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Intrepid Potash Q1 profit surges on strong potash pricing, demand; issues FY08 production outlook - Update

IntrepidPotash IPI 060208

Monday, fertilizer manufacturer Intrepid Potash, Inc. (IPI), the successor entity to Intrepid Mining LLC, reported a significant rise in its first-quarter profit, which also exceeded fiscal 2007 profit, as strong demand and higher pricing for Potash resulted in a 75% rise in total sales. The largest producer of muriate of potash, or potassium chloride, in the US also provided production forecast for fiscal 2008.

Denver, Colorado-based Intrepid Potash noted that its predecessor Intrepid Mining reported net income for the first quarter of $33.06 million, higher than last year's first quarter net income of $6.38 million. The company's full-year 2007 net income was $29.7 million.

The results included total adjustments of $5.53 million, comprising insurance settlement in excess of property losses of $7 million related to the reconstruction of a damaged warehouse, partly offset by $1.47 million of unrealized derivative loss. The prior-year results included $1.32 million related to unrealized derivative gain.

Excluding significant items, the company's quarterly adjusted net income grew to $27.53 million for the quarter from $5.06 million for the first quarter of 2007.

On a pro forma basis, assuming a 38.5% effective tax rate, net income would have been $20.33 million or $0.27 per share, higher than $3.92 million or $0.05 per share in the previous year.

Sales for the quarter climbed 75% to $84.40 million from $48.16 million in the corresponding period last year.

Intrepid, which began trading on the New York Stock Exchange on April 22, attributed the strong results mainly to strong potash pricing that began climbing since the fourth quarter of fiscal 2007 as global supplies were unable to keep pace with the strong demand created by heavy requirement for food globally.

During the first quarter, Intrepid produced 224 thousand short tons of potash, 3% higher than last year. The company sold 213 thousand short tons of potash in the quarter at an average net sales price of $295 per ton, higher than 209 thousand short tons at an average price of $178 per short ton a year earlier.

Intrepid accounts for about 1.5% of world potash consumption and 8.5% of U.S. consumption annually. The company owns five active potash production facilities in New Mexico and Utah.

Commenting on the results, Chief Executive Officer Bob Jornayvaz said, "The potash industry is in the midst of an unprecedented demand driven-market, fueled by numerous drivers, including an ever-increasing demand for a more nutritious diet, especially for more protein, resulting from rising populations and growing GDP in developing countries. These factors have led to significant growth in demand for grains, soybeans, rice, palm oil, and sugar cane, to name a few."

For the first quarter, the production of langbeinite, a specialty fertilizer containing potassium, magnesium, and sulfur, was 56 thousand short tons, up 24% from the previous year. Intrepid sold 93 thousand short tons of langbeinite in the first quarter at an net sales price of $123 per short ton, higher than last year's 48 thousand tons at an average price of $108 per short ton, driven by higher production, and be the sale of inventories that had been intentionally built up in late 2007 to meet export orders.

Looking ahead for fiscal 2008, Intrepid said it expects production of potash to reach 870 thousand to 890 thousand short tons, and Langbeinite production is estimated to be 210 thousand to 230 thousand short tons.

IPI closed Friday's regular trading session at $49.16. In the pre-market activity, shares edged down $0.03 or 0.06% to $49.19.

In a May 14 research note, brokerage firm Soleil initiated coverage on IPI with 'sell' rating.

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