio continues to be our product that's in the most demand. And we have been sold out of it and we have been on allocation. And that's a market that we continue to see great demand for.

So, we continue to try to price it as best we can given the market, the competitive nature of that market. And so while we believe that we're going to continue to sell it on allocation until we get our LRIP project completed, just because of the desire we're seeing from our customers. I think we're appropriately priced in the market given what the market is.

Then secondly, you noted expected average cash production costs somewhere in that $170.00 to $180.00 a ton range in 2011. Just to clarify, would you expect any deviation in the first quarter or should we expect that to fall in that annual range?

Doug, I think we're always going to see a little bit of variation on that, so trying to pinpoint that to the quarter gets pretty tough.

But again, we really do try to get people back to looking at results on an annual basis. I think that's where you're going to get, where models will get built out the best. And so, expect a little bit of variation, but again, I think that's a very reasonable and fair range of numbers to think about over the full year.

Okay, but I mean, I think in the fourth quarter you had a little big higher maintenance spending. There's no expectations of a pickup in that, of that in Q1 or anything?

Again, Doug, we have scheduled maintenance turnarounds at a couple of points throughout the year. Again, that's all the more reason to look at it on an annualized sort of a basis.

I think at this point in time we don't see any other questions in the queue. We'd like to thank everyone for joining today's call and for making the effort and taking the time to learn more about Intrepid. Thanks so much.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.