Intrepid Potash IPO has sweet smell of success

A company launched a successful initial public offering Tuesday centered around a product that, like the IPO market in general, stinks to high heaven.
Intrepid Potash (IPI), the largest U.S.-based company that mines an essential fertilizer ingredient called potash, braved a mean market for IPOs and saw its shares soar. The company's shares jumped $18.40, or 58%, to close at $50.40. The first-day gain came despite the initial price being 14% above the expected range.

The strong reception for Intrepid Potash comes while the number of IPOs is off 66% from the same point last year, Renaissance Capital says. Share prices of IPOs, on average, are down nearly 13% this year from their first-day close while the Standard & Poor's 500 is down 6.3%.

The warm welcome for Intrepid Potash shows worldwide demand for food and agricultural commodities supersedes any concerns about the U.S. economy or the IPO market, says Robbert Van Batenburg, head of global research at Louis Capital Markets. "This is the new bull market," he says. "The agricultural sector is on fire."

Seeing shares of Intrepid Potash rise despite the S&P 500 losing 12 points to 1376 Tuesday shows that the agricultural boom has several things going for it, including:

•Pricing power. Potash providers can hardly keep up with demand and are able to pass along stiff price increases, says Matt Therian, research analyst at Renaissance Capital. Rapidly expanding countries around the world see fertilizer as a way to boost farm production. Domestically, fertilizer is critical in keeping up with needs to grow crops for ethanol and other alternative fuels, he says.

The price of a ton of potash says it all. Intrepid Potash's regulatory filing says it was charging an average of $217 a ton for red granular potash in September 2007. That price soared to $503 as of April 1. Prices could rise more, Van Batenburg says.

•Benefit from the weak dollar. The dollar, which touched a record low against the euro Tuesday, benefits Intrepid Potash, says Francis Gaskins of IPOdesktop. The weak dollar makes U.S. exports cost less in foreign markets.

•Scarcity of supply and competition. Potash is extracted from just 20 mines in the world, Therian says. And the market is dominated by a handful of key players, including Intrepid and rivals Potash of Saskatchewan, Mosaic and Agrium.

Intrepid doesn't signal the IPO market is back on track, Gaskins says. Investors are willing to give only established companies such as Intrepid and Visa, which went public in March, a chance. "The IPO window is closed … except in special situations like this," he says.