Intrepid Potash, Inc

Q4 2022 Earnings Conference Call


spk_0: thank you for standing by this is the conference operator looking into the intrepid potash and fourth quarter twenties when twenty she results conference call as a reminder all participants are not listen only mode and the conference is being recorded after the presentation been an opportunity to ask questions to join the question que in a press starts in one on your cell phone keypad should you need assistance during the conference call you may signal operator by pressing star and zero a to turn conference over to of inmates investor relations is go ahead
spk_1: they dress good morning everyone thinks rejuvenated it it's got interview intrepid fourth quarter twenty two twenty twenty two results with me today than friends cofounder executive chairman and ceo bob during on us and see about that preston with me today and of able to answer questions predict you and eight session of bottom ever ever marks is or vice president of sales and marketing zachary adams please be advised that remarks today including answers your questions and food for looking statements as defined by us securities laws is where the he statements are subject to risks and uncertainties that could arise they can cause actual results ensure a different from those currently anticipated if statements are based on information and able to us today enemies to no obligation to update them these risks and uncertainties are described in a chaotic periodic reports filed with the se si which are incorporated here by reference during today's call we were for certain not get financial operational measures reconciliation that is not gap financial measures to mostly directly comparable got measures are included in yesterday's press release are at to see filing the and press release and or bail on our website and intrepid pottage dot com i'll now from the call over to bob
spk_0: thank you haven't and good morning everyone joining our fourth quarter twenty twenty two earnings call we appreciate your attendance your interest in in trouble before getting to our fourth quarter results oh again my remarks was some commentary on the current state of the hottest market over the past eighteen months we've witnessed double extraordinary events
spk_2: two rounds of us sanctions targeting the byelorussia potash industry the you and other countries adopting comparable measures effectively removing byelorussia russian potter from western markets and three russians invasion of ukraine and can ten you'd conflict
spk_0: the resulting effect on the pot us market has been high volatility and pricing uncertainty around global production exports and a good reminder of the importance of having access to reliable subplot or the second half of twenty twenty two the slower than expected we want to emphasize that would begin twenty twenty three with the supply constrained potash mark when an estimated twenty five to thirty percent of global twenty twenty three pots production is still coming from higher risk regions in eastern europe which is showing minimal signs of the escalation in the twenty twenty three part of the blind man question supply is still tied to we think the man was show a solid read
spk_2: now falling that market overdue
spk_0: on now provide a quick recap of our twenty twenty two financial performance during twenty twenty two we generated adjusted ebitda of approximately one hundred and forty two million dollars are just net income totaled approximately eighty million dollars this financial performance is among the best in company history with the key driver obviously being higher prices fall fertilizer product or twenty twenty two average net realized sales price for potash the seven hundred thirteen dollars per ton about one hundred percent compared to the prior year
spk_2: and for trail our average net realized sales price was four hundred seventy nine dollars per ton of over sixty percent compared to twenty twenty one in twenty twenty two or cash flow from operations totaled eighty nine million dollars which is net of the third quarter thirty three million dollar customer rethought
spk_0: our approach to using a strong cash generation was number one to begin investments in numerous of our potash growth projects with the goal of increasing our production in improving or per unit economics directly benefiting from our solar solution minds the h b mob and wind up second like to reward or shareholders with some of the cash returning roughly twenty two million in capital in the form of share repurchases which reduced our shares outstanding by roughly five percent for twenty twenty three we plan to continue to invest in a pot us assets to help ensure that our solar solution mind at more reliable high grade brian has a higher fixed costs business increase potter's production can drive significant improvements on the cost side of our unit economics and more reliable higher grade brine will help reduce production variances and sustain cash generation throughout the cycle which will allow us to fully take advantage of a potter shh assets which have remaining reserved lives measured in many decades we strongly believe now is the time to invest in the high quality assets as far as stand today potter's pricing is back at levels were buyers plenty good value and we send a strong start twenty twenty three as farmers prepare for the spring application see during the back half of twenty twenty two fertilizer affordability was a primary concern for farmers however their economics today a very good particular in the context of work teachers have been trying
spk_3: the ford cars for most commodities look extremely strong
spk_0: at a start
spk_2: of january new crop futures for corn treasure just over six dollars per bushel which is the highest level and the last twenty years for the first training day beer
spk_0: soybeans were similar with new crop soybeans to just under fourteen dollars per bushel also the highest level and twenty years for the first trading day beer current futures prices for corn and soybeans or even higher trading at roughly six fifty per bushel and fifteen dollars and fifty cents per bush respectably with the new crop teacher still trading and similar levels we sought beginning of january twenty twenty three i'll bring further support features prices global and us crop inventory levels are both that historically low levels one region the market has been closely watching this year is argentina and brazil corn and soybean production lol brazil still projected have a very strong production year argentina's been excerpt experiencing a severe drought in even soft frost in the middle of february which is putting downward pressure on the country's production estimates
spk_2: lastly given were pot us is now trading compared to crop prices were not sing fertilizer affordability ratios back in line to more normal levels which we believe will lead to strong application right strap spring
spk_0: to summarize my prepared remarks global power supply demand is still a supply constrained markets with supply concerns and higher risk areas like a stringer obviously present the futures market today for key crops is very strong and much better than we've seen his dog and three potash portability looks fine in the eyes of us on the farmer we believe is ready to buy
spk_4: consequently these farmers be highly incentivized to maximize or yields this year which in turn to drive steady demand for key products rod twenty twenty three on now turn the call over the math please go ahead
spk_5: thanks bob
spk_1: the solid financial performance that intrepid delivered throughout twenty twenty two continued into the fourth quarter with the company generating adjusted net income of approximately eleven million dollars and adjusted ebitda of twenty three million dollars as noted in a press release yesterday with quarter results are impacted by the failure and result employed in abandoned it of a new extraction well at each be this will reduce the call you brine available attorneys be facility for the upcoming summer evaporation season and we estimate our calendar year twenty twenty three production will be similar twenty twenty two at approximately two hundred sixty thousand tons
spk_2: as bob noted the key driver behind our strong performance continue to be high prices for potash and trio then the fourth quarter or eberstadt real sales price for potash six hundred and ninety three dollars per ton of a trio of average four hundred and sixty one dollars per time we saw some of our agricultural customers the first fertilizer purchase decisions until the a now osman with fill program in early january twenty twenty three although are diverse sales mixed into feed and industrial of drive another quarter a stronger backs were intrepid
spk_5: in our potter segment or fourth quarter twenty twenty two sales volumes to fifty thousand tons of production total one hundred and six thousand times which compares to year ago figures of sixty one thousand suns and eighty six thousand tons respectively
spk_1: between twenty two or sales volumes to the two hundred and twenty two thousand tons walk production total two hundred and seventy thousand tons which compares to three hundred and thirty one thousand tons in two hundred eighty two hundred eighty seven thousand tons of production last year in our pot are stagnant or weighed average carrying costs per tonne increase you to reduce production rates increase per tonne world he expense and other general inflationary pressures in terms of potash guidance for the first quarter of twenty three weeks back you want sales volumes in the range of eighty two danny dozen times with an average net really sales price or
spk_5: seventy two four hundred and eighty dollars per ton
spk_1: in our trio segment or fourth quarter twenty twenty two sales volumes tool twenty eight thousand tons down from forty thousand tons in the prior year period as buyers remained reluctant to commit to volumes in anticipation of declining prices are production told to the one thousand times down slightly from fifty three thousand times in the fourth quarter of twenty one
spk_2: before your twenty two or production was down just slightly a two hundred twenty six thousand tons while total sales volumes of one hundred ninety seven thousand times were doubt about eighty percent year over year as for trio guidance we expect first quarter twenty twenty three sales volumes will fall in the range of fifty five sixty five thousand times with an average net rely sales price to three thirty five and three four five per ton it will feel solutions are total sales increase from approximately twenty three million dollars and twenty one to twenty nine million dollars and twenty twenty two with our twenty twenty two gross margin come in at seven point five million dollars up from three point five million dollars in the prior year
spk_5: in general performance in the segment for late closely with oil field activity in the permian last year we saw horizontal permian rigs increase from about two hundred seventy five rates of beginning of twenty twenty two to roughly three hundred and thirty five by the end of the year and monthly completion activity increased from four hundred and nine wells in january twenty two
spk_1: peek at four hundred and forty nine june and any year at four hundred and thirty one was completed in december so far and twenty three permian activity has been trending flat to slightly up moving to our twenty twenty three capital program as bob mentioned or focus remains on increasing the production and reliability at our solar solution mines are twenty twenty three capital budget range of sixty to seventy five million dollars with approximately twenty five thirty five million for sustaining capital and remainder for growth projects and or hp be facility the installation of improve pipeline system is progressing well and after some small permitting delayed due to rail crossings we expect the first set of infrastructure to be in place in the second quarter which will increase or injection rate capabilities into the mine the second phase of the project which includes an inline clean out process to help maintain injection rates is currently being permitted and we hope to begin installation of that infrastructure you the end of the year we also expect to drill another extraction well in the second half the twenty twenty three to access a significant pool of high grade brine that we originally targeted in fourth quarter of twenty twenty two
spk_5: at my lap the additional potash cavern is also on track and by mid march we expect the first of for lateral will be complete we made the decision to expand the well designed from to horizontal lateral to for levels which slightly extended the timeline although we still expect brine in time for the summer evaporation season
spk_1: what's cavernous complete anticipate moving the drilling rig over to drill muscle somewhere else access additional i agree brian for the summer evaporation season
spk_6: as a final reminder while we progress to report as growth projects given a cycle of bride injection residents time underground and summer evaporation harvests this does take some time before we see these investments pay off in the form of sustained higher production and ultimately increased console operator now ready to take for the queue in a poor
spk_0: she the clock when i begin the question and answer session to join the questions you in a press start and one on your top on keypad you will hear a tone it all junior quest for using a speakerphone please you please pick up your handset before pressing any cheese and to withdraw your question please best star and
spk_7: one
spk_5: the first question is from joshua specter with you bs your line is open
spk_8: ag nine it is yeah like a lot of the josh homme yeah just missed out on that far as production say said election their that you're expecting to sixty card with this year now and better than you've got the projects had a coming in the second half to try and sort of improved the realization that sac pd maybe just kind of walk it's really how you see your
spk_2: pathway right now over the last couple years to gotta get back to that so that trait twenty three thirty said a time production lines at the starkly yeah this is bob a walk you through it hp the the building of the pipeline injection system which allows us to an increase in jack kennedy watching t in turn increases be i of the mining that that it that happens underground in the abandoned potash minds i'm which in turn increases the brine grade mom as we said we we drill they are
spk_0: a dry hole if you well on it was a mechanical failure and so we will replace that well on the third quarter and we believe will have that brian back on we know that there's eight hundred to a billion barrels of ten percent brine sitting in that pool and so we simply need to access it that's a date be i'm so the combination of the infrastructure and the additional wealth out or get us where we need to be with the brine at h b at my lap we're we're grilling cavern for right now which is a for lateral cavern system first potter's complete on it's been a very successful cavern in terms of being in the
spk_9: potash will begin the undercutting a that i'm here within days start pumping brine ended they are into the palms before we start on with lateral to or more move from that drill
spk_2: what are some pretty significant stomps and not potash five in the original texas golf mine
spk_10: on
spk_0: some will drop those on or keep it as tech rag and just scattered over and drop for lateral to the old mine to art collector some high grade brian that we know exists there and then we've made the investment that wendover we've had the precipitation a went over that we need to have the brine to have a success hold on
spk_7: production season at wind up or so we're extremely focused on our solution our solar slip it solar solution facilities i'm at h b a moab and went over to get our brian grades aren't as high as that can be to take out as much variability increase at production
spk_5: great thanks and then then i made from your outlook comment that sounds like you can really agree that pay yeah global markets skin are aligned structurally challenge this year
spk_11: on a great way to escalate it's going to be shortly sideline tell one
spk_7: michael a lot depending how you can measure demand their site and or as as is running out of you guys think that that flowing through and has seasonal across a trend to she had site you gotta got about the phone on pricing the fourth quarter in but that's gonna set a set a date in the third first quarter here that are or you are you expecting spot pricing in there that between said
spk_2: here in may and hadn't gonna say they are progressing through the yeah
spk_0: you know as you know we're at work price tag or and so but if we look at fundamentals if we look at the supply constrained nature of the market and the incredible economics that you know farmers had a record year twenty twenty two and a now talking globally and globally farmers have an opportunity go
spk_2: even the for price curves to have a great twenty twenty three so they've got every justification and reason to maximize yields so when we look at our underlying fundamentals of farmers that have great economics regardless of the crop that we're talking about
spk_0: and we've got a supply constraints market there is no reason for this market not to remain on as strong as it is today if not have upward pressure on pricing
spk_2: it said were or just in a bullish supply demand situation
spk_7: an the fundamentals are strong and just as we believe and dad i think the statistics back us up on them right thanks married married just one more on the outside and i'll i'll i'll sit on say am just trying to think through a set of a step up set of in potash cash costs over the last thirty years i mean it's know got kind of about that i did all the time
spk_1: i mean obviously a large portion this is just kind of on the absorption issues on the wall volume that on a manga as with everyone else he got to probably having some high structural inflation costs components in there as well so i just want to get caught out bright that out for out some outside of between said a what you think it's sort of absorption vs it a
spk_2: structural kind of increasing costs and then what you think it's kind of the couple of all as we said of they got a year or two and you kind of get get your production sort of back that a more traditional levels
spk_7: yeah no good to great question army is certainly a lot of that at increasing costs as has been due to the fix cars nature some of my mind that and just that lower production rate were seen you instantly were not can see much of a man on that and twenty twenty three as we continue to some minor inflationary pressures continuing in the early twenty three and then obviously not on
spk_0: the little did i reduced royalty expense you kind of as we move out not really give a whole lot of games as far as pricing but certainly is that in overall production number key to use increase in law no three hundred mid three hundred sooner we should see a pretty sizable improvement in iraq tongue can you reckon omics
spk_7: great thank you the next question is room in st andrews with and morgan stanley your line is open
spk_12: hi guys this is will hang onto benton thank you for taking my question here aren't i'm wondering if you walk us through what you're seeing in the rack and market than in you have been feuding treated guy that under clinton mind and per year and then i believe previously are targeting something like twenty to thirty dollars per kind of margin
spk_13: i'm from san is back still how we should be thinking about it
spk_2: you know promote braxton right now will we've defined the reserve with additional core holes and so the reserve is bigger than we originally thought at bennett location in terms of demand for that sand we've we've had numerous discussions with supply company track companies etc
spk_0: an hour and a goat currently negotiating with those companies
spk_2: optic agreements if you win on we're still waiting on permitting arm as being the first frac san operation in southeast in mexico the permitting is taking much longer than we thought arm but it's the reliability of the reserves that on ah we feel so confident about because we drilled i think approximately one hundred plus core holes arm as well as gone out there and done tremendous amount of work guy
spk_0: with backhoe like cetera identifying the reserve and making sure the reserve is as big as we had hoped so in terms of
spk_7: margin opportunity on that's can be a function of what kind of a deal we make at the end with whether we whether or not we sign a longer term off take agreement or for just to spite the spot market in terms of what are what are margins are going to be but i'm i think with every opportunity based on the spot market to achieve the margins that you've discussed
spk_2: gods and then i guess the followed that you mention kind of permitting in the lane the out the progress of construction there i'm wondering if that hadn't done that last major find out that can kill for the delay for dog i posted deduction there are there other thing that you should be a lookout for a year mostly the the and get to failed there
spk_0: we believe it's just permitting were literally dealing with agencies that have never permitted of frack san facility before an originally when they gave his guidance as to what permits they felt we needed required etc i'm we've had done regulatory agencies new to this industry
spk_14: i'm come up with additional things that they would like to see and trying to maintain our relationships with a regulatory agencies will try to be as minimal as amenable as we can a meeting their there
spk_0: there needs so it's it's just stop these to max guy i hate to blame things on se mexico but it's a it's an ever changing regulatory and arm or leave it at that
spk_15: got it thank you the next question and swindle jackson with be more capital markets line is open hi good morning and afternoon
spk_0: bob maybe at added you may be like two way conversation so what we see in the pot smoker a now it's all the producers they include your thousand one base your comics today thing
spk_2: the bars markets gonna be strong it's supply constraint market you know which is no reason why farmers are going to buy a normal drank and we all know what comedy practical crap i die than the current dynamic and then when you kind of getting to the weed that at the trade journals are all barriers and the commentary kind of makes you go given the channel can you it's a weird question make you wage activated it you know producers non producers why the so much debate
spk_8: well we've got too big farmers to big commercial farmers on our board for real
spk_2: are extremely large commercial farmers and they bought all of their fertilizer on a pre prepay in twenty in december of twenty twenty two feeling like they were getting good value knowing that they're saying going forward
spk_0: so each of these individuals
spk_2: on our major league farmers so we we go to lots of farmers to get their opinions on what they're actually doing in the marketplace and i would say or out of five but the farmers that we spoke to that are major i'm farming in a tens of thousands of acres if he will all bought their fertilizer and felt like there were they were fine kind of prices there were pray there's no doubt that that potash market globally as a call it a sixty five to seventy million tons metric ton market mom what we're going to see goat got down on the ground the sheer is still up in the air i don't see how anyone can suggest that the united states market is in some somewhat tight when it comes to where the production is coming from especially bellow rose bowl rose and the russians you know the russians have done a great job of acquiring distribution assets and bringing their and to the distribution assets that they bought so when you talk to a lot of politicians there a lot of politicians that are highly unaware of how much russian potash is actually coming into the united states through their distribution assets they bought so i think as the russian situation continues to escalate and and be a conflict i do think that their politicians that are normally aware but concerned about the amount of russian fertilizer that the american farmers are buying and have access to
spk_16: i'm so i do think that there's a good reason for debate i'm i'm not saying it's clerk caught but there is a very bullish case to be made on and i'd love to hear your your your bear case job
spk_17: who's the i didn't say are the best to show the barricades bob i would have asked if you for your opinion up the debate
spk_16: i i want to ask also if i understand your math at the gets ideal deterrent if you think get the about twenty thousand gone to pot as production is here that's what center to last year right your team said that they cracked
spk_18: is there a year
spk_19: can you help me figure out if you were to sell like what it what what what what does that apply to call your maximum
spk_1: potash failed this year like how much you could have you i am into a trap read them them in i shall be them a level and were able to map at the man with their how much could you push hot asphalt failed line that you're in a in a bucket
spk_5: yeah i'm in new you're gonna join always some some like to talk about just given that variability for que four in december second swing mean obviously from and tweet tweet you we built about to be doesn't hundred inventory
spk_1: you two hours and to two thousand tons of production on to earn twenty thousand tons of sales we could certainly pushed more sales and twenty three with light but it just law comes down to you know what the spring looks like for twenty four and what you want to commit ahead of historical volumes and so i mean they get a number you can kind of pretty easily back into if you can look at it as or overall inventory
spk_15: i'm change over the years based on production sales numbers so so i don't have a great answer your question but in addition on the planet number they're on eyes that they'll
spk_18: good and are no sorry not sorry interrupted up and then turned a lithium i know it's up you look at a number of years ago or before the lithium crash inelegant boomed again and i think your prior contact then you'd wait for some others that are tapped out them daily technology and see where that takes them and then maybe we are fat so you know we were seeing some competitor
spk_2: than in utah there now traveling are putting goes and a unit will see some results from next year the other he technology may be having result next years while around the world we know the deal he in the the odeon throwing money around for almost anything lithium in this in this market is there is there something you wanna do here maybe to see it you can monetize demographic you're waited a job just to cut to the chase we got several suitors that we believe have finally broken the code if you will on separating with him from magnesium and so as as we said all along we know we've gotta and a nice lithium reserve and so on it we now have suitors that we think have of actually tested an arm gone beyond been scaling certain technologies so i think we're a different place than we were a couple years ago we began to talk about let them we always said the technology needed to evolve am i think it's there is
spk_16: in we're fortunate that we've got people that wanna talk to us about or lee lithium assets
spk_2: in in in invest in those assets and once we make a deal and can give you more concrete ideas what that the a looks like be more happy to share and would that look like trialing ideally technology upping to that expect well there's couple of different technologies as you know and so i'm i'm not going to get into which one which technology we prefer on we've gotta
spk_20: ph d j e mail that we've hired on research side it's done a tremendous amount of work with three different lithium companies to to evaluate their technologies and and a look at which which one we think best suits us on because magnesium is what are let him as attached to sell without going into a lot of details
spk_21: the good news is that technology has evolved over the years and we do have lithium in a went over assets and we look forward to continuing to discuss with people that are moving down the lithium education chain and in testing chain and done a better job of developing technique
spk_0: algae that would work for us a window
spk_2: thanks bob
spk_0: this includes the question and answer session at it from the conference back over to pod to warn others for any consumers

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