Intrepid Potash Inc (IPI) 2012 Q4 法說會逐字稿

Good morning and welcome to the Intrepid Potash 2012 fourth-quarter and fiscal year-end conference call. At this time, all call-in participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions).

I would like to remmind everyone that this conference is being recorded today Thursday, February 14, 2013, at 8 o'clock a.m. Mountain Standard Time.

It is my pleasure to turn the conference over to Gary Kohn, Vice President of Investor Relations. Mr. Kohn, please go ahead.

Thank you, Joe. Good morning and thank you all for joining us for our fourth-quarter 2012 earnings conference call. Presenting on the call today are Bob Jornayvaz, our Executive Chairman of the Board, Dave Honeyfield, President and Chief Financial Officer, and Kelvin Feist, Senior Vice President of Sales and Marketing. Also in the room with us today are Hugh Harvey, Executive Chairman of the Board, John Mansanti, Senior Vice President of Operations, Martin Litt, Executive Vice President and General Counsel, Brian Frantz, Vice President of Finance and Chief Accounting Officer, and Ken Taylor, Vice President of Business Development and Research.

During today's call, Bob will recap the fourth-quarter and full-year results and update you on our capital projects. Kelvin will provide insight into market conditions and Dave will provide more color on our capital projects and our outlook. We will then open the line for your questions.

I would like to remind everyone that statements made on this call that are not historical facts or that express a belief, expectation or intention including statements about our financial and operational outlook 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 risks and uncertainties which could cause actual results to differ from our expectations. For more information with respect to our risks, to the risks, uncertainties and other factors which could cause actual results to differ from our forward-looking statements, we direct you to the news release we issued yesterday and the Risk Factors and Management Discussion and Analysis of Financial Conditions and Results of Operations and 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.

Also during today's call we will reference certain non-GAAP financial measures including adjusted EBITDA, adjusted net income and adjusted net income per diluted share which we believe provide useful information to investors. Our earnings news release which is posted on our website at intrepidpotash.com includes reconciliations of these non-GAAP financial measures for the most directly comparable GAAP measures.

I will now turn the call over to Bob.

Thanks, Gary, and welcome, everybody. We appreciate your time today and your interest in Intrepid. Intrepid is the largest producer of potash in the United States supplying more than 9% of the country's annual consumption. Our focus remains on maximizing margins through a marketing strategy that has successfully allowed us to target the highest average net realized sales price among the North American producers by leveraging flexibility that we have built into our operations, to adjust our production mix towards the highest margin opportunities.

In the fourth quarter we achieved, yet again, the highest average net realized sales price and the highest average cash margin per ton of this group. This strategy is further enhanced through our capital investment program that is geared towards producing incremental tons at significantly lower costs.

In the fourth quarter we sold 203,000 tons of potash at an average net realized sales price of $434 per ton. We produced these tons at a cash operating cost of goods sold net of by-product credits of $180 per ton, an improvement from $194 per ton in the fourth quarter of 2011. We reduced our costs.

This success was achieved through our marketing strategy by maintaining the strong relationship with a broad customer base and by selling to diverse markets and crops. The favorable demand trend for our specialty product, Trio, generated an average net realized sales price of $347 per ton for the 43,000 tons we sold in the fourth quarter. This average net realized sales price is a 21% increase from the fourth quarter of 2011.

Our cash cost of goods sold on these tons was $211, up from the same period in the previous year. We continue to see improvements at our East facility as we work on getting that facility up to its design.

Our fourth-quarter adjusted EBITDA was $41.5 million and adjusted net income was $19.7 million or $0.26 per diluted share. We generated $55.5 million in cash flow from operations in the fourth quarter, bringing the full-year total to $187.8 million which is an 8% increase from 2011.

In 2012, we made capital investments of $253 million and paid a special dividend of $56.5 million. We finished the year with cash, cash equivalents and short-term investments totaling $57.7 million, no debts outstanding under our unsecured $250 million revolving credit facility and the funding of our $150 million of unsecured notes scheduled for April. The special dividend reflects the compass that we have in our progress of the capital projects and our ability to deliver value from them as well as our confidence in our people and the business.

We are committed to creating shareholder value by investing in our business to increase production, profitability, cash flow, and margins. Our solid financial results and robust balance sheet afford us this opportunity. The majority of the $250 million of capital investments we made during 2012 was directed toward strategic projects designed to produce incremental tons at lower costs to add flexibility to our production process and to sustain our current infrastructure and operations.

By combining the solution mining solar [vaporation], we have demonstrated our ability to utilize and invest in our Company to increase production while significantly lowering the cost per ton.

Our results reflect this. Our HB Solar Solution Mine continues to progress upon all fronts. We have completed the drilling for all the injection and extraction wells, installed the pipeline required to make all of the connections and the construction and mining of the ponds is moving forward on schedule. We have finalized an improved design for the mill, for the puttings for its foundation and are expecting to begin erecting steel shortly.

Importantly, during the fourth quarter we began to pump brine from the mines into the first evaporation pond. This major milestone means that we are on schedule to see our first harvest late this year, following the summer of operation season and the construction of the new mill.

Our HB project is not only impressive, but it is also unique. We have turned an idle potash mine, a non-potable aquifer and the sun's energy into a solar solution mine capable of producing 150,000 to 200,000 tons annually at approximately half of our current average cash cost per ton, which is already in reduction.

Furthermore, this environmentally friendly mining project has created a real boost to the economy in Southeast New Mexico.

In Moab, another of our solar solution mines, our team of geologists and drilling experts are using the latest technologies to create new horizontal mining caverns within a complex geologic structure. We have successfully completed the drilling of our second cavern system and have begun drilling the third system. We expect these additional cavern systems to be additive to 2013 production and continue to reduce our costs. The success of our drilling program and the demonstrated ability to stay in contact with the ore body during the drilling is a testament to the teamwork, technical capabilities and execution by our highly qualified staff.

I am extremely proud of and encouraged by the team and the progress they have made on these game-changing projects. Our team is focused on building shareholder value, our strategy of optimizing production and selling into diverse crops and industries in our backyard markets remains core to our success. As we continue to improve our execution and the projects come online, we will be primed to deliver an even higher per ton average cash margin than we do today as we continue to reduce our costs.

Kelvin Feist, our Head of Marketing and Sales, is now only going to provide you with some insights on the driving factors for our fourth-quarter sales results as well as the favorable macro trends in the marketplace that have us feeling extremely confident about 2013.

Thanks, Bob. The full potash application season unfolded pretty much as we were anticipating, with feedback from customers reporting healthy application rates. We sold 203,000 tons of potash during the fourth quarter. This was 20,000 tons or 11% more than we sold in the fourth quarter of 2011. Importantly, we believe this signals a favorable spring application season in North America with solid potash application rates, positive cropping intentions and strong incentives for farmers to maximize their return per acre.

The macro trends going into the year, namely the low stocks-to-use ratios and the resulting solid commodity prices, are favorable to farmers. These strong grain commodity prices present the farmer with a promising profit outlook for this year.

Just this week, the USDA said that farm income in 2013 is projected to be the highest in the last 40 years. To capture this profit potential, farmers will look to maximize yield by adding adequate and balanced nutrients to the soil. This supports our positive outlook for potash consumption.

Our success in the fourth quarter and into 2013 is based on a solid foundation of partnerships with our customers. Our customers continue to look for tools to reduce their risk in holding potash inventory. We have tailored programs to ensure we capitalize on opportunities and are able to supply just in time purchases. Our flexibility has helped us broaden our customer base and our geographical footprint.

The recent international potash activity, specifically the Indian and Chinese contracts, is another positive development for the potash markets. We believe that having these contracts signed and in place removes a degree of uncertainty from the marketplace. The contractual volumes in these agreements indicates that large international customers are buying again, which should keep tons moving into those markets.

Our specialty product, Trio, was another highlight in the quarter. The existing strong demand combined with the recognition in the market of this product's value once again supported a favorable price trend. The average net realized sales price of Trio increased by $11 to $347 per ton in the fourth quarter from $336 in the third quarter.

We sold 43,000 tons in the fourth quarter compared to 28,000 tons a year ago, resulting in us once again being virtually sold out with granular Trio. We expect continued success with Trio in 2013 and plan to place every time we produce.

Thanks, and I will now turn the call to Dave.

Thanks, Kelvin. The strength of our cash flows and balance sheet allows us to invest in capital projects that will make meaningful and sustained improvements in the operating profile of Intrepid. As we look through 2013 and into 2014 and beyond, our key solar solution mining projects are expected to comprise a larger percentage of the tons we sell, with those tons being produced at significantly lower cash cost. The positive effect on our profitability from this straightforward math of incrementally lower cash cost tons is very compelling and it becomes clear to see how our EBITDA growth should accelerate at an faster pace than our sales volume growth.

We plan to make capital investments during 2013 in the range of $235 million to $285 million. Our capital investment plan contemplates completing and commissioning the HB Solar Solution Mine substantially completing our North compaction plant, expanding the mining caverns in Moab and investing nearly $100 million in additional capital in various smaller opportunity projects, as well as in sustaining capital.

As we complete the HB mill design and our planned initial drilling activity, we have decided to increase the investment in our HB Solar Solution Mine project in order to enhance its long-term reliability, predictability, and operating efficiency. We now plan to invest between $225 million and $245 million, a modest 9% increase from the midpoint of the previous range. Our plans now include augmenting our brine supply wells so that we have a more robust source of non-potable water to use for making the [inject a] brines and various upgrades to the mill design.

As we continue to enhance the flexibility of our operations, we have designed our granulation facilities to be able to produce and sell the highest margin products into the marketplace. Our new North compaction plant will be state of the art, larger and more efficient than our existing compaction plant. We have sequenced the installation of the first, second, and third compaction lines to be in service ahead of the expected production from our HB Solar Solution Mine as well as the increased production from the existing West Mine.

This project is on budget with $55 million invested through the end of 2012 of the estimated $95 million to $100 million budget.

One of our most significant operational achievements last year was the improvement we drove at our East plant through our diligence and focus. During the third quarter call we said that we were taking the right steps, we had the right people in place and that we expect to see continued improvements in our results over time.

Well, our production level for potash at East improved again in the fourth quarter with a 10% sequential improvement from the third quarter. This follows improvements we reported in the third and second quarters. In fact our East facility had its best production quarter since early 2011. Annualizing in the fourth quarter production run rate matches our historical annual production rate from the East facility.

Before concluding our prepared remarks, I want to call your attention to three items you should expect to see in our financials in 2013.

First, we anticipate our effective tax rate to be between 36% and 38%, with cash taxes representing approximately 25% of the total tax expense. Second, we don't expect to see interest expense increase as a result of the notes that are funding in April. The majority of our interest obligations will be capitalized as part of our capital investment program. And third, as we previously disclosed, we anticipate the final settlement of the pension liability in the first half of the year. We estimate that the settlement will result in a pretax charge in the range of $1.5 million to $2.5 million.

In closing, we are very pleased with the results and the progress we made in 2012. We enter 2013 confident that we are on track to meet our objective of increasing profits and cash flow as the investments we have made to produce incremental tons at lower cash costs begin to contribute to our results. The benefits from these investments are becoming very clear as we near completion and look at the 2013, and we expect that these projects will contribute even more meaningfully in 2014 and beyond. We remain confident in the direction of the business and look forward to sharing with you our continued success.

We will now open the lines for any questions.

(Operator Instructions). Mark Connelly, CLSA.

This is actually Kurt Schoen for Mark. So, in looking at your cost of goods sold guidance I was hoping you could just break down the low and high end of the range and maybe put that into perspective, how much of that is fixed cost absorption from volume? How much of that is that East Mine work? How much of that is incremental HB tonnage coming on?

Sure. I can give you a little bit of color around that. I think when you are -- one of the things that I've observed from reading some of the notes is that I think one thing the Street seems to be missing is the impact of DD&A in total COGS and when I look at total cash COGS on average from 2012 to 2013, I actually see that as being relatively flat. That is in the face of, we are always going to have some salary adjustments. We have got venders that are pushing on cost, et cetera.

That being said, we are seeing improved production and actually we are seeing lower cash costs at our East facility than we did in 2012. I expect that we will see things being about flat at West and that our Moab and Wendover facility. But what that means also is we will have more tons of available from the East facility as we go through 2013. So product mix has a little bit of an impact on that.

But when we are talking about cost, we are looking at seeing things stay pretty darn flat on the cash cost basis through 2013.

Okay. And what about in SG&A? I saw that go up, your forecast there go up about 13%. Can you give any insight into that?

Yes. We have got -- in SG&A it tends to be a fairly modest increase overall when you look at some of the additions that we have been able to make on the engineering front, enhancing some of our geology and mine planning expertise. Each one of those positions, we go through pretty careful analysis and we are looking at how many tons we produce per employee to make sure that we are not letting that creep further than we really think is appropriate. So there is nothing in there that is too significant.

And one of the pieces that I would touch on is that we have been doing a lot of work on our core hole drilling program and on the reserve front. And one of the things certainly that you'll see today is that in each of our areas we have been able to extend the reserve life and increase the reserve profile of the Company. That is a pretty significant item in terms of how we think about the long-term planning for the Company.

Okay. Thank you very much.

Don Carson, Susquehanna Financial.

Thank you. Just a few questions on market conditions. You referenced the India settlement and but I am just wondering have you seen any change in dealer willingness to step up and buy product because your comments were suggesting that there was a reluctance. So just wondering how you see the direction of prices as we get into the spring. Have you posted an increase for the spring season? And then just if you can comment on your level of consignment sales.

This is Bob. I will comment first. We just got back from the TFI conference and I would say that conference was much more positive than we expected.

We are seeing great movement. We are seeing -- we saw significant activity just in the last couple of days we were at that conference Monday, Tuesday, and Wednesday. So here we are Thursday morning. And so, we have seen significant movement in the marketplace from a volume perspective in the last several days and hours, if you will. So what we are seeing in the market from a volume and movement perspective and a willingness of dealers to come in and start buying, we are seeing activity there.

As to pricing and what we see we are seeing some pricing that is being taken a little bit farther out than I would say is typical. We are seeing some pricing into March and April. And there is a couple that we are even talking about taking some pricing into early May. So in terms of seeing a near-term price bump, I don't think we have got the set stage for it going into early April.

However we are seeing great movement, very solid movement, very positive movement and then a very positive atmosphere that came out of the TFI conference that we all just got back from.

With that, I will turn it over to Kelvin and let him give it a little more color. Kelvin?

Sure. Yes, I think in general all these contracts equal increased global demand and I think whenever you see that, we are seeing markets opening up here and more product moving through them. So I think the trend is in the right direction. Certainly that is positive, it is a positive view on our part. I think when I think about North America and that is really where we participate with our potash, we are hearing a lot of positive things.

Whenever you are seeing the amount of seating intentions that are out there, we are going to see more potash go on those acres. And certainly the rates are going in the right direction as well. So from a North American perspective, we are seeing a lot of positive things with the current commodity prices where they are at.

And just to follow-up on your comment on pricing, you said some of your competitors are offering to fix prices through May. Are you seeing the Canadians still being pretty aggressive because obviously they have got a lot of new capacity they have got to place into the market.

Yes, I think we are seeing a competitiveness there but I wouldn't say it is different than what we have seen in the past. I think the bigger key is the second part of your question which was about warehousing. And we have got a number of warehouse programs out there that we've offered up and as have the Canadians. And that's really -- seems to be where a lot of the attention is being placed right now. (multiple speakers). Yes.

This is Dave. Okay, one more comment on that. I think the -- there is a lot of competition on the pricing side. And I think that that is one piece that, frankly, folks need to take into account as we go through 2013.

We are seeing it in the market. We are seeing that behavior being driven by the Canadians as they have really worked very hard on each of their respective fronts to secure some space. And despite all the things that you would look at macrowise, product movement into the international market, farmer profitability being at -- we are talking about the highest level in 40 years and this is on the heels of the last four or five years. You are looking at affordability. You are still seeing price be one of the major tools, frankly, that the Canadians are using.

So we have got to react to that and we are committed to continuing to produce at full rates. And I think that is the right strategy for us, given our backyard markets. But I think that when I look at a lot of the first call numbers, some of those pricing numbers frankly feel pretty strong to me against what we are seeing in behavior by the Canadians right now.

The other thing that I would just add is that now that the Indian and Chinese contracts are settled, we are going to see a lot of standard movement from the Canadians going offshore which is going to provide a lot of relief to a variety of our markets. And as you know, we serve a very diverse group of markets.

So from our perspective, it is good news that those contracts have settled. So it is not only just volume, but it is standard volume that is going to be moving off.

So it is a complex market. The Canadians had a lot of issues which they need to get resolved. We saw it occur in the form of pricing. But there is a lot of really good movement that is now beginning to occur.

So I don't know if that is the color you are looking for, but we have tried give you as much information as we can, related to what is actually going on in the marketplace.

Just one follow-up. What are you seeing coming into New Orleans from some of the offshore competitors like the Russians and the Israelis? Is that toned down now that they have got volume moving up to China and now India?

It is the same tonnage that we see year over year over year. There is nothing new that we are seeing coming in in terms of volumes. We are seeing the same type volumes, the same type questions, the same type issues that we have been seeing for the last several years.

So we are not seeing any increased foreign tonnage that we are really feeling in the market place. So I would say that we are seeing a little bit of additional tonnage on the Far East coast. It is coming out of South America but it is much more limited and site-specific. And so now that we have seen these other markets open up, what we are hearing is that those tons are going to find (technical difficulty) elsewhere.

So when we look at the gross tonnage of foreign tons coming into the United States it is about the same as we have always seen. We, in our core markets, just haven't felt the pressure from those foreign tons.

Thank you.

Christopher [Parkson], Credit Suisse.

You touched on this old bit, but could you just add a little more color on what you are hearing from your customer base based on current inventory levels and from a demand perspective? And more specifically, are there any noticeable differences between some of your core geographies?

Sure, I will take that one. In terms of inventory levels they are elevated over the -- IPI puts out some numbers and they are elevated slightly over the five-year average. I think what you have got to think about is both that standard and granular inventory that other folks are carrying.

I think in terms of our inventory levels, we have managed to sell more than we produced last year and that kind of was we were successful in drawing down our inventory level. If we think about the field if you will and what is going on out there, we are seeing more people doing consignment or risk adverse programs and so that needs to be factored into that. I think you always see more, a bigger commitment in areas where the Corn Belt if you will versus other areas that are drier or might have some drought potential. So there's different risk levels from the farm gate or dealers.

But I think in general most people are planning for a good spring and we are probably three quarters full in the field right now, and we are going to start seeing some activity here really soon. So things are looking positive.

I would just remind people that people are talking about a 97 million acre corn crop and potentially even larger which has never occurred in the United -- nobody has ever serviced that large a corn crop. So a lot of the discussion from TFI was the logistics and the inventory that is required to service that large corn crop.

Historically, or over the last couple of years, we have serviced something in the high 80s and in the low 90s, but something in the high 90s has never been serviced. And every farmer that we are talking to is also talking about trying to maintain their presence on the yield curve. So we are just having a lot of positive discussions about what this spring could look like with a -- even if we were to get back to a 95 million acre corn crop, we are still talking about historic levels.

So what we want to convey today is the positive discussions that took place over the last couple of days at the TFI conference about this very significant corn crop coming up and the logistics required and the inventory required to service it.

Perfect. Thank you. And a very quick follow-up on CAPEX. I understand you don't give quarterly guidance, but as far as the distribution, do you think it is going to be -- do you have any color on just whether how much is going to be loaded in the first half versus the second? And then, also just any milestones you are really looking for over the next six to 12 months from your perspective. Thanks.

If you think about the bigger projects that are out there, certainly HB, North, those two being the largest, certainly you are going to see a higher concentration of capital investment in probably in Q1, Q2 and then see a little bit of a tailing on that starting in Q3. When we are looking at HB, for example, we are making great progress on the pond system, but we are looking to demobilize the earth-moving equipment because we are getting near the end of that phase of the project. We still have the pond brining and the salt laydown to occur and we are starting -- there is a lot of activity related to the mill right now.

So hopefully that gives a little bit of color on that.

With regards to North, we anticipate seeing the first of the three compactor lines come on line in the second quarter, sometimes towards the end of that quarter. That means that the bulk of the equipment is going to be set. A lot of the dollars will certainly be in place at that time. We will be doing some buildout of the second and third line and completing that is really tied to getting electrical run, getting some of those items put in place. So you will see the intensity of the dollar be a little bit lower.

So hopefully that gives you a little bit of sense of timing around that.

That's perfect. Thank you.

Joel Jackson, BMO Capital Markets.

Thanks. Maybe I would first follow-up a little bit on some of your capital investment ideas. I know it is a bit early for 2014, but could you give us a sense of sort of in 2014 what you would expect on some of your opportunistic projects and maybe also could you talk about what your maintenance capital level was in 2012 and what it looks like in 2013 and 2014? Thanks.

I will start on the sustaining side. What we have told folks pretty consistently is that we think that the right level of sustaining capital is somewhere in that $40 million to $50 million range. We certainly have a very intentional program of building reliability into the system and having predictive replacements and such.

So I would just model that in as a fairly consistent piece from year to year.

As we look into 2014, the larger capital projects being HB and North will be largely behind us and of smaller opportunity projects, we continue to look at the next up of recovery on the langbeinite side. We are continuing to look at expanding our West facility to increase the throughput in that area. We continue to have opportunities on the solution mining side. I think if you remember on the third quarter call we talked about our additional leasehold in the Carlsbad area that is suitable for solution mining. So we are continuing to move those items forward.

We have got a pretty intentional program internally where we look at giving each one of those projects forward. I don't see the capital investment numbers being quite where they are at for 2013 in 2014. But clearly as we get some of these projects go, we will keep the market informed and make sure that we give you a sense of the returns associated with them and the timelines with some of these activities.

And on HB, is the additional CAPEX, is that going to give any increased probability that you will be able to pull out maybe at the high end of your production range at HB, maybe 200,000 tons? And also what has changed in the last few weeks that did make you increase by about $20 million on the midpoint CAPEX? Because you did an update that it was on budget a few weeks ago. Thanks.

Well, what we have gone through this final mill pricing and we made some very intentional decisions around flotation sales and around screening that, frankly, we believe our -- improve our reliability of the plant. We believe it improves the ability to bring that plant up in a manner that is very consistent with how we operate at Moab and Wendover and then we also are making the decision to really add call it some buffer, but I want to make sure that we have capacity on the brine injectate. So we have got scheduled drilling additional brine wells over what we had originally planned.

So I see these items as real positives and, frankly, making the plant better, leveraging off of things that we have learned over the years here and really making the right decisions that certainly give us a better chance to be successful.

I guess and I would add to that, is as we continue to create and engineer opportunities, we are trying to build in the opportunities of infrastructure today while we have equipment out there and on place and the capital in place to add wells, so that when those additional opportunities present themselves and are ripe, that we already made the investments to bring things on possibly sooner than later and be able to handle incremental volumes and achieve higher recoveries.

So when we really improve the mill design pretty significantly and we are building in additional flexibility with wells assuming and hoping that additional solution mining opportunities can come to fruition quicker.

And finally, you did do a $0.75 special dividend late last year. You obviously have a large capital investment program this year.

Maybe you could talk about when do you think you could be in a position to maybe entertain the idea of doing a regular dividend. Is that more something in 2014? Or because of the capital investment program you see, is that more of a 2015 decision and where are you comfortable in increasing your leverage? Thanks.

Well, as we discussed before, as we bring on lower-cost solution mining terms, which we are doing at Wendover, which we are doing at Moab, sometimes we forget that Wendover is, we believe, the second lowest cost producer in the world just under what we believe the Chinese are spending. So we have a phenomenal asset in Wendover. We have continued to improve our Moab facility which we continue to bring its cost structure down. We continue to have success at East and bring its cost structure down as our langbeinite production goes up. West has become significantly more reliable.

So as we have made the capital investments, we are seeing our facilities become more reliable and our ability to manage our risk through the reliability and cost structure of our facilities has changed, and we now can rely on a cash flow stream from great solid assets that we have invested in rather than having to rely on cash on our balance sheet. So it is a different style of risk management.

Hugh and I are sitting here today, and as the two largest shareholders, I can tell you with a lot of confidence that as these facilities continue to come on and continue to improve and improve sequentially quarter after quarter, we see the kind of results that we are seeing at Wendover and Moab, our ability and desire as large shareholders to be able to make dividends is very much in line with the rest of our shareholder base. So I can guarantee that as we continue to build that reliability that we are totally aligned with our shareholders in trying to return cash to our shareholders.

So I can't really give you a date on that. All I can tell you is that we are very excited with the progress that we are seeing. We are on schedule on so many of our projects. So many of our projects that had problems, we have fixed them. We have, I have got to tell you one of the best engineering and technical teams in the world right now in the potash business and it continues to show up in our results.

So that is a long-winded answer to your question, but when the time is right I can guarantee that as the two large shareholders sitting here, we are aligned with you and we intend to do it.

Thank you.

Adam Samuelson, Goldman Sachs.

Good morning. I was hoping to start maybe in Trio, where you have seen the price gap on Trio relative to the potash narrow significantly in 2012 and your Trio price -- your realized Trio price up 41% relative to a decline in potash. I mean, maybe talk about your outlook there and how much more room you have -- you think there is on the price gap between Trio and potash to start?

Let me start with a bigger picture on that. The thing that I am most proud of about Trio was that we went out globally and we've built that market out. We have increased the market size for Trio rather than having gone out and trying to buy market share. And that is reflected of educating a market and showing a market what a great product Trio is because of the components that make it up.

So the first part of understanding why we are seeing price appreciation is that we have gone out and we have spent the time with agronimists to travel the world, to build a market to partner with great folks like Potash Corp. and Yara internationally to educate the market as to that product and grow that product. So I would tell them to speak to more of the specifics, but from a business strategy we were always geared around building a market and then trying to buy a market. And that is a very, very different strategy.

And so as to continued strength in the market that we see pricewise I will let Kelvin address that.

Sure. I think there's a couple of things that we are seeing. What we always do is we, well, first of all, years ago I think it was tracked with the potash pricing and I guess we worked really hard to try and separate those two. And the reason we have been doing that is customers are seeing so much value in the magnesium today and the sulfate components today as well as the potassium component of that product. So that is the one piece as we have really pulled it apart and said, this is a specialty product. It is not as near commoditized as, say, a potash.

I think the second piece is where we are trying to place that product. This product tends to go on higher value crops. Chloride-sensitive crops. Specialty crops that really tend to make more margin per acre and, so, we are really pushing hard to offer a product that gives them more value and allows them to sell their specialty crop for more dollars.

So I think we have had real good success in that. We are going to continue to push that way.

I guess in terms of the question. It really depends on if we see strength in the sulfate market, magnesium market and the potash market and, today, we are seeing demand picking up on the potassium side. So there is no reason to think that we can't continue to keep a decent spread between those two products.

That's helpful. And maybe on the production side in Trio. Your production guidance for next year, up 14 to 36 in the range. I mean, your 4Q production has been -- your production been pretty flat at these levels for a couple of quarters now. What gives you the confidence in the step up from the current run rates as you move through 2013?

When we are looking into 2013, I think you need to put it in context with the overall program around our East improvement process that has taken us in from 2012 into 2013. The first part of that program was really geared around the front part of the plan which is the [sulfite] or potash production and we needed to make those steps and improvements first because that ends up being feed stock into the langbeinite or Trio plant.

Those improvements have started to take place in the Trio production. We have done some redesign work on the plant. We have had that, a lot of that installation work has occurred here in January, early February and we have got a little bit more work to do. And frankly we are seeing some improved recoveries as we move into 2013 here.

So I think we are going to be cautious in terms of reporting what we see coming forward. We want to make sure that we don't, frankly, put our customers in a tight spot. The conversations with you on the public side are pretty easy relative to the conversations that we had to have with some of our customers and we want to make sure that we are being very realistic in terms of what we can deliver.

But that being said, as we see improvements, we will get that information out straightaway and I anticipate that we will -- I feel pretty good about where we are at going forward and think that we have got a good path to get us closer to where that original design capacity was.

That's helpful. And maybe finally from you, switching gears, just thinking about the North compaction plant, as that fully comes onstream and you get the HP solar mine up, what percentage of the total production on the potash side ultimately gets granulated? I mean just trying to be conscious of the pricing margin impact there.

Maybe two parts to that question. One is, I think we can go through an absolute math piece and if memory serves and I am thinking about our capacity, keep in mind, Moab we have got 100% capacity to compact. Wendover, we have got 100% capacity. HB and West, we will have 100% capacity and we are around 35% to 40% capacity on potash production at East and, then, we have got 100% capacity for our Trio facility.

So I think the important piece there is recognizing that we have the flexibility to manage our production mix. We see various points in time where standard product is demanding a higher margin than granular product, and having the ability to adjust up or down based on what the market demands are is really what we have built into the system. So overall, directionally, what we are doing is the impact is so significant when you look at a Moab for example and the ability to manage that production level just affords us such an opportunity to keep inventory sparely low is a starting point and make sure that we continue to move product into the market.

The other thing that I would add to that that really is a huge piece is it is not just the ability to compact 100% of your product. But it is now having state-of-the-art compactors producing some of the highest quality potash -- if not the highest quality potash -- in North America. So by investing the money in the compaction plants with state-of-the-art technology, giving us the ability to produce the highest quality product creates so many marketing opportunities in the marketing flexibility. So it is not just the capacity but also the quality piece.

All right. Very helpful. Thank you.

Bill Carroll, UBS.

Good morning. When will spending on the next phase of the HB kick into high gear? And how will that spend compare to the first phase? And also any incremental permitting issues that you might encounter there?

I just want to make sure I am understanding your question. Because when we talk about additional solution mining activities we are really seeing that -- is that what you are describing?

Yes, just the further build out of HB after the first phase.

Let's make sure we keep things in perspective here. A big piece of what we are doing now with HB is building the ponds. Billing that pond capacity and building the mill. So when we look at next stages of solar solution mining, certainly we need to make sure we have a great handle on what the permitting timelines look like around it. But we have built a lot of that infrastructure already. So we see the capital intensity of those projects being a lower capital intensity.

At this point, we don't have I don't have timelines or dollars to hand you. I think what I try to help you understand is that we are looking at each of those opportunities very closely. We are trying to understand exactly what it will take to go through the process of them and make sure that we have got the capital estimates built out appropriately and to know that there's a significant amount of opportunity there.

Yes and let me add to that. One of the things that we wanted to make very clear on our last quarterly call was that we have acquired the leases from the appropriate governmental parties, which is, the first step in being able to execute on additional solution mining opportunity is to actually own the leases. So we have not done that.

So now all the appropriate next steps of internal engineering and external permitting are all of those discussions are taking place and, trust me, that those are going to happen as quickly as we can make them happen. And as soon as we have clarity on what those timelines look like, then we will obviously share them with you.

But the first step is obtaining the leases from the appropriate whether it is State or Federal and we have done that. And both of those groups know that those leases are for the purpose of solution mining. And so I hope that answers your question.

Yes, no, that is very helpful. And one more. Intrepid doesn't compete much on the Mississippi in moving product, but if low water levels on the river persist, what marginal knock on effects might you feel both positively and negatively?

Well, it is nice being on the West side of the river to be quite honest. When you look at where you are, where we are located, I will let Kelvin address that a little bit more, but being primarily on the West side of the river is a good thing.

Yes, I think the biggest thing is, we feel like it impacts our competitors more than it impacts us. So to me, we don't do a lot of activity on the river and because we have a diverse plan with a number of segments in the industrial, the feed and the ag, as well as a decent geographical footprint, I think those are the two things that really drive our business and we try to stay -- I won't say stay away from the river, but certainly we don't actively participate like some of the other players. So there's probably more concern from the importers, from the phosphate folks. Importers of urea are probably the ones that will be most impacted if low levels continue.

Great. Thanks.

Mark Gulley, BGC Partners.

Good morning. I have three questions. I will do them one at a time. One is on marketing, one is on accounting and one is on financial.

Kelvin, you've made some positive statements about the state of the potash market. And yet if I look at the guidance for the first quarter, I think that volume's down 8% year over year and the price is down I think about 9% year over year although it is more or less flat sequentially. So how do you reconcile the mood coming out of TFI and all that with some of the numbers that you are guiding to?

Well, I think the first thing, price is the price and we are a smaller player. So we are involved in it, but certainly there are other players that tend to drive the price. That is what it is.

I think on the demand side, what we were seeing is a change in price here recently. Warehouse pricing moved from [$470 to $460] in the Midwest and it really stopped movement for us or slowed movement force. So now we are starting to see people settle into that new price range and we are going to start seeing some shipments happening here. So it just slowed us up in January and February and now we are seeing some activity and I think we confirmed it at TFI. So that is the positive takeaway that we saw and I guess we were reacting to some of the slowness in January and the first part of February.

I think just to complement those comments from Kelvin, when we look at our average net realized sales price advantage, I think that really confirms what Kelvin is describing. And I think it confirms what we are doing. And when we look at the folks that have already reported, we realized $58 more per ton, per short ton than our Canadian competitors. And our net margin ended up being $31 more per ton. So I think the -- you have to recognize that we are going to participate in that market. We are going to, I think, perform better on a relative basis and continue to drive that net realized price advantage piece and I would love to tell you that seasons line up perfectly with fiscal quarter end.

But as you know we need to look across the application seasons themselves, and so that is a little bit, too, of what we are dealing with. It doesn't change our view on the long term over the course of the year, but certainly predicting that activity from month to month is sometimes a bit of a challenge.

And I would just add to that. A lot of things that have occurred have literally occurred in the last few days. And so we have seen a lot of positive momentums that have occurred just literally within hours and days and so we are trying to report them as they occur in real time.

That's helpful. Dave, an accounting question for you. As the amount of consignment sales seem to increase for you and your competitors, just remind us on the revenue recognition accounting policy for consignment shipments and or sales.

The way and I cannot begin to tell you how our competitors do this. So please don't ask me to reconcile that. I know what we do and I believe it is right.

To the extent we place a ton in a customer's warehouse, we still have title to that. And so it stays in our inventory and we don't recognize revenue until that product is sold out of the warehouse. If there is something where there might be a collar or something around a price, we recognize revenue only to the lowest dollar amount at the time of the quarter until that period might expire. It is not as much from a volume perspective as you might think. A lot of that settles or it tends to settle around quarter ends as well for the dealers and distributors.

So we don't have that much carryover from period-to-period. I would say probably less than maybe as a percentage than even some of the other producers. But we do try to be very flexible in terms of the way those programs work for each of our customers. And Kelvin and his team know our customers pretty well and what is important for them individually. And being smaller, we can be a little bit more nimble around that and really tailor programs that we think are fair to us as the producer and at the same time help our customers achieve some of their goals.

Sort of guessing there is some gamesmanship around what you just talked about on settling quarter end. It sounds like if I am a customer and I know that you would like to recognize some shipments and I think I have a price in mind, my observation would be that that gives them some leverage.

No. I wouldn't say so, because we -- I have taken a pretty clear line with the guys here that the sales fall when they fall. And we are not going to get into that situation where you try to pull something forward into a quarter because frankly all that does is leave you with a big hole in the next one. And it is not a -- I don't think that is an effective way to manage our business.

Okay. Let me wrap up quickly if I can with a financial question. Maybe this is for Bob. With the cost overruns on the CAPEX program and some somewhat lower pricing assumptions probably for potash, how has the IRR [infer] a return on its overall project change from when you first approved it to maybe where you stand right now?

Well I guess the first thing is that when you look at quote unquote cost overruns, there is a difference when you purposely redesign a mill because you think you can enhance its recovery, your IRR doesn't necessarily go down because you have increased and improved the design.

And so you have also designed it to potentially handle additional tons and you have gone from one style of flotation that is more proven from another style that was a bit more experimental. And so reliability is something we value. Product quality is something we value. So I don't think we are going to see any degradation in the rates of return that we see from these projects because of the enhanced designs that we have chosen to go down that path.

The other thing and I will just reiterate it on the well drilling is we have -- we have mobilized, we have paid to mobilize rigs. We have rigs out there and we believe we are going to have additional opportunities and so while we have rigs out there, while we have paid them up and moved them to [safe demo] it's an appropriate time to drill more wells when we have the capital to go ahead and have that additional water at our disposal.

So, we can call them cost overruns, but I look at it in a very, very opportunistic fashion in terms of the -- in the capital that we are spending while we have capital available to us and we are working our butts off to bring some of these opportunities to fruition faster. So I guess I would put them in a different basket, if that makes sense.

Thanks, guys.

Ivan Marcuse, KeyBanc Capital Markets.

Good morning, it is [Sander Dunn] on for Ivan. Just real quickly, are you looking at your market share staying the same in 2013 right now? Or do you anticipate that it may swing in one direction or another?

Kelvin, do you want to take that?

Sure. I think that we have talked about the diversity that we are operating under playing in that industrial market, the feed market and the ag. And I guess based on that, we don't see a significant shift in what our customers are bringing us in the overall market. I think there is a lot of strength in the ag side right now and we are participating there. So will we see any change in market share? I would say it is very unlikely. We are going to move the volume that we have available. We've reduced our inventories to a much lower level, but we are now selling very close to what we are producing and we plan to manage it that way.

So if we see a dramatic increase in the demand in North America and we only have X amount, we will see a slight reduction in our market share. But the reality is we are selling what we produce and that is the key for us.

One of the items that maybe hasn't become as obvious to folks as we would have hoped was we sold about 40,000 tons more product than we produced in 2012. And fortuitous as it is, we sold that at higher net realized prices than expect or are going to be available to us here in 2013.

So when folks look at trendlines and such, I think, take a look at the production line and recognize that we are going to sell what we produce and we have got a -- what I describe to be kind of a pretty low inventory level. And there is not a whole lot of extra room in there because you have to maintain a certain amount of inventory level. We want to make sure we have always got inventory for our truck sales. We want to make sure that when if you get that unit train order that needs to be delivered because the customer needs that we can fill that in the timeline.

So that is a piece that hopefully folks can grab hold of, and that North American inventory position report that you see get put out every month, it is just not reflective of what Intrepid's inventory situation is.

Great. And moving forward, I just want to make sure I understood your comments on the additional brine water wells at HB Solar. Did you kind of allude that that would create the potential for additional capacity on top of what you had already commented on? Or is that just increasing the reliability that you hit the capacity numbers you have already put out? And also do you think you could just remind us of the expected ramp up on that from [4Q] 2013?

Sure. I can give a little bit of color and, John, if you need to hop in here, don't hesitate. What we are expecting is that we will do two things. One is it increases the capacity overall which would allow us to inject at a higher rate for a longer period of time. So making contact with the potash ore is what this project is all about. And we want to make sure that we are able to get the mine works filled as quickly as we can and then we can have better control on the extraction rate around that.

So I mean that is really the key to this project and it allows us to expand the aerial extent of what we are mining and really drives higher concentrates that come out of the mines that way.

Great. Thanks for taking my questions.

Charles Neivert, Dahlman Rose.

A couple of quick questions. One, quarter over quarter in terms of pricing, I mean it is sort of quarter to date at least. Are we currently below where you were in the fourth quarter? Except we are looking at something on that order that is somewhat lower than where we were in 4Q?

Charles, this is Dave. I think you should --

-- you don't have to forecast anything out, just where we are right now.

Yes, I would say because of the product moves that the Potash Corp. announced in December and then the warehouse moves that have taken place recently, that you are seeing pricing today lower than where it was in the fourth quarter. And we will need to see where the quarter shakes out, but like I was mentioning a little bit earlier, that is the market that the Canadians are selling into. And I think if you look at green markets from pick midpoints in the quarter as they are probably representative, if you look at green markets I think it was $490 to $500 in middle part in November and I think we are at $470 to $460 right now. So that is some of the moment that the Canadians have driven into the market.

So if we use those sort of as barometers to get the movement, not necessarily the absolute value, we would look at that in terms of 4Q to 1Q as to what kind of movement the price might see on your books give or take, something on that order?

Yes, we tend to be about our net realized prices historically has been about 85% of that number. It varies a little bit within that range. But certainly on a directional basis, you are likely to see that direction.

The point I will make is that whether price tends to be going up or going down, we seem to be pretty consistent in terms of higher net realized price than certainly any of our competitors.

Right. Got it. And looking at the 4Q, 1Q combination, if we look back a year. What it looks like based on your guidance is you are bas -- it looks like you are basically going to flip-flop 2011, 2012 with and 2012, 2013 meaning you went $183, $203 in 2011, 2012. This year it looks like it is $203 and if the midpoint of your guidance is right $185. So it is basically same sales numbers tonnage wise, just different order.

And then I guess the gains year on year are going to have to come in the remaining quarters of the year versus, again, against your guidance that you have given as having up sales volumes. Somewhat up sales volume.

Yes and we really -- we look at that over the course of the year. I mean, we try to model those things best we can month to month. But as you appreciate sometimes the seasons start sooner or a variety of reasons that are open weather windows or you have got heavy rains, et cetera. So we always talk about a normal year. You have been doing this a long time too and it's -- there are no two years that are exactly the same.

But I think you are -- I mean we are trying to give you the best picture we have right now looking forward. We tend to see our highest and this will all be in the 10-K that comes out this afternoon, we tend to see some of our highest three-month periods be in that fall timeframe.

That being said, when you can look over the years, and we have seen pretty strong darn strong demand profiles coming through in the spring and we look at all the factors that we have touched on in the call and we still see this as a very positive spring for the Company.

Yes, I would certainly anticipate all of the farmers doing what they are supposed to do. There's no reason not to. Thanks very much.

Adam Schatzker, RBC Capital Markets.

Good morning. Just a few quick questions here. There was a question asked earlier are about 2014 CAPEX and I just wanted to clarify. You said I think it was something not radically different from 2013. Is that the correct interpretation that we might be looking in and around the $250 range for 2013? 2014, sorry.

No, I understand the question. As I sit here today, I would say it will be a lower number in 2014 than in 2013. I also wanted to highlight the fact that we are continuing to look at opportunities and those opportunities have an IRR calculation that goes along with them and if we think those are good opportunities, we are going to try to take advantage of the fact that we have mobilized contractors, we have got engineering firms involved, et cetera. But as of right now I would model that a little bit lower in 2014.

So closer to $200 perhaps might be the right number?

I just don't have a specific number to give you.

Fair enough. And just HB can you tell us what is the percent completion on engineering drawings and the construction?

John, can you give a little color on that?

Millwise, we are probably in the 80% completion on mill drawings. We are just basically taking everything to bid packages at this point. A little bit left on electrical, but for the most part we are complete.

And that is the only piece that is open, right?

That's right. It is mill design. Ponds are done. It is really just mill design and as those are being completed we are going straight to contracts and straight to the field.

And lastly on last quarter we went through quite a bit of technical detail on the East facility, the LRIP and the DMS. Just wondered if you could give us a little bit of an update. I think there were some boilers you were waiting for. And when we can expect to see improvements coming through on the Trio side of the mill?

Those timelines are very consistent. So we have actually stabilized all of the boiler activity right now up through a rental boiler that we have. It has a nice amount of additional capacity to it and, frankly, that hasn't been an issue for a period of time. Those permanent installations will take place some time during the second and third quarters. There are two boiler units.

With regards to the Trio side as I mentioned earlier, some of the redesign work was completed in the fourth quarter. The first quarter has been about installing some of the changes that we have made in the plant design. And I would expect that we will start to see the benefit of that and then, frankly, we are seeing the benefit of that today. But hopefully we will be able to show you that with demonstrable numbers here when we report on the first quarter.

And just any detail you can provide us on what changes you made?

I can give you a sense around changes in the media preparation area, in our [magnetite] recovery in just some product movement throughout the plant so that we increase reliability and run time. Fortunately these were not very large capital items, but they are pretty important in terms of overall product movement recovery and continuous run time.

Great. Thank you very much. Appreciate it.

[Ben Isakson], Scotiabank.

Ben is on the road so this is Dean Groff stepping in. You answered a lot of my questions on the competitive landscape US market, but maybe you look at it another way.

What did your international weight look like this past quarter and in 2012 and where do you see that number moving in 2013?

One of the things we have seen particularly on Trio, and keep in mind that virtually 100% of our potash is sold domestically, we do export some Trio product. I think what the 10-K will show is that over 2012, our export business is down, relative to our domestic business. I think we sold about 33% to 35% of our product into the export market.

Of our Trio.

Of our Trio. Thank you, Bob. Yes we anticipate we are seeing strong demand there. So it is not a demand question. Like Bob mentioned, we have touched a lot of folks around the world on the Trio market. We just needed to look at those markets where we thought we had good opportunities, the markets that had the product type that we were producing. So, overall, I expect that we will probably see a little bit of a growth in that as we have more product available to us in 2013.

But the positive there is that the international export pricing round Trio has strengthened just as it has here domestically. And all of that is reflected in our numbers.

Is that reflected in the margins you realized?

It is reflected in the revenue component of that without a doubt. And to this point we haven't had a whole lot of product available to utilize the [palletization] plant. So it has been really using that natural screening process to segregate the granular from the standard product. So it is hard for me to answer the question that you are asking on that front. But without a doubt, it's -- I think we are placing the tons in the right market.

And that is sort of your -- to your product. Which countries are they hitting predominantly?

Kelvin, do you want to touch on that?

We are a little bit sensitive to I guess laying out our marketing strategy. But I think the reality is we are participating in Latin America. We are participating in a number of other continents and I think we will just maybe leave it at that.

Thanks, gentlemen.

Ted Drangula, Morgan Stanley.

Just one follow-up because I think we have had a pretty thorough discussion already. I wanted to follow up on the HB ramping I guess as it begins later this year and in 2014, how we should think about the 150,000 to 200,000, how that comes online over a six to 18 month period or something like that?

Yes someone had asked that earlier, but I forgot to answer that portion of the question. We see a very, very modest amount of product being produced this year. Our timing on the mill is right now scheduled to be towards the end of November and that is going to be the piece that is important for us to start seeing production. So the benefit really starts to show in 2014.

Right now, we are -- it is pretty wide range. I would say somewhere in that 100,000 to 150,000 tons range in 2014. And then I would ramp that up to 150,000 to 200,000 in 2015. And then, we start to be a little bit closer to that top-end range is the way I see that playing out.

Great. That is all I have.

There are no more questions at this time. I will turn the call conference over to Mr. Jornayvaz.

I want to thank everybody for their time. One thing we want to stress that we really didn't touch on a lot today is when you have a chance to go through the 10-K is to take a look at the increased reserves that we have been able to establish and focus on.

Dave, with that being said, is there anything you want to highlight?

No, I think that is it. Thank you for your time and your attention and at this point we will wrap up the call.