IPO Spotlight: Intrepid Potash seen as hot commodity

Initial public offering of fertilizer maker Intrepid Potash comes at right time, analysts say

NEW YORK (AP) -- With demand for potash reaching unprecedented levels, fertilizer maker Intrepid Potash is likely to prove it is in the right place at the right time when its shares begin trading this week.

According to its prospectus with the Securities and Exchange Commission, Intrepid is the country's largest producer of muriate of potash, or potassium chloride, a fertilizer that helps regulate plants' physiological functions and improves plant durability.

Demand for potash has been driven by rising food consumption worldwide and rising demand for ethanol, which is made from corn.

Some in the industry think potash prices may hit $1,000 per metric ton by the end of this year, according to a recent report from RBC Capital Markets.

"They could not have brought an IPO at a better time than right now," said Scott Sweet, managing director of research firm IPO Boutique.

Intrepid's posted price for red granular potash has increased 132 percent to $503 per ton as of April 1, from $217 per ton on Sept. 30, according to its latest SEC filing.

"Fertilizer producers play an important role in alleviating the global crop deficit and related food inflation problems," wrote Brian Yu, a Citigroup analyst in a recent research note. "Similar to other markets, the solution for high prices is greater supply, and one of the ways for farmers to boost yields/output is to apply more fertilizers. So long as food inflation concerns exist, investors should stay invested in fertilizer stocks."

Shares of major fertilizer producers have posted double-digit gains so far this year. Shares of Mosaic Co., for example, have risen 41 percent year-to-date. Potash Corp. of Saskatchewan Inc. has jumped 40 percent, closing at $204.67 on Friday.

On Thursday, Intrepid confirmed demand for the deal when it boosted the size and expected price range of the offering. The Denver-based company now expects the IPO to total 30 million shares and price between $27 and $29 apiece. The company previously expected the offering to total 24 million shares and price between $24 and $26 per share.

Assuming an offering price of $28, Intrepid will raise about $787.1 million after fees and expenses and will have a market capitalization of between $2.02 billion and $2.17 billion, depending on the offering price.

Another factor working in Intrepid's favor is its location, analysts said. The U.S. currently imports the majority of its potash from Canada and Russia. "Because of its proximity to end users in the western U.S., Intrepid can capture additional margin through lower freight costs to end users," wrote analysts at Greenwich, Conn.-based Renaissance Capital in a recent report. "While trends in agricultural commodities markets will likely give this stock legs in the near term, we believe the company's proximity advantage in the U.S. market, diversified revenue sources and low-cost expansion opportunities provide fundamental reasons to stick around for the long haul."

The company currently owns five active potash production facilities in New Mexico and Utah.

Intrepid, which was formed in November 2007, plans to use proceeds from the offering to acquire all the assets, other than cash, of predecessor company Intrepid Mining LLC. Remaining proceeds will be used to repay debt and to fund production expenses and other growth opportunities.

Intrepid is among five deals expected to price this week -- more than the total number of IPOs last month.

Other IPOs scheduled are water utility American Water Works; visual effects developer Digital Domain; mortgage real estate investment trust Hatteras Financial; and oil and gas company Whiting USA Trust I.