Intrepid Potash Inc (IPI) 2014 Q4 法說會逐字稿

Thank you for standing by. This is the Chorus Call operator. Welcome to the Intrepid Potash Inc. fourth-quarter and full-year 2014 financial results 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.

Good morning and thank you. Hello, everyone, and welcome to our call today. As we begin, I would remind everyone that parts of our discussion will include forward-looking statements as defined by the US Securities laws. These statements are not guarantees of future performance and are based on a number of assumptions which we believe are reasonable. These statements are based on information available to us today, and we are not assuming any obligation to update them. You can find more information about risks and uncertainties to our future performance and our periodic reports filed with the SEC.

During today's call, we will refer to certain non-GAAP financial and operational measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are included in yesterday's press release. Our SEC filings and press releases are available on our website at intrepidpotash.com.

Presenting on the call today are Bob Jornayvaz, our Co-Founder, Executive Chairman, President, and CEO, and Brian Frantz, our Interim Chief Financial Officer. Kelvin Feist, our Senior Vice President of Sales and Marketing, is available for Q&A.

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

Good morning, and welcome, everyone. Thank you for joining us.

The year-end call provides us the opportunity to recap the past year and set the stage for the year ahead. We entered 2014 with very clear objectives. First, optimize our operations, especially our new assets. Second, extend our average net realized sales price advantage to our very diverse markets and our distribution strategy. The goal was straightforward: maximize market margin and cash flow on every console to generate positive free cash flow as promised. We built momentum throughout the year with our efforts culminating in a strong fourth quarter.

The progress we have made and the difference a year makes is obvious when comparing the key metrics in the fourth quarter to last year's fourth quarter. This comparison shows the improvements we achieved for both potash and Trio in sales, volume, pricing and cost. We have built a successful distribution strategy that further leverages our geographic advantage.

With this advantage and more favorable market dynamics, we grew fourth-quarter potash sales 26% to 210,000 tons, while also growing Trio sales 52%, up to 41,000 tons. Both our potash and Trio prices trended upward from the first quarter to the end of the year at their highest point for 2014.

Our 2014 fourth-quarter prices were up 3% relative to last year.

We have invested in and are committed to lowering cash operating costs. Compared with 2013's fourth quarter, we took $32 a ton out of potash cash operating costs and $58 a ton out of Trio's. These cost improvements are the result of our investments in increasing production and gaining operating efficiencies. The benefit of these pricing and cost trends is the cash flow we generate on every ton of product we sell.

In the fourth quarter, we generated $127 of cash flow per ton for potash sold, beating last year by $46 a ton. We also generated $153 of cash flow on every ton of Trio sold, bettering the previous year by $65.

Our full-year sales and production volumes for both potash and Trio were strong. We sold a record 915,000 tons of potash, nearly 225,000 more tons than the previous year. We sold 182,000 tons of Trio, exceeding last year's volume by 48%. These results are evidence that our sales and marketing strategies service well in meeting the strong demand that materialized during 2014.

Full-year potash cash operating costs of $198 a ton were up slightly from 2013. We did make positive strides in lowering costs, but they are offset by lower production we experienced at our West facility while we implemented upgrades to startup costs at our HB mine.

We reduced full-year Trio cash operating costs by $7.00 a ton to $194. This was accomplished through the production gains we made through the team's focus on process improvements, and those improvements are continuing.

Overall, we performed well in 2014 and delivered a strong fourth quarter. We returned to positive cash flow generation with record sales and favorable pricing trends and in-line costs. As we develop our sales plan, we spend a great deal of time forecasting with our customers to understand the demand outlook for potash and Trio in light of farmer economics, oil rig counts, and other items. Our strategy and an important distinction for Intrepid is that we maximize our production and sell all of the tons we produce. Through our investments, we have the flexibility to readily shift our sales across end markets as demand changes. We have shown over time that we pick our sales opportunities based on achieving optimal realized price and margin. This will be no different in 2015 and is possible because we serve a diverse customer base, we deploy a close to the market customer strategy, and we sell into a market that consumes many multiples of our annual production.

We have filled our first-quarter order book for potash and Trio. Moving into 2015, potash pricing has been stable, and we anticipate stability through the spring. The strong demand for Trio has prompted a posted Trio price increase in January.

On the cash operating cost side for potash, 2015 should approximate 2014's level as we manage through the weather impact from the fall of 2014. The trend will be for lower costs in the second half of the year, and then in 2016 we expect to see further decreases.

The incremental step change in our per ton cash cost structure for potash in 2016 is a function of the growth in our solar tons. Two favorable drivers occur as we move through this year and into next. The first is the incremental HB production. HB production will grow this year and will grow again in 2016 as we ramp up to full production rates.

As production increases, cash operating costs will continue to go down. Current indicators at HB give me confidence that in 2016 we will produce with our estimated effective capacity of between 160,000 and 200,000 tons of potash.

The second favorable driver is the return to normal production at Wendover, our lowest cost facility. As we told you in October, production for this year will be down due to the abnormally poor evaporation conditions in 2014. With average evaporation conditions this year, we should see a step up in production and related improvements to costs in 2016.

To put solar solution mining -- to put the solar solution mining benefit into context, there is more than $110 per ton difference in cash operating costs between our solar solution portfolio and our conventionally mined tons. This delta is projected to widen as solar production grows.

We have a solid foundation entering 2015. We emerged from last year having generated free cash flow and now enjoy an even stronger balance sheet. We are reviewing our capital structure and cash use priorities, looking to pricing and cost trends in the second half of the year.

We intend to remain free cash flow positive in 2015. Our plan is to continue building our cash balance with the knowledge that a strong balance sheet provides flexibility in a commodity market that has shown volatile pricing in the midst of wild currency swings.

We continue to evaluate capital return as we enter the second half of this year. As we have said before, our major capital projects are behind us. As we look towards our term growth strategy, we are currently focused on four distinct objectives.

Number one, how to best and most appropriately provide shareholder return. Number two, at low cost, higher margin solar solution tons, we own the leases to the Amax/Horizon mine, which is adjacent to our HP complex and, therefore, well-suited to leverage the infrastructure we currently have in place. We are currently in the permitting stage and only need to add slight incremental costs to bring on more tons. Number three, expand Trio production. As we saw this past year, we can earn more cash flow per ton on Trio than potash. Number four, continue improving efficiencies at our conventional facilities to drive down per ton costs.

I am very pleased with our accomplishments in 2014. We accomplished a great deal of what we had set out to do. We sold a record number of potash tons. We have HB up and running on time and on target. We maximized and expanded our realized price advantage. We continued to build and deepen our strong customer relationships. We lowered our G&A expenses, and we generated free cash flow.

Now Brian will update you on the financial results and outlook.

Thanks, Bob, and good morning. We earned fourth-quarter adjusted EBITDA of $29.4 million, more than double fourth quarter of 2013's result. Full-year adjusted EBITDA totaled $95.3 million, which is down about 10% from prior year. Adjusted net income for the quarter was $5.1 million or $0.07 a share. We had adjusted net loss in the prior year's fourth quarter of $8 million or about $0.11 a share. For the full year, adjusted net income was $8.4 million or $0.11 a share. The decrease in our full-year adjusted EBITDA and adjusted net income was driven predominantly by stronger pricing environment that existed in the first half of 2013.

This last quarter demonstrates the type of profitability and cash flow that we can generate when our operations are optimized. By unlocking and delivering value from the investments we have made, we generated free cash flow of $66 million in 2014.

A significant contributor to this cash flow generation was selling down our inventory, which resulted in our sales volumes being in excess of production. With this positive cash flow, we finished the year with cash and investments totaling $90 million, up $25 million from a year ago.

Through the actions we took in 2014 and our focus on G&A expenses, we reduced our full-year G&A expenses by 20% compared to 2013. Our outlook for 2015 was provided in yesterday's press release. The key points include potash sales to approximate the level of production that we deliver in 2015. Production is expected in the range of 850,000 tons to 890,000 tons. Cash operating costs are expected to be between $195 and $210 a ton, which also approximates 2014's level. Both production and cash operating cost ranges reflect the increased production we expect from HB, offset by the lower production in Wendover in 2015.

As a reminder, our Wendover tons are our lowest cost tons, and production is expected to be down in 2015, due to the poor evaporative conditions -- the evaporative weather conditions that were in 2014.

Our total cash operating costs are anticipated to trend down in the second half of the year, driven by expected higher production from our solar assets in the second half of the year. Pricing looks firm for the spring application season, but likely will be pressured in the second half of the year.

For Trio, we anticipate another strong year of sales and production. Costs are planned to improve with the gains in production. The outlook for Intrepid in the coming years is very positive.

Operator, with that, that concludes our prepared remarks, and we are ready to take some questions.

(Operator Instructions). Adam Samuelson, Goldman Sachs.

Maybe, first, wanted to ask just a little more color and commentary on the expectation for more pricing pressure in the second half of the year that is a reflection of crop prices and agriculture and Agrium being fully ramped up and the discussions you are having in the distribution chain or maybe a little bit more color there would be helpful.

Well, first and foremost, we are not seeing any real reductions in application rates. So I think that is the very positive pace is that the farmers that we see are sticking with appropriate application rates to maximize yields. We are not feeling as much pressure from Agrium ramping up as from the increased Russian tons that we have seen coming to the United States seeking hard currency. And so we don't know to what degree that is going to continue. So that is really the slight unknown, if you will. But from a farmer perspective, a demand perspective, in all of the markets that we are serving, we are seeing strong demand and strong application rates.

So I guess the uncertainty that we are acknowledging is from tons that will come into our market. I don't know if that helps or not.

It does. And maybe just along similar lines, you did call out potential for weaker oil and gas sales, pressuring price realizations in 2015. I know it is about 20% of the volume, but can you help us quantify it just directionally with rig count as those rig counts will go through your tons into the oil and gas market, or is there destocking beyond that, and how big of an impact on price realizations does that really have?

Well, we know the rig count is going to go down. That is a given. But the rigs that are running are still using our product, and we are not seeing a lot of pricing pressure on the tons that are going out the door right now on the industrial sales.

So right now, I think it would be inappropriate for us not to recognize that we are going to see a declining rig count. We don't know quite yet how that is going to specifically impact us because there are still a lot of wells that will be drilled. There is still going to be a significant rig count, and the rigs that are running will continue to use KCL.

So I would just acknowledge that we are going to see a declining rig count, and we are going to do everything we can to service the rigs that are out there running.

Kelvin, do you want to add any?

Yes. Adam, maybe just a couple of things. We are running a lot of scenarios around that shift, I guess. I think the one thing you have got to keep in mind is that we have got tremendous taxability flexibility built into our plans, and we are able to compact whatever we need. So that is a key piece you have got to think about.

I think you have also got to think about, we are a very nimble, small sales team, and so we have already started placing or had success in placing some of these tons that might have went into the industrial business into the ag piece. So we are pretty comfortable with our strategy here going forward.

Okay. And then just a quick final one for me on the tax rate. Any reason the booked tax rate is down to 20%, 25% for 2015, and at what point will the Company resume being a cash tax payer?

Adam, this is Brian. Yes, the effective tax rate in 2015, we expect that to be a little lower. You get a pronounced impact on the effective tax rate based on the depletion deduction that we get a take on that. So that is what is bringing that down a little bit with our income level where it is.

In terms of cash taxes, I think the earliest you are going to see that is in 2017. You could see a little bit in 2016, but I would expect that to be 2017 or beyond at this point in time.

Brett Wong, Piper Jaffray.

Just for clarification, so reason we're going to be expected at stable or higher costs for potash in 2015 that you provided in guidance is the result of the difficulties in the solar mines in 2014 at the time that it takes for production of those mines to recover?

That is correct. As we pointed out in our October call, we tried to be as forward-looking and specific as to the rain event that occurred back in September. And so we are working hard to ameliorate that issue but, as we have repeatedly called it out, we just want to make sure that people are adequately aware of that.

Okay. There is nothing else, in terms of a cost end point, that leads to concern right now?

No. Not at all.

And then what is the risk that those solar mines that don't ramp to the production that you are kind of expecting through 2015, and then we start to see costs coming back down again in 2016?

Well, we are using about 40 years of weather data, and we assume that weather generally reverts to a mean. And so assuming we revert to the mean, which we have every reason to believe, we feel very comfortable that those facilities will operate at the kind of rates that they have operated for many decades.

Okay. And then, you had mentioned the Amax facility. Obviously, I am speaking here with the solar solution stuff. But you mentioned the Amax facility. Wondering -- or the potential there. Wondering if you could talk about any aspects of timing or those minimal costs that you had mentioned about bringing that up?

You know, as we have said repeatedly throughout the years, HB Phase I represents about 20% to 22% of what we have in place in just the permitted HB facilities in terms of the reserves that are available to us. Amax has additional reserves, and so as we continue to go down -- the permitting, as we have learned over the years, has been the obstacle or the barrier to entry, if you will. And the great news about having built a mill that has excess capacity and ponds that have additional capacity is that, as we begin to simply drill injection wells and withdrawal wells, we are talking bite-size paces anywhere from $2 million to $8 million kind of individual expenses. We have got the ability to ramp up, stabilize, and as those numbers become clearer to us, we are going to share them with us, but we are also going to share with you the bigger vision that we have a lot more area that we want to continue to solution mine.

So one is the bigger vision piece, and as the details become more apparent and we have got numbers that you can plug into models, we will certainly share them with you.

Sandy Klugman, Vertical Research Partners.

A question on how you are thinking about the impact of Belarusian tonnage in the domestic market. Do you expect it to add to domestic supplies, or would you expect it to back out tonnage from other regions that will now have to find a home in other geographies?

That is a great question. My expectation is that it might not continue as to the Belarusian tons. In terms of what it is replacing, it is really hard to tell to the degree to which the Russians and the Belarusians are fighting over potential market share.

So I really don't have a lot of clarity for you on specifically whose tons those are going to potentially replace if they continue. So I apologize for not having a better answer for that.

Kelvin, do you want to --?

Yes. Maybe I will just add a little bit, Sandy. I think that most of the tonnage that comes in as import on the river has a finite distribution circle to it. So it really -- I mean, you are talking about Russian, Israeli, Chilean, and potentially BPC if it continues or happens.

So I think there is a finite amount of volume that can go in there in the time that is required. And I guess what we are looking at is potentially maybe an earlier season here and could put pressure on some of the logistics going forward.

So yes, I would say that the impact might be smaller, and it will be of those three or four folks that are importing.

We, obviously, as the only US potash producer, we compete with all imports and all the rest that comes here is imports. So it is a competitive business, and we feel like we are pretty comfortable in position to supply all the volume that we produce.

Okay. Great. And a follow-up question on logistics. Logistical constraints, from some of your compared Canadian competitors in 2014, definitely provided benefits to Intrepid. How do you see the current outlook for logistics unfolding, and how do you adapt to the Company's strategy to account for any potential future disruptions?

Well, in terms of future disruptions, I think the railroad has definitely made slight improvements. There is no question that frac sand haulage is down and falling pretty rapidly, which is freeing up space into the basins where we are. So we feel like we are working with the railroads quite well. We have developed the markets to handle that we serve very well. So we think we are logistically advantaged. There is no question that, in 2014, the Canadians were logistically disadvantaged. So we feel like we are well prepared for any situation.

We have got a decade-long history of a significant net realized price advantage. We have got a great customer base. It is very diverse, and we feel like we can continue to service that in a manner that reflects a decade-long history of a net realized price advantage.

Kelvin, do you want to add any color to that?

I think the only thing I would add, Sandy, is that we really did develop a bigger -- or took a bigger piece of our business through a truck mode of transport, and that is one flexibility that we got with how close we are to market. So between that and our distribution strategy that was very successful in 2014 -- and I guess we don't have any plans to changing that, so we expect the same success in 2015.

Mark Connolly, CLSA.

Thank you. Just two things. How important is California to Trio? And if that market ends up being in a period of secular decline, how important -- how much is that going to matter to you?

And then the second question is just about -- with the moving parts of fracking and all of that, what is happening to the relatives spreads between standard and granular -- well, for both Trio and potash, I guess, and what do you see happening in the next year with those spreads?

Well, that is a bunch of different issues. I don't think the California market for Trio -- it is a good market for us, but we have got plenty of other places where we could easily place those tons at the same kind of pricing advantage.

Having spent a lot of time with California farmers, those that continue to use Trio, it is very much in the California market, and the type crops that we are servicing are not as water intensive as some other crops that are using the Trio.

As to the standard and granular -- are you really talking about the spread differential between industrial pricing and agricultural granular pricing? Was that really the question?

Yes. That is what I am trying to get at. I am just trying to get a sense of what the differences in your mix are going to mean overall to your spreads?

Well, right now, we are planning on seeing a reduction in our industrial volume. We have not yet seen that, and we have not yet seen a lot of pricing pressure on our industrial product.

Now, having said that, I think we would be foolish not to expect with a lower rig count that we are going to see some elasticity in the pricing. And so I am trying to give you guidance around that. I think it is premature.

Okay.

So there will continue to be a -- yes, the rig count is down approximately 30%, but let's not forget that those other -- that 70% of rigs is still running. And so we have every intention of trying to service that as best we can while acknowledging a reduction in the rig count. So it is a little early in the process to really give you color as to how it is going to impact us.

The great news is, based on the investments that we have made over the last several years, we have got the ability to compact anything that might not go into the industrial market. So we are ready for it. We are prepared for it. We have got the strategy around it. I don't know how to better answer your question at this specific point in time.

Don Carson, Susquehanna Financial.

I want to go back to your pricing comments about the second half. You said that the Russians are more of an issue than Agrium. And I am just wondering what direct retail exposure you have with Agrium, and what is at risk as they try and displace third-party product?

And then, I know in the past you have sort of been hit by the cadence of ramping up production on proving runs and then trying to place that in the market. So are you concerned about the Canadians kind of jockeying for market share, and again what is your net exposure to Agrium retail?

Well, first, I would remind you, Don, and you know this better than anybody, is that the market has been, quote-unquote, had overcapacity or oversupply for 30-plus years. And so this isn't a new phenomena. This is something that we have dealt with, at least in the 15, 16 years that we have been in the potash business.

So it is by no means a new phenomenon. We have dealt with it before, and we will continue to deal with it in a very positive way as we have always done. So whether or not we are seeing them from -- which Canadian producer doesn't really have that big an impact.

In terms of Agrium trying to supply their entire retail chain, it doesn't make sense from a freight standpoint for them to try to take tons on multiple switches across the entire United States. So there are still specific retail opportunities that we have got simply because we are very freight advantaged. And we are seeing those -- we are continuing to make those sales and those commitments. So I guess that is as much color as I can give you is that this isn't a new phenomenon.

And can you comment at all on your Agrium exposure or care to quantify that?

Quite frankly, I don't really understand the question in that Agrium is producing more tons. Their retail exposure buys from us where is appropriate and where it makes sense from a freight standpoint, and they continue to do so. We are just not seeing it as being as big an issue as you might think.

Okay. And then just to follow up on your order book, you mentioned that you are sold out for the first quarter. What kind of demand are you seeing into the second quarter? And, overall, did you see much of a shift in demand from Q4 because of the shortened application window into Q1, and does that help the demand picture this year in your markets?

Well, the first part I will let Kelvin answer it with specificity is that the biggest concern and the noise around going into lower commodity prices was that we were going to see reduced application rates. And that is the one thing that we are not seeing.

So those that are farming -- now, we may see -- I think the USDA came out with some lower acreages. This morning I think they came out with 89 million for corn and was it 83 million-and-change or 84 million acres for beans. I think they were talking about overall planted acreage potentially down [2 million-and-change]. I saw it right before the call started, so.

But the good news is on whatever acreage we are seeing utilized in our Texas market, our backyard market, which has now gotten very significant rainfall and is a highly robust market right now, we are not seeing any reduction in application rates. In fact, on the hay crops, we are seeing people maximizing yields there.

So, once again, the benefit of our geographic location and the diversity of the customers that we are serving is continuing to benefit us. In terms of first-quarter versus fourth-quarter demand, Kelvin, do you want to give some color around that?

Let me just back up and talk to Q2 real quick. We are starting to position Q2, so it is a bit early for that.

I guess I would say that based on our customer forecast and conversations we have recently had with most of our customers, they are very comfortable with going into Q2. And so we feel like we have placed the tons forward, and we are very well positioned to meet the needs of our customer across the board.

I think your question about Q4 and the shorter fall versus how that is shaping up going forward, we did see a little bit of a slower fall, mostly because of weather. I would say that a lot of that got caught up through application in December and January here, which we are quite strong from a potash application point of view, to the field. So going into spring, it looks to be a pretty normal spring for us, and we are well-positioned to be successful in that.

Ben Isaacson, Scotiabank.

I apologize. I'm going to ask another question about imports. So with a lot of growing imports into the US Gulf, I really have two questions. First, what is the actual bottleneck? Is it warehousing space along the river, and are we seeing kind of new investment there?

Kelvin, do you want to try to --?

To my knowledge, there is not a significant amount of new build on the river for imports. (multiple speakers)

But is that (multiple speakers) bottleneck is?

That is certainly some of it. I think that customers tend to be more hand to mouth in terms of when the farmer is telling them to take a position. So I would say it is a shorter timeline from when the farmer says he wants it to and when our customer actually purchases it today. So it is a little bit more challenging to have a long distribution chain coming from somewhere offshore.

And then, I guess just part of that, with lower seaborne shipping costs, is the US price or perhaps the US premium just simply too high right now relative to other markets?

Well, it is what it is, and it continues to be what it is. It is, by far and away, the best market in the world, and people would like to participate in this market. But it is a just in time market. It is a market that requires a product that has really strong shelf life. It is a market that demands the highest quality product that is available. And so it is in a very attractive market that we are very glad that we are right in the middle of it because it is clearly the best market in the world.

So producers would like to be here, but it is a challenging market to get to and serve on a just in time basis as significantly or as adequately as Intrepid is able to do so.

Chris Parkinson, Credit Suisse.

Can you further elaborate on your netback maximization strategies, particularly any additional opportunities that have presented themselves within your core truck market? And, also, whether or not the shift from industrial to agricultural affects this?

Yes. I guess the answer to your first question is no. We are pretty good at marketing, and we know why we are good at marketing. And to share it in this public a fashion, I don't think is appropriate. So I apologize for not going into all the details of our strategy for you.

What was the second part of your question?

Whether or not the shift from industrial to agricultural affects this and whether or not that is going to shift the maximization strategy a little bit.

Well, if we end up granulating more, yes, it will affect our net realized price, and it will affect some of our margin. But, once again, it depends on which markets we put those tons into.

So the very simple answer to your question, if we sell fewer industrial tons and granulate those and sell them into the ag market, it will have an impact.

Perfect. And just a quick follow-up. Can you also highlight the rough production potential to shift -- or the potential to shift for more Trio versus potash, given your Carlsbad assets versatility production? Thank you.

You know -- go ahead.

It is something. We strive to that premium and granular market for Trio is very strong. And so we continue to work really hard to produce as much of that as we can. We have had some good success improving some of our palletized or premium production over the last quarter. And so that is our strategy, is to continue to produce as much of that as we can as that market is very strong.

Joel Jackson, BMO Capital Markets.

I thought I also would follow up on the import, just because some of the comments I think you made earlier that you are not necessarily expecting Belarusian tons or not. Sure. I know there has been a bit of push back from the industry to try to lobby to try to have sanctions maybe reinstated or some dialogue around that. In looking at some of your customers that have been buying some of these tons, I mean, do you get the sense that they don't have really any issues buying from Belarus or maybe you could talk about that?

Well, the first thing I would say is the sanctions never ended. And so if you were to contact the Treasury Department or their State Department, they would confirm that sanctions never ended. And so they don't take a position -- a clear position. I would direct you to the TFI memo that tells customers to proceed with extreme caution because the penalties are so severe.

Quite frankly, we don't know of many customers that have actually bought Belarusian tons because of the severity of the penalties, and they are outlined quite clearly in the TFI memo, which I guess I would refer you to. So (multiple speakers).

That was (multiple speakers) because I have seen the memo, and I have seen the treasury statement. So that was why my question was if you have actually seen on the customer side them taking that type of document serious or not.

Yes, we have.

Okay. I also wanted to ask you a question on this. So you talked a little bit about looking at maybe capital allocation decisions in the second half of the year. You gave some ideas of where you may go. You are building cash, as you say. It looks like from your guidance that you don't expect to repay a fair bit of debt this year. You don't have anything on a dividend right now. You don't have any material capital projects that you have committed to. When you look at where you're going to spend your money, maybe talk about the trade-off of giving some of the efficiency projects in some of your conventional minds or expanding solar solution or returning cash to shareholders?

Well, Joel, as you adequately pointed out in your first question, the Belarusian issue wasn't even an issue until the time period between Christmas and New Year's. And so balance sheet flexibility provided us with a lot of flexibility to react to a situation that was hereto for not even imagined before Christmas.

So as we continue to look forward, we recognize it. We are looking out as far as we can, but, as you so adequately pointed out, there are things that have occurred that we are trying to take in and understand and appreciate their potential impacts.

So unfortunately, between the time that we had a Russian mine flood in November and had 2.5 million tons taken off the market, we also then had the Belarusians come in, which we believe were under sanction. So we have also seen some pretty significant wild currency swings where the Russians are trying to come get hard currency.

So there are a lot of moving parts right now that we are trying to pay very close attention to, acknowledge, not run away from, but at the same time recognize that it is our strong balance sheet that allows us to very, very adequately and profitably weather any potential storm.

I guess my last question, actually, would be, on some of your efficiency projects that you could pursue to maybe bring down costs in some of your conventional mines, can you maybe give a little bit of color of what some of those projects in the pipeline could be?

Yes. One is, at West as we continue to move to a much higher ore grade in the 10th ore zone, it is going to have a little bit higher clay content. And so we are working on new technologies that have been successful for us in terms of how do we ramp that up to produce and gain the benefits from a higher ore grade, while at the same time deslime and deal with the removal of clay at our West mine as we begin to month by month increase our palletization rates at our Trio plant as we work on the fine line recovery at our Trio plant and make month by month improvements there. As HB continues to ramp up and ramp up quite successfully and have better and better production days and that plant has -- was built with excess capacity, we are going to try to run more capacity through that. So that is just a flavor of a few of the projects that are out there that we have that really drop money to the bottom line. That is just a few examples of low-hanging fruit.

Christopher Perrella, Bloomberg Intelligence.

Could you comment on the market dynamics in the New Mexico market with the competitor mine shut down at this point? Has that eased some of the pressure with the potential slowdown in rig counts?

Very much so. More on the -- I would say more -- they didn't sell a lot of industrial product out of that facility, and so it has helped the truck market. They have built up a pretty significant inventory in anticipation of closing that line down. So they are still working through some of the inventory. We anticipate that that will be done in the next few months.

So we are seeing benefits from the numerous employees that they laid off that we have seen a very talented workforce. We have seen reduced pressure from the oil and gas industry on that area. We have seen reduced pressure on the highway system, on the electrical grid system, on the water system. So there continue to be benefits in Carlsbad that we are seeing from the shutdown of that MLP facility.

All right. And my other question would be, in your assumptions, is the Wendover mine then back at full production rates for 2016, and how many tons are you expecting to produce from HB in 2015?

Brian, do you want to go through the guidance again?

On the HB side of things, that facility continues to -- we are looking at that effective capacity of 160,000 to 200,000 tons in 2016. We had 98,000 tons that went through that in 2014.

So, as we have spoken, we are on track to meeting those goals as we have talked about. So everything there seems to be, as Bob said, moving in the right direction with returns of production.

In terms of the Wendover facility, as we highlighted earlier in the call and back in October, given some of the evaporative conditions we saw in 2014, we believe the 2015 numbers will be down. But then, again, as Bob spoke to it, we have decades of weather data out there. We expected the weather information and the weather conditions to revert back to the norm. And so as those things revert back to the norm, you will continue to see some increases in Wendover in the latter half of 2015 and probably into 2016 as well.

Vincent Andrews, Morgan Stanley.

This is Neil Kumar calling in for Vincent Andrews. We just had a question about your inventory levels. Can you just talk about how much was drawn down last year and how much you expect needs to be refilled this year?

Kelvin, do you want to?

Sure. Well, you're right. We had a great sales year in 2014. We have broke a number of sales and shipping records, as you have heard already today. We have managed our inventory down at all plants, both in Utah and Carlsbad.

So this coming year, you can see our guidance is matching our production with our sales numbers. So there is no magic to that. We are managing it very tightly between those two entities -- the production of the sales volumes.

Andrew Wong, RBC Capital Markets.

Just from the commentary on demand this year, it sounds like pretty positive for the first half and then challenges in the second half. But I am looking at the guidance and you have higher sales in the second half versus the first. Could you just reconcile that? Is that mostly based on the production ramp and the expectation that whatever you produce you can sell?

That is the first and kind of easy answer, but, in terms of demand, we see strong demand in the areas where they are -- where we are operating. So if you look at all of the areas that we are selling into, we are still seeing good, solid, significant demand. So we are not really forecasting a true softening in demand.

Kelvin, if you want to give some color around that.

Yes. Maybe we will just back up to this coming spring season. I would say we were encouraged by farmers being engaged, application rates being strong, and all the things that are indicating a very positive upcoming spring season.

The southern markets right now are too wet to actually get going. So that is encouraging as well. Because when they go, they will go and they will apply the necessary rates.

I think it is more of an unknown in the back half more so than we can have a pretty good -- or clear crystal ball for the first half. The second half is a little bit more cloudy, if you will.

Okay. And then, it sounded also from your comments that it was more on the supply side that was causing some challenges maybe on pricing. So is the expectation if you have more sales in the back half that you can gain a little bit of share? Is that what you are putting into your estimates?

I guess we are just looking at our historical ability to sell what we produce. And I will just remind you that the market has been overcapacity for well over 30 years, and this is an environment that we have just always dealt with.

So it is not a new phenomenon. It is something that we have dealt with year over year over year. And so we feel like we know our markets, we know the diversity of our markets, we know the products and the customers, and we have every anticipation that we will continue to sell what we produce.

Okay. That's fair. And then, just longer-term, I understand the desire to have more lower-cost production from the solar solution projects. Is it envisioned that whatever you bring on from the solar solution longer-term, it could be an expansion of capacity, or does it replace some of the higher cost conventional production? Are there any plans on that?

Right now, we see it as expansion. And so in the markets we serve, we see the demand for those tons. So in our very natural geographic markets, we see good, solid demand that we feel like we can serve as well.

At this point, seeing no other questions, I am going to turn it over to Bob for a conclusion.

I want to thank everybody for taking the time to dial in. We really appreciate your interest in Intrepid. We look forward to speaking with everybody in the near future. Thank you very much again.

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