Intrepid Potash Inc (IPI) 2013 Q4 法說會逐字稿

Welcome to the Intrepid Potash Inc. 2013 fourth-quarter conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

At this time, I would like to turn the conference over to Gary Kohn, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Lori. Good morning.

Thank you all for joining us on our fourth-quarter 2013 earnings conference call. Presenting on the call today are Bob Jornayvaz, 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 Vice Chairman of the Board; John Mansanti, Senior Vice President of Operations; Martin Litt, Executive Vice President and General Counsel; and Brian Frantz, Vice President of Finance and Chief Accounting Officer.

I would like to remind everyone that the statements made on this call that are not historical fact 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 and are based on a number of assumptions which we believe are reasonable.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ from our expectations. You can find more information about these risks and uncertainties in our annual report on Form 10-K and subsequent quarterly reports on Form 10-Q as filed with the SEC.

Also during today's call, we will refer to certain non-GAAP financial measures. Our earnings press release includes reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. Our SEC filings and press releases are available on our website at www.IntrepidPotash.com.

With that, I will turn the call over to Bob.

Thanks, Gary. Good morning, and welcome to our conference call. Thank you for joining us.

Since you and I founded Intrepid, we've been investing capital to build new and update existing assets with the objective of lowering our per ton operating cost and increasing production. We are nearing the completion of this multi-year major investment phase, and we will significantly reduce the amount we invest in capital projects until we see a sustained improvement in the outlook for the potash market.

With the current pricing and supply dynamics, we have taken the difficult but necessary steps during this downturn to reduce our SG&A and operating costs. We will actively manage the balance sheet to ensure that we have the opportunity to see the benefit of our years of investment as these assets get commissioned and begin performing as designed.

A major advantage for our Company, which is beneficial in any market condition, is the proximity of our assets to the market and the diversity of our customer base. Because of this proximity and our diversity, we continue to achieve an on-average higher net realized sales price than our Canadian competitors.

In 2013, we made great progress on the multitude of projects we had underway. Each project is essential to building a more durable and competitive Company. Most significantly, we have brought our HB Solar Solution Mine into operation. HB was just a vision a few years ago and through our deliberate and persistent efforts, we have brought into service a real game changer for Intrepid. At full capacity, which we expect in the 2015, 2016 of operation season, HB is designed to increase our potash production by 20% to 25%, and these tons will be produced at a cash operating cost estimated to be nearly half our current rate.

With the addition of the HB tons and the expansion we have completed at Moab, we are improving the overall cost structure of Intrepid. Starting with this year's harvest and even more so in the coming years, we will have an increasing percentage of our total production coming from our low cash cost, solar solution method which in turn will continue to lower our Company-wide per-ton cash operating cost.

We've been making improvements to the West to stabilize and increase recovery rates and to remove bottlenecks from the process. We expect to finalize our upgrade of the West in the first half of this year and the begin seeing improved recoveries as much more efficient operations during the second half of the year.

Our new North compaction facility brings together the HB and the West projects into one system, and we have created the capacity to granulate 100% of the potash we produce in Carlsbad so that we have the flexibility to choose the best sales opportunities available, whether it is for standard or granulated product. The new North facility is the final piece in accomplishing an important strategic objective, creating the capacity to granulate 100 % of our potash production across all of our mines. We believe that this new facility produces some of the highest quality product in the industry.

As I mentioned earlier and I want to reiterate, Intrepid enjoys several differentiators that have and will continue to set us apart. We are well situated with production facilities in key markets close to our customers. We serve a diverse customer base with high quality products.

We operate at full production rates and sell what we produce. As we bring on HB and other major capital projects this year, the result of a multi- year program, we are going to be lowering our per ton costs.

I'd like to have Kelvin add a few comments about our sales and the market.

Thanks, Bob.

Our fourth-quarter net average realized sales price for potash was $380 per ton, remaining well ahead of our North American competitors. During the fourth quarter, price uncertainty caused agriculture buyers to be cautious, and they felt no real sense of urgency to place orders, instead counting on just-in-time deliveries and consignment programs offered by major producers.

Fourth-quarter ag potash sales were also influenced by weather and a late harvest compared with what was a strong fourth quarter a year ago. As a result, fourth-quarter and full-year potash sales volumes were both off 18% compared to 2012.

We did grow potash sales volume sequentially 7% from the third quarter of 2013 and are currently seeing some early fill demand materialize as dealers return to the market in response to commitments from the farm gate. We are also seeing signs of a strengthening in the International markets with a strong demand in Latin America and Chinese contract settlements. Domestically, the recent $20 per ton price increase announcements would suggest some near-term stability in potash pricing.

However, we remain cautiously optimistic with regard to price, recognizing that predicting it beyond the spring is difficult as we still see some supply and demand imbalance and a risk-averse buyer in the marketplace. The high demand for our premium and granular specialty fertilizer Trio allowed us to have another successful sales year, nearly matching our 2012 Trio sales volume. This was despite most of the fertilizer markets being softer throughout 2013.

We also were able to hold pricing steady from a year ago with an average net realized sales price in the fourth quarter of $345 per ton, which is down only $2 a ton from the 2012's fourth quarter. Customer demand for our premium and granular Trio still exceeds our current and improving production rates.

We continue to focus on meeting this demand by producing more premium Trio through operating improvements at the plant. In fact, our team in Carlsbad produced more premium Trio in the fourth quarter than any other quarter in plant's history.

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

Thanks, Kelvin.

In the fourth quarter, the convergence of lower prices, depressed sales volume, and estimated cost -- or escalated cost created a net loss. Looking into 2014, we know that our cash flows will be largely impacted by the pricing environment, particularly in the first half of the year, ahead of our lowering costs with our new assets. We've developed a plan to answer these challenges, and we've set measurable goals to ensure that we make the necessary progress.

First, it is essential that we achieve our goal of lowering cash operating cost at our Carlsbad operations. This will be achieved by obtaining the benefits of the new lower-cost production from our HB Solar Solution Mine and improvements in our recoveries at West that are now possible because of our new North granulation plant. Second, we are already benefiting from the steps that we took to reduce our annual expense run rate by over $15 million with a workforce reduction and other specific cost-saving measures.

And, third, we are reducing our capital spending by more than $200 million this year now that the majority of the spending for our major projects is behind us. We are closely managing capital investment spending to maintain liquidity and to generate free cash flow in 2014.

We did operate well in the fourth quarter, crossing several important milestones, which indicates that we have taken strides in the right direction. Most notably, we brought the HB mill into service at year-end, making it possible to have our first production run of HB tons early in January.

As Kelvin mentioned, we pelletized a record number of Trio tons as well in the fourth quarter. When you consider the level of disruption to normal operations from the capital investment work that was occurring at the facilities, I view our full-year potash production results as a success.

On the cost side however, both our cash operating and total cost-of-goods sold for potash increased 8% in 2013 from 2012. This was not unexpected from a directional perspective, yet I don't believe it is indicative of our true run rate. We incurred higher than normal expenses related to the work being performed, and the fourth quarter in particular showed unusually high per-ton costs.

We experienced an interruption at one of our mines due to a loss of power from our supplier. We had higher-than-planned maintenance costs, and we had some year-end true-ups in estimates for employee benefits and higher property taxes.

The implementation of the new plants and facilities at HB, at West, at Moab, are expected to deliver lower per-ton potash operating costs for the full year of 2014 when you compare it to 2013. The benefits from these items will be greater in the back half of the year as the West upgrades are finished, as the second, larger annual harvest occurs at HB following the summer of operation season, and as the first meaningful product from our new cavern system in Moab is delivered in the fall of this year.

As our guidance shows, we expect to reduce our cash operating costs for potash in the neighborhood of $20 per ton from the first half to the second half of the year. While we are improving our per-ton cash operating costs, total potash cost of goods sold per ton will be relatively flat year over year when you consider the additional depreciation expense from the capital projects that are brought on line, estimated at approximately $10 per ton.

The Trio results also reflect the hard work that the team has done to execute an improvement plan aimed at increasing production and lowering costs. For the full year, production was up 35% from 2012, helping to drive a 4% improvement in both cash operating and total cost of goods sold for the year. We are confident in the overall trajectory at Trio and the value of the product to our customers and to farmers, and we expect to grow production and lower costs again in 2014.

While the operational successes that we had and the steps we took this past year are essential to keeping Intrepid on track to achieve our longer term goals, I recognize that price always plays a part. We enter 2014 with the majority of the work and the spending on our capital projects complete, putting us in a position to generate free cash flow in 2014. I'm confident that we are on the right path to return to profitability over the course of the year, and that we will benefit from diverse end markets, close customer relationships, and operating our facilities that are favorably located close to the markets that we serve.

Operator, at this time, we are ready for questions.

(Operator Instructions)

The first question today comes from Mark Connelly of CLSA. Please go ahead.

Thank you. Two bigger picture questions. With respect to the new granulation flexibility, is there a meaningful cost when you are swinging hard from one side to the other that we should be aware of as we think about -- obviously, there is a big benefit to being able to be where the market is. I'm just wondering whether there is something funny that happens during that swing on the cost side?

The second question, you are obviously -- your Trio volumes and your prices look pretty good. As you pick up more experience with Trio, do you expect that business to be fundamentally less volatile than potash?

Hi, Mark, this is Dave. I will touch base on the granulation question, and Kelvin, if you can address the Trio question, that would be helpful.

Sure.

On the granulation side, Mark, I think the important piece is exactly where you highlighted that we can look at the markets and look at the relative demands, whether it be industrial feed, ag and move product into those based on the need to compact. Overall, out of our Carlsbad facility, there is a cost of compaction, and it's somewhere around $20 to $25 a ton. And, what we do is we really take into account the margin on product.

We don't see that number change dramatically if we ramp up or wrap down because we are not usually going from 100% compaction or 0% compaction, we are always running it at some rate. So, it really doesn't fluctuate. I think the important piece is really that we are focusing on the margin associated with the ton that we produce, and we've got the ability to stay focused on the highest margin opportunity.

Mark, this is Bob. It really gives us the opportunities we are seeing in Moab and Wendover right now, and now in Carlsbad, to make the right product for the right market at the right time to achieve the maximum margin. As we see the industrial market strengthening right now, and we've seen some great strength in that market -- at certain of our plants, we're not compacting 100% because we're doing well on selling into the industrial market. It's that flexibility that we've really never had before.

It also takes you totally out of the realm of any kind of product quality issues having these new compaction plants. Instead of running a 45-year-old compaction plant that we'd stopped investing in, that occasionally caused some product quality issues, we are past those. And so, those savings go straight to your bottom line and be able to compact a product that has a longer shelf life and gives us the opportunity to move farther out to get closer to the farmer, with less degradation risk and a much higher product quality standard.

That's super helpful.

It is Kelvin here, Mark. I will try and answer your question around your Trio volume and price question. I think you are asking about the volatility as we bring on more production. I guess the way we see it is, there is a such a strong demand well beyond the ability for us to supply today.

So, we just feel like that market is significantly bigger, and we just don't see any dips or significant change to how that market is acting. We are selling, of course, into premium, high-value crops. They want a low chloride product into those markets. So, we really don't see a whole bunch of volatility as we bring on more production.

Mark, this is Bob again.

Once again, when we entered the Trio market, or the langbeinite market, we did it with the intention of going out and growing the market rather than trying to buy market share. As you know and everybody watched in 2012 and 2013, as we expanded our langbeinite production, we got a little bit out over our skis and we stumbled a few times.

Now that we are out there and we continue to increase our pelletization, our demand for our granular and our premium products is pretty significant. And so, we are very confident that we will be able to sell all that we can make.

That's great. Thank you very much.

The next question comes from Chris Parkinson of Credit Suisse. Please go ahead.

Thank you. Good morning. Bob touched a little on this during the beginning of the call, but can you further elaborate on what you're seeing in your specific markets within the US? And, discuss what you're seeing there from a competitive environment perspective relative to what some other players may be seeing in other areas farther east in the US?

I will let Kelvin give you some color, but we are seeing some good solid demand in our core markets. Very strong demand. We've got a good order book. We are seeing a firm demand, and we are very pleased to see it.

Given the strategy that we had to try to get some of our product further out in the field and the fact that our new product has a much longer shelf life, we were able to do that. So, I will let Kelvin talk a little bit about what we are seeing currently, but we are seeing good demand.

Chris, it is Kelvin here. In terms of where we are marketing, I think this past fall was a little bit disappointing. We had a little bit of a late harvest, and the application window was a little narrower in Western Corn Belt and some of the other areas that we partake in. We did see a real strong fill here which is encouraging.

I think the reality is when you see some of these contracts signed, whether it be Chinese or other, we are starting to see a floor in the Marketplace and some confidence come back into the market. So, that's some of the reason why we are getting some positive feedback from the field and looking like we are going to have some pretty good success here going forward at least for the next three months or better.

Perfect, thank you very much.

The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Hi, this is Jason [Fratebree] standing in for Adam. Good morning. I just have a quick question.

In the release, you guided costs at HB solar to 50% of your current cash cost per ton, which would be around $100 per ton based on your 2013 figure? Whereas previously, you've guided them -- or HB to around $80 per ton? We were curious if this was an apples-to-apples comparison, and if so, what was driving the difference? Thanks.

Jason, this is Dave. I think that you're probably trying to read into that a little bit too precisely. We continue to see the HB tons be extremely low cost utilizing the solar evaporation and the solution mining. I think as we get -- move down the road, and we continue to see the benefit of additional harvest seasons, we just know that, that trajectory is lower on the cost side.

The ultimate cost per ton is going to be driven based on whether we are compacting that ton, or whether it is being used in a standard market. But, that range that we talk about continues to be a very solid and very achievable range, and I think the important part of the question is that those cost are meaningfully lower. And, they are first, second quartile costs, so that's really where the advantage starts to come in.

All right. Thanks.

The next question comes from Don Carson of Susquehanna Financial. Please go ahead.

Yes, thank you. I want to talk a bit more about pricing in the domestic market. Kelvin, you said there is still a supply/demand imbalance. We saw the Canadians very aggressive internationally last year. That appears to be -- they appear to be at less aggressive this year.

What are you seeing in the domestic marketplace? Are they trying to place some of that excess capacity of their's? And, is that -- I know that they are willing to sell for $30 to $40 a ton less than you are.

Kelvin, you also mentioned that you've got a risk-averse buyer. Just wondering, do you mean the dealer? Or, are you referring to the grower there?

Don, this is Bob. I will answer the first part of that. Having just returned from TFI, we are just seeing a much more solid, firmer demand profile than we've seen in a long time.

So, we are seeing a buyer that's willing to step up to the plate and buy. We are not seeing a market flooded, if you will, for tons of other producers trying to gain market share. We are seeing a much more rational, demand-driven market at this point in time than we've seen in quite a while.

So, I guess that's the color -- I was in most of the TFI meetings, and that's the atmosphere under which we are operating today which was a much more optimistic, positive atmosphere to be operating in. Kelvin, if you'd like to give it some more color?

Sure, let me talk to the question on the competitors first.

Certainly, they are as aggressive as they've ever been. I think that's some of what we are seeing on that supply/demand. I think we are also seeing them be successful in the International market. So, don't know what to expect from that, but what we know is we are holding our own in the markets that we serve, and that's the critical piece that we are worried about.

With regard to the risk-averse buyer, I think our view is that they're really trying to find every tool they can to de-risk and not take a position without having the support from the farm gate. So, meaning -- knowing that the farmer is coming to get the product and then them purchasing to cover that need. That's sort of the position they've been in for -- I'm going to say an extended period of time -- probably 12 months now.

Do we see that changing? It feels like it is starting to shift, but I guess we want to see a few more months in front of us before we are absolutely sure that that's changing.

Just a follow-up on that. I know there's been more consignment selling, particularly by your competitors. What percentage of your domestic sales are on a consignment basis? And, do you think that as the market -- if it is in fact firming with better demand that some of this consignment selling may decline as a percentage of your overall business?

What we saw in the first quarter was -- this is Bob again -- fourth quarter, and what we are seeing in the market now are dealers stepping up and buying their consignment times. So, that is something that has created a firmness in the market.

While there are consignment tons out there and continued consignment programs. I don't know that we know the exact percentage today because we are switching over. We have to respond to what one of the producers is doing in the consignment realm.

We don't like consignment. It is one of the realities of the market that we are having to deal with. The good news is that we have seen dealers by their consignment tons, so we are seeing a bit of that market shifting and changing literally as we speak.

So, our view is that we don't like the consignment, and when the market was falling, the consignment was something that one of our competitors put kind of on the market. So Kelvin, I will let you give some color to that.

Sure. We use several different programs to try and work with our customer, and I guess de-risk and still manage our business. I guess I don't see significant a change in our position there.

One thing that we do see is as the confidence comes back into the market, I believe that consignment is less critical to the customer. As Bob suggests when -- as they start buying more, they don't feel like thing need that backstop to the same degree.

So, that's our expectation is it becomes a less critical piece of the business, and as Bob suggested, it is not something that we like. But, we certainly need to partake in some cases to secure the volume that we need to secure.

Thank you.

The next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.

Hi, this is Ian in for Vincent. Could you talk about the CapEx outlook for 2014 if that's a reasonable estimate of sustaining CapEx? Then, secondly, if pricing was to accelerate from here, and we had more free cash flow generation -- what projects could potentially be -- deploy that capital to in 2015? Then, similarly, if pricing were to degrade from here, if there's any areas within the CapEx budget that could be trimmed?

This is Dave Honeyfield. Let's see, our range on the capital side, you can see that, that's significantly lower, and we've got a few wrap-up projects that are out there. The sustaining capital that's being invested is at significantly lower levels than it has been in the past. A big part of that is that as we've invested in the plants, you upgrade and you've got newer equipment and such.

So, I think the piece to keep in mind there is that we have probably more flexibility today than we have ever had in terms of what that level is. Certainly, there have been historical periods out there where sustaining capital has really been shrunk down to whatever level is necessary to operate the business.

I think the takeaway's there that I would ask people to think about is effectively a very new and updated asset base knowing that we are through the majority of the large capital spend. The fact we are focused on delivering free cash flow, and that we've got the ability to flex somewhat on our sustaining needs.

Okay. Thank you.

The next question comes from Ben Isaacson of Scotiabank. Please go ahead.

Thank you very much. Just a question on your market share. Can you talk a little bit about whether you've seen any pressure from exporters outside of North America bringing product into the Gulf? Uralkali -- or maybe the Germans or Chileans -- et cetera?

I will let Kelvin address that in a second, but once again in a historical perspective, we are seeing volumes in those historic ranges. We've seen attempts to come into the market, and we've competed very diligently as have other Canadian producers up and down the river to secure geography, if you will. We've seen some try to come in, but we haven't seen as much as you might think.

Kelvin, if you want to give some color to --?

Sure. I guess I would say that as Bob suggests, I don't believe we are seeing a significant change in the overall volume. We are seeing different players showing up in New Orleans trying to market their products. I would say more players, but not a significant change volume.

The one thing that's interesting, especially this year, is how the weather might play out. We all know that we've got a pretty late spring developing here and what will that create in terms of delays and potentially demurrage on barges, et cetera. So, I would say the customer today is quite concerned if they have a strong position with some of these folks, and we are getting lots of questions asked about how we can maybe support some of that.

Given the river's condition and the railroad's condition, we are having lots of discussions around logistics. There have been Canadian Railroad issues. There's issues with cars, and we've all read the headlines in terms of railroad traffic and obtaining cars, and we all know the status of the river. Intrepid cannot be better situated to take advantage of any logistical problems that arise from those three areas.

Great. Thanks.

The next question comes from Mark Gulley of BGC partners. Please go ahead.

I wanted to follow up on the logistics question. I have that on my list. While it does sound like there might be delays in getting product to the destination, with the very cold weather and the big snow cover, there could also be big delays in fieldwork as well. And, the two might coincide. Do you have any thoughts along those lines?

Kelvin, do you want to touch base with some of the feedback we've had from customers?

Sure. I think that's top of mind for not only farmers but our retail chain, and certainly ourselves. So, I think the one positive, we did see a pretty good run in terms of application on frozen ground here recently. They covered some significant acres, so I think every farmer is worried about maybe catching up what they didn't get done last fall. But, to your point in terms of application window for spring, these guys can cover a lot of ground in a very short period of time.

I would say that today there's not a concern. If things continue for an extended period of time here, it will become more crucial. But, all we can do is best position our product to try and accommodate the customer need, and we feel like we are doing that as well as we can.

We are talking regularly with the railroad and other folks that handle our logistics to try and help us be successful this spring. I guess beyond that -- I guess I don't have a real good answer as to exactly how the spring is going to play out, but our hope is that we are positioned as well as we can be in light of how late we think it might be.

Kelvin, I want to come back also on pricing. One of your competitors talked about the fact that they had already priced maybe two-thirds of their shipments through the first half of 2014. So, while demand might be good converting consignment tons to the real tons, invoiced tons, is it also possible that, that has been already priced at fairly low levels that persisted maybe early in 2014?

I think what we know about price today is there is typically an announcement of price, and then an opportunity to take a fill prior to that. So, we know that our competitors have done some of that, and I guess we've got a very good book. So, we are quite comfortable with our position as well, and I guess the expectation is that customers and farmers are comfortable with where the market is going, and that they are going to step in and apply nutrients in a balanced fashion.

Mark, this is Dave. I guess one other piece to add to that, and I think you usually highlight this as well, but you really do need to look at what our mix of end markets are much more so than our competitors. The fact that we continue to supply a decent amount of our product into the industrial market, a decent amount into the feed market.

I think it just highlights why we continue to achieve a higher net realized price because as you mentioned these announcements of price increases are always interesting and the realization of that is another thing. We are just uniquely positioned to be able to act on those items in a much more effective way.

Just to give it a real simple context. The fact that we've broken the drought in the state of Texas and some of our very natural truck markets give us the opportunity to service those markets on a truck basis that our competitors just don't have the opportunity to service. And so, we look at our natural truck markets both in the Pacific Northwest, in Texas, Oklahoma, New Mexico, southern Colorado. We see great opportunities developing just because of the moisture and the precipitation that we've seen.

Bob, if I can wrap up with a longer term question. This may be the last thing you want to think about given all the CapEx you've poured into your Carlsbad facility recently. But, your neighbor across the road seems to be souring a little bit on MLP production there even if they like -- their product competes with your Trio.

Are there any opportunities to expand your footprint in Carlsbad? Is that unfolds as it might?

We watch with interest their rising costs at their Carlsbad facility that they talk about very publicly. And, whether or not they shut down there MLP side or not, we are very aware of and we watch. That's the only Langbeinite deposit in the world, and we are both mining from the same deposit. We are just very aware, I guess is how I'd leave that.

Okay, that's fair. Thank you.

The next question comes from Joel Jackson of BMO Capital Markets. Please go ahead.

Hi, thank you. I'm trying to understand some of your guidance. You're modeling in 50,000 to 100,000 tons from HB this year. Your costs seem to be flat on a per-ton basis with 2013. It looks like your base [asset] production you expect to be a little bit lower, adding the new HB tons which should lower costs. But, your guidance is flat. Can you just talk a little bit about that? Thanks.

Joel, this is Dave. I think the piece that I think you just need to recognize is that a majority of the new HB tons start to come on with the second harvest that happens beginning in September. So, the sales of those tons will realistically start to occur in October, November timeframe. Without a doubt, there's an acceleration as we bring on additional HB tons of the lower-cost nature of those.

I think overall on our base operations, we will see our costs really get back to where they were on a historical basis. I just see everything directionally going the right way.

You've got the continued contribution out of the Utah assets, and we know we always have a little bit of variability in production there. But, Joel, I would say overall things are going absolutely in the right direction. That's the piece I would take away from it.

Joel, this is Bob. Once again to reiterate is that each harvest grows a little bit by a little bit. Because your saturations in the mine as we continue to fill up the mine, and we have more residence time of the brines underground, we come out with a higher ore grade or a higher brine saturation as time goes on because we are mining a greater area and we just have more residence time and more surface area that we contact with our brines.

So, as each harvest occurs, we produce more tons and that volume going through the same fixed cost, if you will, reduces our cost structure as time goes on. That's the beauty of this facility. As it grows and we increase more surface area, I think you just have to understand that it is harvest after harvest after harvest.

Okay. I also wanted to ask a question -- I don't know if I'm going to be off-base on this, but in the last -- if you look at 2013 and what your guiding for 2014, your langbeinite production is going to be a good deal larger than your Trio sales volume. Is there something going on where you require more raw material to produce Trio?

Joel, this is Dave. The highlight point out of that is as we continue to increase our pellet production in that area, that's where our additional opportunities on the Trio side will be. What we've built into our sales plan right now is essentially the rate at which we have been pelletizing on average, we've actually seen our recent months' pellet production be higher than that near-term average.

I think there's a fair bit of upside potential there. But, we've still got to get there on the pelletization front, and we are seeing some good progress. I think the takeaway is that any granular, any premium Trio ton we feel really good about, and we just know that, that's our opportunity is to continue to increase our rate on that front.

The only -- Joel, this is Bob again. The only part in the Trio market that we see that can be erratic is the standard side of that market. So, two years ago we were selling all the standard that we could produce, and we've always been able to sell all the granular that we could produce. So, the standard market is a little bit more erratic.

We are seeing increased interest in Africa in the standard product. That's why we are so focused on, as we have successfully done at all of our other plants, being been able to granulate 100% of our potash product. That's why it is so important for us to have the same strategy with our Trio product to gradually ramp up and ramp up our ability to create natural granular and to continue to pelletize that Trio product.

Thank you very much.

The next question comes from Chris Perrella of Bank of America/Merrill Lynch. Please go ahead.

Thank you, good morning. Question on the inventory levels. They've basically doubled since the end of 2012.

How much of that is structural? Or, due to the delayed fall application season? And, when do you expect those inventory levels to get worked down to more normal?

Hi, Chris. This is Dave. I will touch on that, and Kelvin if there's something that I don't cover off, feel free to jump in.

I think the -- how soft it was in Q3 and Q4 -- we built a little bit more, I'd say, sylvite inventory than we had planned on. Kelvin, really already hit on that piece, Chris, when you think about the level of fill activity that's taking place here. I think on the potash side that will come down pretty quickly.

There, without a doubt, is a small component of that, that is somewhat structural in that we continue to try to move product forward in the system and make sure it is available because we know how quickly farmers will get in the field, do work, and they want to make sure that, that product is available at a moment's notice. We were very tight when we were going into the spring last year, if you remember, because the fall of 2012 was a pretty darn good fall. So, I think somewhere in the middle of those numbers is a pretty good number for us to manage to.

All right, and a quick follow-up on the power outage that you took in the fourth quarter. How much did that drive up the per-ton cost?

It ended up taking us out for -- I think it was three or four days at the end of the day. The challenge with it is that as you bring product or bring plants back up after those exercises, hard stops on motors and everything else just creates some real operating challenges. It was probably $3 or $4 when you factor in that and a couple of accounting items, it was probably $10 a ton overall that came through the quarter directly.

Thank you very much.

The next question comes from Andrew Wong of RBC Capital Markets. Please go ahead.

With regards to Trio production, I think in the past you had mentioned that the Albert project was expected to grow production by about 100,000 tons. Can you talk about when we expect to see an acceleration in production?

Andrew, this is Dave again. A big function of our Trio production is going to be the grade of the material that's coming out of the mine. I think as we touched on a little bit earlier in the year, we have experienced a little bit lower grades come through than we had anticipated. We've made adjustments in our mining plan to address that.

So, we've taken into account what we think that operation can do. Certainly, higher grades result in higher recoveries which results in higher product volumes, so without a doubt we know that the plant design and capacity is there. And, it is a matter of letting us manage through the mining side of that to make sure that we've got the right ore coming into the plant.

Okay, thank you. Then, just a little bit on the cost. The elevated potash cost during the past quarter -- with a bit to build up in inventory, are these additional costs also impacting the first half's 2014 costs? And, are any of these issues something we could be concerned with going forward?

The outlook numbers that we've put out there really take all that into account. They take into account the improvement on the recoveries at West in the second half, bringing on additional HB tons. So, I think that the numbers that we put out there pretty well speak for themselves at this point.

Okay, thanks.

There are no further questions at this time. I will now turn the call back over to Bob Jornayvaz for closing comments.

Just want to thank everyone for their interest in dialing in. We appreciate your interest in Intrepid Potash. We look forward to speaking with you in the near future. Thank you very much.

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